What is a cess?

• The Union government is empowered to raise revenue through a gamut of levies, including taxes (both direct and indirect), surcharges, fees and cess. 
• While direct taxes and indirect taxes are taxes where the revenue received can be spent by the government for any public purpose in any manner it deems appropriate for the nation’s good, a cess is an earmarked tax that is collected for a specific purpose and ought to be spent only for that. 
• Every cess is collected after Parliament has authorised its creation through an enabling legislation that specifies the purpose for which the funds are being raised. 
• Article 270 of the Constitution allows cess to be excluded from the purview of the divisible pool of taxes that the Union government must share with the States.

How many cesses does the government levy?

• A report titled Cesses and Surcharges: Concept, Practice and Reforms since 1944, prepared by the Vidhi Centre for Legal Policy in 2018 and submitted to the Fifteenth Finance Commission listed 42 cesses that have been levied at various points in time since 1944. 
• The report observed that the share of revenue to the Centre’s annual tax collections from cess had risen to 11.88% of the estimated gross tax receipts in 2018-19, from 6.88% in 2012-13. 
• Given that cess does not need to be a part of the divisible pool of resources, this increasing share of cess in the Union government’s tax receipts has a direct impact on fiscal devolution.

Present status

• The introduction of the GST in 2017 led to most cesses being done away with and as of August 2018, there were only seven cesses that continued to be levied. 
• These were Cess on Exports, Cess on Crude Oil, Health and Education Cess, Road and Infrastructure Cess, Building and Other Construction Workers Welfare Cess, National Calamity Contingent Duty on Tobacco and Tobacco Products and the GST Compensation Cess. 
• And in February, Finance Minister Nirmala Sitharaman introduced a new cess — a Health Cess of 5% on imported medical devices — in the Finance Bill for 2020-2021.

Why is the issue in the news currently?

• The Comptroller and Auditor General (CAG) of India, in its latest audit report of government accounts, has observed that the Union government withheld in the Consolidated Fund of India (CFI) more than ₹1.1 lakh crore out of the almost ₹2.75 lakh crore collected through various cesses in 2018-19. 
• The CAG found this objectionable since cess collections are supposed to be transferred to specified Reserve Funds that Parliament has approved for each of these levies. 

Reference:

1. https://www.thehindu.com/business/Economy/the-hindu-explains-where-are-the-funds-collected-through-cess-parked/article32706024.ece