The share of cess and surcharge in the gross tax revenue (GTR) of the Centre has almost doubled to 9% in 2020-21 from 10.4% in 2011-12, leading to the 15th Finance Commission (FC) recommending a higher grant-in-aid and lower tax devolution to the States, as per a report.
Details:
Currently, the cess and surcharge collected by the Centre are not part of the tax devolution.
The spike in the same has forced the FC to suggest higher grant-in-aid to the States to compensate for the low growth in tax devolution.
Cess:
A cess imposed by the central government is a tax on tax, levied by the government for a specific purpose. Generally, cess is expected to be levied till the time the government gets enough money for that purpose.
A cess is different from the usual taxes like excise duty and personal income tax as it is imposed as an additional tax besides the existing tax (tax on tax).
Tax revenue from Cess are first credited to the CFI and the Central Government may, after due appropriation made by Parliament, utilise the money for the specified purposes.
Another major feature of cess like surcharges is that the Centre need not share it with states.
Surcharge:
Surcharge is a charge on any tax, charged on the tax already paid. As the name suggests, surcharge is an additional charge or tax.
Comparison:
A common feature of both surcharge and cess is that the centre need not share it with states. Following are the differences between the usual taxes, surcharge and cess.
The usual taxes go to the consolidated fund of India and can be spent for any purposes.
Surcharge also goes to the consolidated fund of India and can be spent for any purposes.
Cess goes to Consolidated Fund of India but can be spent only for the specific purposes.
