Union Finance Minister Defends Use of Cess

Union Finance Minister Nirmala Sitharaman has reiterated the Centre’s constitutional right to levy cesses and surcharges, asserting that the government will continue to use these instruments as permitted under the Constitution.

Addressing concerns over shrinking tax devolution to states, the minister stated that the Centre has spent more on states than it has collected through these levies. Between 2019-20 and 2024-25, the government collected ₹15.14 lakh crore via cesses and surcharges, while ₹15.97 lakh crore was transferred to states through various schemes.

Spending on Welfare Schemes

Highlighting expenditure priorities, Sitharaman pointed to key programmes such as:

• Samagra Shiksha
• Midday Meal Scheme
• National Food Security Act
• National Health Mission

She noted that investments in schools, hospitals, and roads have exceeded the revenue collected through these specific-purpose levies.

What are Cess and Surcharge?

• Cess: A tax levied for a specific purpose, such as education or health. Its proceeds must be used only for that designated objective. Both Union and State governments can impose cesses.
• Surcharge: An additional tax on tax, imposed exclusively by the Union government under Article 271.

Constitutional Backing

The minister cited constitutional provisions that validate these levies:

• Article 270 was amended in 2000 to exclude cesses and surcharges from the divisible pool of taxes shared with states.
• This amendment formalised an earlier practice based on recommendations of the Finance Commission of India.

Ongoing Debate

Cesses and surcharges have been a point of contention, as they are not shared with states, potentially reducing the share of revenues devolved to them. Critics argue that increasing reliance on such levies shrinks the divisible tax pool, affecting states’ fiscal autonomy.

Sources: TH & Govt.