A messy cess

Imagine an India with a toilet in every home, adequate number of toilets in public spaces, no garbage in the open and best in class sanitation facilities. The response of many to this could be that imagining this is child’s play — because it cannot happen in reality. Yet, that is precisely the intention of the Swachh Bharat Mission (SBM) — to reinvent the way in which tasks of using toilets, disposal of garbage and management of sanitation is being done.

SBM is a project that needs a large amount of funds — ₹62,009 crore as per the initial estimate. The Government of India is responsible for about 23 per cent of this— ₹14,623 crore while ₹4,874 crore (25 per cent of what the government puts in) would be contributed by the States. It is expected that the balance amount would be raised by way of Private Sector Participation, additional Resources from State governments/ULB’s, beneficiary Share, user Charges, land Leveraging, Innovative revenue streams, Swachh Bharat Kosh (SBK), CSR, market borrowing and external assistance. The SBK scheme has already been launched with the donations qualifying as a CSR expenditure under the Companies Act.

There isn’t much clarity on the other means of financing. Private sector participation, the SBK scheme and CSR will invariably come from the same set of entities that can do only one of these activities. Considering the yo-yoing that is happening between the Centre and the States on compensation from phasing out of CST and the introduction of GST, State governments will link additional contribution to this compensation.

User charges can bring in some money but not the amounts needed. Moreover, user charges are normally used for maintenance expenditure. One is not sure what the government means by innovative revenue streams. Borrowing for the purpose of a social cause is never a good idea. The government should tie up some means of funding the mission soon without leaving it too late.

In the midst of this, the government has decided to impose a Swachh Bharat Cess of 0.5 per cent on the value of all taxable services. This effectively makes the rate of service tax 14.5 per cent. It is clear that the SBC cess is being levied so that the governments contribution of around ₹3,000 crore per annum is met without breaking into much sweat.

But levying the SBC cess from a date which means nothing to anyone only adds to the administrative burden of tax payers. This is all the more so since we are only a couple of months away from the annual Budget which is becoming a ritual to tinker with tax rates and laws. One hopes that the government does not bring in needless conditions that the SBC can be set off as credit against SBC charged by others and that credit can’t be claimed beyond one year.

Instead of a cess on Service tax, the government should have thought of a deduction (with a cap of say ₹25,000 per individual) under the various alphabetical permutations and combinations of Section 80 of the Income Tax Act.

The salaried class always wait for an opportunity to save taxes and they have hardly had any “schemes” in the last decade or so. They would have invested in such a scheme in droves. Maybe, it could also qualify as an innovative scheme of financing the government is contemplating. How about Budget 2016, Mr Finance Minister?

The writer is a chartered accountant