Context:

• 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.

https://www.thehindu.com/todays-paper/tp-business/share-of-cess-surcharge-in-gtr-doubles/article33975366.ece

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