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Journalism of Courage
The government is proposing another cess. This time to meet the CMP promises to increase spending on health. The cess would be imposed on tobacco and alcohol. It will mop up Rs 3,000 crore which will be spent on health. The 8216;sin tax8217; will not be unpopular. It will be like the education cess which people were willing to pay because they think it is for a good cause. But the cess raises uncomfortable questions: if the government is going to collect cesses for education and health, what is it normally collecting taxes for? Are tax collections merely funds garnered for the government to spend either on itself or on things that are not to be accounted for? Is it that whenever money has to be spent for the provision of public goods, it will be paid out of a cess earmarked as spending for a specified use?
The trend towards cesses is bad public finance. Already there is a cess for highways, for rural telephony, for education, for the rubber board. A cess distorts choice of inputs and technology. Unfortunately, distortionary taxes, like cesses, stamp duties and octroi or taxes that are easy to collect like the STT, have come to characterise the Indian tax system. A tax and spend structure based on earmarked taxes reduces the operational flexibility of the government. It reduces the ability to do macroeconomic management. Cesses are cascading taxes. They remain out of the purview of the Centre-state devolution of taxes and accrue only to the former. In a federal structure this should not be acceptable to states.
