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Context: The government has recently exempted imports of LPG (liquid petroleum Gas), liquified propane, and liquified butane from the 15% Agriculture Infrastructure Development Cess (AIDC) with effect from September 1.

Details

• In July 2023, the government imposed a 15% AIDC on the imports of LPG, liquified propane, and liquified butane. This cess was introduced as a part of the government's measures related to agriculture infrastructure and development.
• Recently, the Finance Ministry issued a notification confirming that imports of LPG, liquified propane, and liquified butane are now fully exempt from the Agriculture Infrastructure Development Cess (AIDC). This exemption came into effect from September 1, providing relief to importers of these goods.
• The decision to exempt these imports from the AIDC may be aimed at reducing the financial burden on importers and ensuring that the cost implications of the cess are not passed on to consumers.

Agriculture Infrastructure Development Cess (AIDC)

• It was introduced in the 2021-22 budget as a special-purpose tax imposed over and above the basic tax rates.
• It is a type of special-purpose tax that aims to raise funds specifically for financing the development of agriculture infrastructure in India. The government introduced this cess as a dedicated source of revenue for agricultural infrastructure projects.
• The primary objective of AIDC is to promote agricultural development by providing funds for initiatives such as building agricultural infrastructure, improving production, and enhancing the efficiency of processing and storage of farm produce.

Why is AIDC Important?

• AIDC funds are earmarked for improving agricultural infrastructure, which includes facilities like cold storage units, warehouses, and market yards. This investment is crucial for increasing agricultural production and ensuring better post-harvest management.
• AIDC can be seen as a measure to demonstrate the government's commitment to improving the livelihoods of farmers. By investing in agricultural infrastructure, it aims to address some of the concerns related to the agricultural sector.

Implications of AIDC

• Limited Impact on Consumers: The government has carefully structured the AIDC in such a way that it does not significantly burden consumers. The cess is applied to a specific list of 29 products, including gold, silver, imported items like apples, alcohol (excluding beer), pulses, palm oil, urea, and petrol/diesel (including branded varieties).
• Offsetting Reductions: In many cases, the introduction of AIDC coincided with reductions in Basic Customs Duty (BCD), Basic Excise Duty (BED), and Special Additional Excise Duty (SAED). AIDC was designed to offset these reductions, ensuring that the overall tax incidence for consumers remains relatively stable.
• Funds Allocation: The money collected through AIDC is supposed to be earmarked for agricultural infrastructure development. However, there are concerns that when customs duty or excise is replaced by cess, the share of revenue available to states could shrink. This may impact state-specific welfare schemes.

Implications of AIDC

Devolution Formula

• States may face a potential reduction in revenue under the devolution formula when customs duty or excise is replaced by AIDC. This change in the taxation structure could result in a smaller pool of funds available for distribution to states, impacting their financial resources.
• The reduction in available funds may have implications for state-specific welfare schemes and development projects, potentially affecting their implementation.

Central Spending

• The government has provided assurances that the amounts lost by states due to AIDC will not be significant.
• It is expected that states will ultimately benefit from AIDC, as the revenue collected through this cess will be allocated for agricultural infrastructure development and related initiatives.
• While the mechanism for fund allocation may differ, the intent is to channel resources towards states to support agricultural growth and infrastructure enhancement.

CESS v/s TAX

• A cess is a form of tax charged or levied in addition to the base tax liability of a taxpayer. It is typically imposed by the government to raise funds for specific purposes and is not a permanent source of revenue.

Purpose and Utilization

• Regular taxes, such as income tax, GST, and excise duty, are collected by the government and go into the Consolidated Fund of India (CFI). The government can allocate these funds for various purposes as needed, including budgetary expenses.
• Cess is collected for a specific purpose, and the revenue generated from it must be used exclusively for that purpose. If the collected cess goes unspent in a particular year, it carries over to the next year and can only be utilized for the designated cause. It cannot be allocated for other purposes.

Sharing with State Governments

• Tax revenue is often shared with state governments, either partially or in full, depending on the tax. For example, the Goods and Services Tax (GST) revenue is shared between the central and state governments.
• Cess revenue is typically not shared with state governments. It remains with the central government and is used exclusively for the specified purpose.

Complexity and Modification

• Introducing, amending, or abolishing taxes usually involves changes in the law and can be a more complex process.
• The procedure for introducing, modifying, or abolishing a cess is generally simpler and more flexible. It can be adjusted as needed by the government.

Payment Responsibility

• Taxes are paid by individuals or entities based on their income, transactions, or activities.
• The responsibility for paying cess varies depending on whether it is levied on direct or indirect taxes. Cess on direct taxes is added to the taxpayer's basic tax liability and paid by the taxpayer. Cess on indirect taxes, like GST, is typically paid by producers or service providers, which can eventually lead to higher costs for consumers.

In summary, while both taxes and cess are forms of government revenue collection, they differ in their purpose, utilization, sharing with state governments, complexity of implementation, and payment responsibility. Cess is specifically earmarked for certain purposes and offers more flexibility in its administration compared to regular taxes.

Conclusion

• The Agriculture Infrastructure Development Cess (AIDC) is a special-purpose tax introduced to fund agricultural infrastructure development. While it aims to promote agricultural growth and support farmers, there are considerations regarding its impact on state revenues and specific products. For consumers, the impact on the prices of most products is expected to be minimal, with some potential benefits for gold and silver buyers.

Must Read Articles:

AGRI INFRASTRUCTURE FUND: https://www.iasgyan.in/daily-current-affairs/agri-infrastructure-fund

PRACTICE QUESTION Q. Consider the following statements in the context of Cess: 1. It is collected for a specific purpose, and the revenue generated from it must be used exclusively for that purpose. 2. If the collected cess goes unspent in a particular year, it carries over to the next year. 3. Cess revenue is shared with state governments. 4. The procedure for introducing, modifying, or abolishing a cess is generally simpler and more flexible. How many of the above statement is/are correct? A) Only one B) Only two C) Only three D) All four Answer: C Explanation: Statements 1 and 2 are correct: Cess is collected for a specific purpose, and the revenue generated from it must be used exclusively for that purpose. If the collected cess goes unspent in a particular year, it carries over to the next year and can only be utilized for the designated cause. It cannot be allocated for other purposes. Statement 3 is incorrect: Cess revenue is typically not shared with state governments. It remains with the central government and is used exclusively for the specified purpose. Statement 4 is correct: The procedure for introducing, modifying, or abolishing a cess is generally simpler and more flexible. It can be adjusted as needed by the government.

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