A COVID-19 cess on big taxpayers is likely to be introduced in the upcoming Budget which is to be presented on February 1. The main aim of this cess is to fund the additional spending Centre had to incur due to the pandemic. According to estimates, the expenditure incurred by the government during the vaccine rollout would be around Rs. 60 to 65 thousand crores. To compensate for the same, Nirmala Sitharaman is likely to introduce the COVID-19 cess.  

Cess is an additional tax levied by the government to raise funds or to compensate for unprecedented expenditure. There are different types of cess that have been introduced in the Indian economy. A number of cesses have also been abolished or subsumed over the years after the introduction of the GST.  

Currently, there are 9 cess taxes that are levied by the government including crude oil, health and education cess, infrastructure cess, construction worker cess, duty on tobacco and tobacco products, GST compensation cess, health cess.  

 Cess is a lucrative funding source preferred by the government as it doesn’t necessarily have to be shared with the states. The share of cess in the total tax stream has increased from Rs. 2,14,050 crore to Rs.2,74,592 crore. The Indian Constitution allows the government to charge cess which the Centre need not share with other state governments. It is here where the problem lies.  

In the 14th Finance Commission, the majority of the State Governments in India urged the Centre to either eliminate cess or if continued beyond a period, should be divisible. However, in the Financial Year 2020, the Central Government increased the rate of road and infrastructure cess, reducing the shareable portion of the Government’s official Gross Tax Revenue. 

Due to this, the share of states in the GTR fell from 36.6% to 32.4% in 2020. This concerning figure comes when the state’s own tax revenues are suffering due to the economic slowdown caused by the COVID-19 pandemic.  The problem has turned even direr due to the GST, where a lot of states had to give up on state-specific taxes.

The extent of the issue can be understood from the fact that the shares of cess charges have gone up 3% of the GTR in 00-01 to a staggering 15.6% in 19-20. Meanwhile, the share of tax revenue that states receive has gone down.

Given how states are at the forefront in the COVID-19 pandemic crisis, the Centre needs to share more resources with them. It is also important that the Centre creates more avenues of generating revenue instead of depending on cesses.