Swachh Bharat Cess

The thrust of new Government towards clean India has recently made the government to impose Swachh Bharat Cess of 0.5% on all services liable for service tax.

The Swachh Bharat cess will be an additional levy, making the effective service tax rate 14.05% against the current 14%. In budget 2015-16, the government had put the service tax collection target at over Rs. 2.09 lakh crore. It is expected that the Swachh Bharat cess would yield Rs 400 crore over and above the service tax collections.

While an additional cess to finance something as basic as clean surroundings might seem like a good move, some experts have raised various issues to introduce yet another tax for the already burdened citizen.

Is Imposition Of Swachh Bharat Cess Justified?

Cess is easy to collect (so called a lazy tax) but is regressive and imposes additional burden on consumers. The Economic Survey 2014 had recommended that government should do away with bad taxes such as cesses and surcharges. However, so far this idea has been ignored. Currently, as many as six cesses are being levied in India on top of the direct or indirect taxes. They are meant to be for temporary purpose, but hitherto experience in India has been that once a cess is imposed, it would be revised, hiked or shifted around but would not be discontinued. For example, the road cess is there since 1998-1999 and the education cess has recently completed a decade. This has direct impact on the cost of doing business.

Further, if we go deep down in analyzing the deployment of the funds collected via cess, we find that there are sketchy disclosures only. We note here that both road cess and education cess bring Rs. 23,000 and Rs. 28,000 crore a year but they have not translated into matching outcomes as far as road infra is concerned in the country.

The Government has justified the cess with logic that it is not yet another tax, but a step towards involving each and every citizen in making a contribution to Swachh Bharat. With past experience, it seems hardly possible to achieve this. To achieve Swachh Bharat, there is need of greater civic sense on the part of every citizen, backed by grassroots initiatives such as door-to-door garbage collection, segregation at source and greater priority to waste management systems in our cities, villages and towns.

Will The Move Make The Taxation System More Regressive?

Swachh Bharat Cess is latest in a series of tax moves that will make the tax system less progressive and more regressive. Idea of taxing all citizens at a flat rate is a regressive taxation system in that it ends up hurting the poor and middle class a lot more than it hurts the rich. It is going to burden the citizens especially poor with a less progressive taxation system.