Finance Minister P Chidambaram may increase the education cess from 2 to 3 per cent in the Union Budget to be presented next week, according to sources close to the ongoing budget-making exercise. The education cess is levied on all major taxes, including income tax, corporate tax and service tax.
The increased education cess is expected to collect an extra Rs 6000 crore, or about 55 per cent more than what was collected this financial year. It is intended to help raise funds for the additional seats that have to be created in institutes of higher education to implement the 27 per cent reservation of seats for the other backward classes (OBCs).
The cess is levied on the taxed amount and not on total income. A person with an annual income of Rs 7 lakh, for example, currently pays Rs 3,200. After the proposed increase, he would pay Rs 4,800.
The cess was imposed from 2004 to fund the Sarva Shiksha Abhiyan (SSA), the universal education programme for children between six and 14 years, and is paid into the SSA fund. The move to raise it comes even as almost two-thirds of the money allocated for the SSA remained unspent in the first eight months of the current financial year.
Data available with the Ministry of Human Resource Development shows that till the end of November 2006, the Centre and state governments had released only 39 per cent of the funds available under the SSA. For the entire financial year 2005-06, the corresponding figure had been 55 per cent.
The tax yield in this financial year, has been Rs 11,000 crore.
Funds available remain unspent because the states have to fork out Rs 25 for every Rs 75 that the Centre provides from the SSA fund. The poorer states -- like Bihar, Jharkhand, Uttar Pradesh and West Bengal -- find it difficult to allocate the funds for the SSA required from them. Some actually request the states to give them less money than they are entitled to. Ironically the SSA is primarily aimed at precisely these states, since it is these which have the highest number of out-of-school children.
Bureaucratic hurdles are also responsible for funds not being utilised. "In states like Bihar, red tape is a problem," MAA Fatmi, minister of state for HRD, had earlier told Mint. HRD officials maintain they expect fund utilisation to speed up as the financial year draws to a close.
For 2007-08, the Planning Commission has proposed to reduce the Centre's share in the funding of the SSA from 75 to 50 per cent. Unhappy with this, HRD Minister Arjun Singh has written to the prime minister. "If the Centre's share is reduced, the success of SSA can get adversely affected," said a ministry official.
The Planning Commission has also rejected the ministry's proposal to widen the scope of the SSA from elementary to secondary level, citing a resource crunch. It has proposed sanctioning only Rs 4300 crore to implement the reservation for OBCs in the first year -- against the Rs 5,500 crore recommended by the Veerappa Moily Committee -- which too the ministry is peeved about.
(With inputs from Chetan Chauhan)