What is Cesses and Surcharges?
Historical Background
Key Points
10 points- 1.
Levied by the Union government for specific purposes (e.g., education cess, health cess).
- 2.
Not part of the divisible pool of taxes shared with the states.
- 3.
Provide the Union government with greater control over revenue allocation.
- 4.
Can be used to fund specific programs or projects.
- 5.
Their use has increased in recent years, leading to a higher share of Union government revenue not shared with the states.
- 6.
States have raised concerns about the impact of cesses and surcharges on their finances.
- 7.
The Finance Commission has examined the issue of cesses and surcharges and made recommendations.
- 8.
Cesses are usually earmarked for a specific purpose, while surcharges are general revenue.
- 9.
The Union government has the power to levy these taxes under the Constitution.
- 10.
States argue that the increased use of cesses and surcharges reduces their share of tax revenue.
Recent Developments
5 developmentsDebate on the fairness of cesses and surcharges in the context of fiscal federalism.
Recommendations of the Finance Commission regarding the sharing of revenue from cesses and surcharges.
States demanding a greater share of revenue from these taxes.
The Union government defending its use of cesses and surcharges for specific national priorities.
Discussions on alternative mechanisms for revenue sharing.
This Concept in News
1 topicsFrequently Asked Questions
61. What are Cesses and Surcharges, and what is their constitutional basis?
Cesses and Surcharges are taxes levied by the Union government for specific purposes, over and above the basic tax rate. The revenue generated is generally not shared with the states. As per the concept data, Article 270 of the Constitution of India is related to this topic.
Exam Tip
Remember that cesses and surcharges are not part of the divisible pool of taxes.
2. How do Cesses and Surcharges work in practice, and what is their significance in the Indian economy?
In practice, Cesses and Surcharges allow the Union government to raise additional revenue for specific programs or projects without sharing it with the states. This provides the Union government with greater control over revenue allocation. Their significance lies in funding specific needs and priorities of the Union government.
Exam Tip
Understand that these are tools for the Union government to manage finances for specific purposes.
3. What are the key provisions related to Cesses and Surcharges?
The key provisions are: * Levied by the Union government for specific purposes. * Not part of the divisible pool of taxes shared with the states. * Provide the Union government with greater control over revenue allocation. * Can be used to fund specific programs or projects.
- •Levied by the Union government for specific purposes.
- •Not part of the divisible pool of taxes shared with the states.
- •Provide the Union government with greater control over revenue allocation.
- •Can be used to fund specific programs or projects.
Exam Tip
Focus on understanding that the revenue from cesses and surcharges is not shared with states.
4. What are the challenges in the implementation of Cesses and Surcharges, and what reforms have been suggested?
A major challenge is the debate on the fairness of cesses and surcharges in the context of fiscal federalism, as states demand a greater share of revenue. Reforms suggested often revolve around the Finance Commission recommendations regarding the sharing of revenue from these taxes to ensure a more equitable distribution.
Exam Tip
Relate the challenges to the principles of fiscal federalism and revenue sharing between the Union and States.
5. What is the difference between Cesses and Surcharges, if any?
As per the concept data, both Cesses and Surcharges are taxes levied by the Union government for specific purposes and are not generally shared with the states. The key difference, if any, is not explicitly defined in the provided concept data.
Exam Tip
In the absence of a clear distinction in the provided data, focus on their shared characteristics.
6. What is the exam importance of understanding Cesses and Surcharges for UPSC preparation?
Understanding Cesses and Surcharges is important for UPSC GS Paper 2 (Polity and Governance) and GS Paper 3 (Economy). Questions can be asked about the rationale for cesses and surcharges, their impact on state finances, and the recommendations of the Finance Commission.
Exam Tip
Focus on the impact of cesses and surcharges on fiscal federalism and revenue sharing between the Union and the States.