Cess and Surcharge

Cess and Surcharge

Recent context : Several states urged the Centre to decrease the raising of revenues through cesses and surcharges which reduce state’s share in the divisible pool of taxes.

Key provisions related to Cess and Surcharge :

Cess :

  • Cess is a tax on tax. It is described under article 270 of the Indian Constitution. Cess is basically levied for specific purpose.
  • It is different from the usual taxes and duties because a cess is imposed as an additional tax apart from the regular tax.
  • For example, the Swachh Bharat cess is levied by the government for cleanliness activities that it is undertaking across India.
  • The revenue from the cess can be used only for particular purpose.
  • Another difference between central taxes and cess is that proceeds from regular taxes should be mandatorily shared with state governments while the proceeds from the cess may or may not be shared with the state governments.
  • Various types of cesses levied by the government : Education cess, Health cess, Road cess or fuel cess, Clean energy cess, Krishi Kalyan cess, Swachh Bharat cess.

Surcharge :

  • Surcharge is also tax on tax. It is basically levied on usually higher income groups.
  • Unlike cess, surcharge is not levied for specific purpose but it is levied on specific peoplee.; mainly higher income groups.
  • Surcharge is calculated on payable tax, not on total income generated.
    Ex : So a surcharge of, say, 10 per cent on an existing tax rate of 30 per cent effectively raises the total tax rate to 33%.

Recent controversy regarding the Cess and Surcharge :

  • Since Cess and Surcharge are not shared with the states, it has reduced the state’s share of taxes from central pool.
  • The share of cesses and surcharges had grown from 10.4% of gross tax revenue in 2011-12 to 26.7% in 2021-22.

Syllabus : prelims- economy