By Manali Joshi
The Goods and Services Tax was rolled out on July 1, 2017. GST was introduced in order to levy a singular indirect tax across the country for different kinds of goods replacing the several taxes levied by the central and state governments. The tax will be levied on all transactions of sales and services and separate tax rates for all goods and services have been identified under the rates of 0%, 5%, 12%, 18% and 28%. The implementation of GST was also meant for the abolition of cesses and surcharges levied by the government, which included the Swachh Bharat Cess(SBC) and Krishi Kalyan Cess.
Background to the Swachh Bharat Cess
The Swachh Bharat Cess had come to effect on November 2015 at a rate of 0.5%. The cess was levied on all services apart from those services which were exempted from service tax. The aim of the collection of this cess was to advance this amount collected to the Consolidated Fund of India in order to utilize the fund for financing and promoting the services under the Swachh Bharat Abhiyan. However, this cess was going to get abolished once the GST Bill was passed. Apart from the present cess, the Krishi Kalyan cess, levied for financing agricultural benefits to farmers and education cess, which helps in covering the cost of government-sponsored educational programmes, was also going to get abolished.
Inevitable consequences of the action
The cesses were abolished with an aim to avoid a cascading effect on taxpayers. A cess, unlike a tax, is collected by the government for a pre-specified purpose. The SBC accounted for Rs 16,400 crore collectively during FY 2015-16 and 2016-17. The proceeds from this cess were housed with the Consolidated Fund of India and utilised for the construction of individual household latrines, solid and liquid waste management, information, education and communication, and other administrative costs under the Swachh Bharat Mission. Thus the discontinuing of cesses would result in an estimated loss of Rs.65,000 crore by the exchequer.
Government response
The government has not yet announced how it will be planning to compensate for the cess amount which is no longer being collected. In order to fulfil the void created by the abolition of cess, the government made it mandatory for 30 percent of corporate social responsibility (CSR) funds to be utilised for Swachh Bharat Abhiyan, and it hoped that more private funding is pumped into the program. The implementation of the program is seen to be quite successful as the percentage of sanitation coverage has increased up to 64.18 in 2017 from 42 in 2014. According to Gopal Jha, Under Secretary, Swachh Bharat Abhiyan, the increase in funding from more private companies was definitely helping in the promotion of the mission and was also making up for the vacuum created due to the abolishment of cess.
Still, a long way to go
Though the government is observed to be taking all the necessary steps to make up the financial vacuum, the experts who have been keeping track of the Abhiyan since its inception, think that the abolition of the cess has a considerable negative impact on the goal achievement of Abhiyan. Further, whether the financial losses due to the abolition of the cess will be made up by allocating more Central funds to the Swachh Bharat Abhiyan will be realised only during the Union Budget for 2018-19. Considering the amount raised by Swachh Bharat cess, the corporate interest in the Abhiyan, despite the governments request, may not be able to match up to the amount collected via the cess. This is because the predicted participation of the private sector in raising money for the Swachh Bharat Abhiyan was quite low than what was expected as the figures from last year show that the private sector managed to raise only Rs. 246 crore. Though the government has urged time and again for the private sector to participate in the program, as after government it is only the private sector which has the capacity to fund such a large project, there has been no efforts seen from the side of the corporates.
According to Saurabh Gupta, President of the NGO Shuddhi, despite repeated efforts of the government, the sanitation program will have to ultimately depend on government funds for the further progress. Thus in order cope up with such increased burden, the government should have thought of or created some backup plan before out rightly abolishing the SBA Cess.
Important considerations along the way
Another impact of such abolition of the Swachh Bharat Abhiyan Cess is observed on the increased tax rate on essential toiletries such as soaps and sanitary napkins. The rate of interest before abolition was 12% while the current rate for the same commodities is at 18%. Though ironically, commodities which do not fall under essential sanitary products like sindoor, bindis and bangles have been categorised as tax exempt. The ultimate objective of this Abhiyan is maintaining, or rather improving, the present state of sanitation and hygiene. Thus, one of the basic steps towards achieving this aim is to change social behaviour by promoting the importance of soaps, hand wash and sanitary napkins.
To achieve the purpose, it is important to fix price for such commodities as low as possible to ensure that more people are encouraged to buy these products. A high tax rate of 18 percent in no manner is seen to be helping the cause. It is rather acting as a deterrence to many people from the lower economic strata to buy soaps or hand washes, items necessary to maintain individual hygiene. The experts feel that since the program aims to encourage people to maintain healthy sanitation post the building of toilets, such high rates are not serving the purpose. Lastly, due to the same reason, the tax rate on sanitary equipment like urinals, commodes and flushing cisterns have also increased. This is seen to be essentially getting translated into the high cost of production and result in a lower incentive for the manufacturing industries to invest their capital. If the present condition continues to persist, the day wont be far when the spirit of Swachh Bharat Abhiyan will be lost.
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