Taking the cess route to raise more revenues by the states and central governments was expected. As the pandemic hit a year’s mark in March, 2021 it was clear that the people will be paying for the pandemic for years to come and in a variety of ways.
Uttar Pradesh government is levying a covid cess on liquor sale in the state.
The central government is still sitting on the fence regarding this.
After the introduction of the GST in 2017, there were seven cesses that continued to be levied. The most recent and well known is the Swatchh Bharat Cess.
The cesses together controbuted over 12% of the estimated gross tax receipts of the central government in financial year 2018-19. It had nearly doubling in a span of five years.
A 2018 report Cesses and Surcharges: Concept, Practice and Reform prepared by Vidhi Centre for Legal Policy examined judicial precedents on cess taxes. –
A cess must be levied under the authority of law, meaning a constitutionally valid legislation and not merely an executive order and must have a specific purpose. As explained in V.Nagappa v. Iron Ore Mines Cess Commissioner the legislation imposing a cess must spell out its earmarked purpose. The purpose must not be vague or uncertain, as it could lead to a claim of excessive delegation of power.
Without a definition of purpose coming through, excessive delegation of power is likely.
Cess misuse was seen across all the states with BOCW Welfare Cess. The central government has not been any clean with the cess either. The CAG found ‘non-creation/non-operation of Reserve Funds’ which should have been transferred to designated Reserve Funds and utilised for the specific purposes intended by Parliament in financial year 2018-19.
With education, jobs, health and household income disrupted by Covid-19, the costs are mounting. Use of taxation as a route to generate much needed resources by the governments will need careful deliberation and responsibility. This is something hard to expect in the current context.