Financial jargon simplified and contemplated on-
If just like me Cess is a new term to you, then read on, else skip to the contemplation part directly.
Cess is a form of tax levied over and above the base tax liability of a taxpayer imposed additionally when the state or the central government looks to raise funds for 𝑠𝑝𝑒𝑐𝑖𝑓𝑖𝑐 𝑝𝑢𝑟𝑝𝑜𝑠𝑒𝑠.
For example, the government levies an education cess to generate additional revenue for funding primary, secondary, and higher education.
Some examples of Cess-
- Education Cess
- Health and education cess
- Swachh Bharat Cess
- Krishi Kalyan Cess
- Infrastructure Cess
“𝐶𝑒𝑠𝑠 𝑖𝑠 𝑛𝑜𝑡 𝑎 𝑝𝑒𝑟𝑚𝑎𝑛𝑒𝑛𝑡 𝑠𝑜𝑢𝑟𝑐𝑒 𝑜𝑓 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑔𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡, 𝑎𝑛𝑑 𝑖𝑡 𝑖𝑠 𝑑𝑖𝑠𝑐𝑜𝑛𝑡𝑖𝑛𝑢𝑒𝑑 𝑤ℎ𝑒𝑛 𝑡ℎ𝑒 𝑝𝑢𝑟𝑝𝑜𝑠𝑒 𝑙𝑒𝑣𝑦𝑖𝑛𝑔 𝑖𝑡 𝑖𝑠 𝑓𝑢𝑙𝑓𝑖𝑙𝑙𝑒𝑑.”
“𝐼𝑓 𝑡ℎ𝑒 𝐶𝑒𝑠𝑠 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑒𝑑 𝑖𝑛 𝑎 𝑝𝑎𝑟𝑡𝑖𝑐𝑢𝑙𝑎𝑟 𝑦𝑒𝑎𝑟 𝑔𝑜𝑒𝑠 𝑢𝑛𝑠𝑝𝑒𝑛𝑡, 𝑖𝑡 𝐜𝐚𝐧𝐧𝐨𝐭 𝑏𝑒 𝑎𝑙𝑙𝑜𝑐𝑎𝑡𝑒𝑑 𝑓𝑜𝑟 𝑜𝑡ℎ𝑒𝑟 𝑝𝑢𝑟𝑝𝑜𝑠𝑒𝑠. 𝑇ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑔𝑒𝑡𝑠 𝑐𝑎𝑟𝑟𝑖𝑒𝑑 𝑜𝑣𝑒𝑟 𝑡𝑜 𝑡ℎ𝑒 𝑛𝑒𝑥𝑡 𝑦𝑒𝑎𝑟 𝑎𝑛𝑑 𝑐𝑎𝑛 𝑜𝑛𝑙𝑦 𝑏𝑒 𝑢𝑠𝑒𝑑 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑐𝑎𝑢𝑠𝑒 𝑖𝑡 𝑤𝑎𝑠 𝑚𝑒𝑎𝑛𝑡 𝑓𝑜𝑟.”
Firstly, it’s not a permanent source, so unlike introducing any normal tax, which usually means a change in the law, introducing Cess is comparatively simpler.
Secondly, the fund can not be allocated for other purposes and is carried over for the same purpose compulsively instead.
The two statements mentioned above might make “Cess” a potentially powerful tool to leverage and raise money but also makes it equally risky.
Fundraised for a specific purpose might not be utilised in the expected timeline for variety of reasons and that causes a huge disruption in the flow of capital (which is its major strength) and also deteriorates with what is called “time value of money.”
𝐀 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐫𝐚𝐢𝐬𝐞𝐝 𝐟𝐫𝐨𝐦 𝐡𝐚𝐫𝐝-𝐞𝐚𝐫𝐧𝐞𝐝 𝐭𝐚𝐱 𝐭𝐨𝐝𝐚𝐲 𝐦𝐢𝐠𝐡𝐭 𝐛𝐞 “𝟓% 𝐥𝐞𝐬𝐬 𝐩𝐨𝐰𝐞𝐫𝐟𝐮𝐥” 𝐭𝐡𝐞 𝐯𝐞𝐫𝐲 𝐧𝐞𝐱𝐭 𝐲𝐞𝐚𝐫.
Moreover, if the easier transfer of allocation is permitted, it makes it much simpler to raise large funds for one purpose, transfer the purpose, leaving some proportions in a conundrum.
With the amounts being massive– to give you a perspective– imagine what you can on your behalf and scale it up by a factor of 1.3 billion and that is huge already. Managing so much with a constrained yet efficient way is the challenge for you to contemplate on. (If we choose an unbridled way then making it fair is yet another challenge)
𝐖𝐡𝐚𝐭 𝐰𝐨𝐮𝐥𝐝 𝐲𝐨𝐮 𝐝𝐨 𝐢𝐟 𝐲𝐨𝐮 𝐰𝐞𝐫𝐞 𝐓𝐡𝐞 𝐂𝐨𝐮𝐧𝐭𝐫𝐲?
Keep Cess transferable? or Eliminate Cess overall and divert to increasing traditional taxes instead? or Would eradicate the 1-year rollover criteria?
Something I would do might seem out of the box, but use this as a pivot to create a bidirectional channel for tax.
What I mean by that is rather than trapping the capital, I’d somehow “𝐫𝐞𝐭𝐮𝐫𝐧” (yes return) it in a case the purpose of Cess is incomplete or terminated altogether. Something like the Aadhar network can be utilised to keep a track and practically return it instead. Open to discussion for this.