Mains Paper 3: Economy
Prelims level: Cess and Surcharge
Mains level: Reason behind to abolish cess, surcharge
Governments of different political dispensations have leaned on
surcharges and cesses to make up for the shortfall in their revenues from
In the process, the Centre has converted what was meant to be a short
term revenue mobilisation measure into a regular feature for income-tax
payers, both individuals and businesses.
That practice needs to be brought to an end for two reasons.
It is unfair to those who pay taxes compared to those who wilfully do
It also unfair to the States, as the Centre does not share taxes
collected as surcharges and cesses with the States.
Implications from the Fourteenth Finance Commission
The Fourteenth Finance Commission attempted to bring some balance in the
revenue share of the Centre and the States, by increasing share of the
States in the divisible pool of tax resources to 42 per cent from 32 per
cent in its recommendation for 2015-16 to 2020-21, but faced with revenue
The Centre has increased the quantum of cess and surcharge over the past
The three per cent education cess paid by individuals and businesses has
risen to a four per cent education and health cess.
The 10 per cent surcharge that P Chidambaram introduced in the 2013-14
Budget on taxable incomes of individuals, firms and association of
individuals that exceed ₹1 crore too has risen they now pay 15 per cent
That apart, those with taxable income of between ₹50 lakh and ₹1 crore
have to pay the 10 per cent surcharge.
The surcharge on incomes of companies too has risen.
Reason behind to abolish cess, surcharge
Budget documents show that the total surcharges and cess that companies
were expected to pay in financial year 2018-19 was estimated at ₹93,249
crore while the basic tax on their income was estimated to be 5,27,750 crore.
Thus, the cess and surcharge was estimated at 15 per cent of all taxes
on income paid by companies, with a bulk of it coming from surcharges.
The income tax to be collected for the same year was estimated ₹4,61,182
crore and an additional ₹23,618 crore as cess and surcharge with the cess
and surcharge amounting to about five per cent of the taxes paid by
In 2012-13, the surcharge and cess together was about five per cent of
all the income tax paid by companies and three per cent of the income tax
paid by individuals.
While GST has done away with most indirect tax cesses, they persist on
the direct taxes side.
The Union government needs to find better ways to improve its tax
A little over 81,300 individuals declared gross income of more than ₹1
crore for assessment year 2017-18 (or financial year 2016-17).
The tax department can improve outcomes without resorting to draconian
The upcoming first Budget of the second Modi government offers a chance
to send a powerful reforms signal by doing away with such cesses and
Q.1) With respect to Indian economy the term ‘Joint supply’ was recently
in the news, which of the following are the appropriate examples of Joint
Supply? 1. Dog food and cat food
2. Wheat and Straw
3. Shirts and Pants
4. Beef and leather
5. Cold drinks and Pizza
Select the correct answer using the code given below: a) 1, 2 and 5 only
b) 2 and 4 only
c) 1, 3, 4 and 5 only
d) All of the above
Q.1) What are the reasons behind to abolish cess and surcharge?