A cess to fund Swachh Bharat should have a sunset clause

  • Hindustan Times
  • Updated: Sep 25, 2015 01:38 IST
Prime Minister Narendra Modi wields the broom during a surprise visit to the Mandir Marg Police Station after launch of 'Swachh Bharat Abhiyan' in New Delhi. (PIB Photo)

The government’s revenues are akin to the income of a large family where each member’s earnings, from various sources, are pooled to take care of the expenses.

Like households, the government borrows money to fund some of its expenses as income falls short of revenues.

The government’s main earnings are from taxes — both direct and indirect. Personal income tax, taxes on corporate income and wealth tax are the main heads of direct taxes. Customs duty, central excise duty and service tax are the other main indirect taxes. Apart from taxes, which constitute the bulk of its earnings, the government also earns revenue from other sources such as dividend and profits from public sector companies, interest on loans that it gives and also from disinvestment and telecom licences and spectrum revenues. All these constitute non-tax revenues

The problem, however, starts when a new programme is initiated and the government is not quite certain about how to go about funding it. The Swachh Bharat Abhiyan, which Prime Minister Narendra Modi launched last year, is a case in point. The mission to clean India is aimed at modernising sanitation within five years. Noble as it is, the success of the scheme also depends critically on how it will be funded. While large profit-making corporations are expected to supplement the State’s efforts, it is up to the government to find ways and means to keep the funds rolling to execute the programme.

That begs the question: Is a cess an optimal way of raising resources? Cess, by definition, is a tax on tax. In February, Union finance minister Arun Jaitley proposed to have an enabling provision to levy Swachh Bharat cess at a rate of 2% or less on all or certain services if need arises. A Niti Aayog panel has also favoured a similar model to generate funds for the scheme.

Historically, a cess has been used by some governments across the world selectively with specific purposes in mind. War is a prime example where a cess has been imposed on citizens to fund a battle. A simplified tax system that has reasonable rates and fewer exemptions can help avoid short-term fixes like a cess that goes on perpetually.

We desperately need a rules-based system to remove discretionary taxation, which is not only inefficient but also impossible to administer. Tax systems in much of the world have undergone extensive evolution to reach a steady state condition where rates change rarely, if at all. A cess to fund the Swachh Bharat initiative, if at all it is imposed, should come clearly with a defined sunset clause. Otherwise, it carries the risk of becoming a tax by another name.

also read

Thanks to Fadnavis’ waffling stand on ADHM, Thackeray may up the ante
Show comments