Millennium Post

Swachh Bharat cess raises big concern

It seems that a 14 percent Service Tax is not enough for the government to provide a minimum service to keep the country clean. Hence, is the new “Swachh Bharat” cess of 0.5 percent over and above the Service Tax. Few will disagree that the services provided by the India government to its people are just a little, compared with those by other nine countries above India in terms of normal GDP in US dollars. This is despite the fact that India boasts among the highest national Service Tax regimes in most major economies. The worst still is the end-of-the-year extra-budgetary imposition of Service Tax or cess from Mid-November to ostensibly keep the country clean (Swachh Bharat) is meant to collect Rs. 3,800 crore or more in just 4.5 remaining months of the current financial year.

Why is the government so desperate to collect an apparently small additional amount of tax from the people on such flimsy grounds, towards the fag end of the year when it has no ability to guarantee that the collection will keep India that is Bharat clean? Or, is the government under such severe financial pressure that an extra revenue collection of some Rs. 3,500 crore would mean a lot to its Parliament-sanctioned Rs.17.77 lakh crore in 2015-16 annual budget of gross expenditure? If so, in which direction is the massive expenditure going or has gone? Conversely, has the revenue collection target dipped alarmingly despite a seven-per-cent-plus growth possibility this year that the government is talking about? Quizzically, the government already made a massive 20 per cent cut in plan expenditure in this year’s fat budget. For the first time in a decade, the social spending by the government has been slashed. Even the vital areas like education, child health, women’s empowerment, food-for-work, and general healthcare have not been spared.

On the contrary, several subsidies have been slashed too. Large subsidy expenditures on account of food, fuel, fertiliser, and social sectors worth about a lakh crore rupees or more have been saved by the government this year. The use of technology through bank e-transfer using the Aadhaar medium alone is said to have helped the government save some Rs. 12,700 crore on account of cooking gas subsidy. Cooking gas subsidy surrendered by a lot of customers has raised the government’s income or reduced the subsidy element to a considerable extent. Suffice it to say that the Swachh Bharat cess is an unacceptable exercise that will hurt the public spending on almost every item including telephony, travel, shopping, eating out, or even hair cut. The cess will hurt the stagnating corporate sector as well. The cess looks more like a mindless bureaucratic decision to boost revenue that may hurt both business and individuals. This will harm the domestic business and industry further that are already under pressure from increasing imports and falling exports. The union budget has targeted a gross receipt of Rs.14.50 lakh crore for the year and non-tax revenue of Rs.2.22 lakh crore to keep the fiscal deficit down to 3.9 percent of the GDP and revenue deficit of 2.8 percent.

The latest report by the  rating agency CRISIL provides a very disturbing picture of the state of affairs with corporate India’s manufacturing and heavily-taxed services sector companies (excluding financial and oil companies, and Vedanta). During the first half of the current financial year, that is April-September, 2015, the total revenues of these companies increased by only 1.2 percent to Rs. 17,52,556 crore while their net profit actually dipped by over 2 percent. This may have adversely affected tax paying capacity of many companies. Under the circumstances, taxing consumers, on account of Swachh Bharat may only add to their problem. Lower public spending on account of the additional cess burden is unlikely to improve the situation. The CRISIL clearly said that “corporate India’s financial performance in the Q2 of 2015-16 indicates that recovery remains elusive”. And, importantly, net profits were mainly supported by high extraordinary income and lower tax as profit before tax (PBT) slipped 7.7 percent due to increase in interest outflow and depreciation. The report further said the revenue growth was impacted by poor consumer demand. The latest cess is unlikely to help improve the government’s revenue collection target. It can only add to the public irritation and frustration apart from raising the question on the government’s financial management practices.

The people of the country have been paying incremental municipal taxes over the years to keep their environment clean, ensure regular garbage collection and clearance and proper management of sanitation and water supply. That municipal authorities across the country are collecting the taxes and levies and not doing their job is not the fault of the people. That rivers and rivulets have turned into easy waste dumps and that their water is being illegally tapped and diverted under the blindly 
corrupt eyes of the municipalities and the governments—state or Central – are no fault of tax-payers supporting the demands of respective governments, municipalities, and other local bodies. The Swachh Bharat cess is unlikely to ensure a dirt free India. Not even 50 percent of the funds available with states to keep their environment clean have reportedly remained unspent this year. The cess collection is supposed to be for the Central government only.    

(The author is a senior commentator on politics and public policy. Views expressed are strictly personal)
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