All you wanted to know about Agriculture Infrastructure Development Cess

The Budget for 2021-22 may have refrained from tinkering with your taxes, but it has proposed a new levy — Agriculture Infrastructure Development Cess.

Cess is a kind of special-purpose tax which is levied over and above basic tax rates. The purpose of the new AIDC is to raise funds to finance spending on developing agriculture infrastructure. Considering that not much private investment is forthcoming for agriculture, the Centre now seeks to raise a dedicated fund to meet these expenses.

In her Budget speech, the Finance Minister proposed AIDC on a small number of items from February 2. While applying this cess though, she has made sure that there will not be additional burden on consumers on most items.

The new cess will be levied on 29 products, prominent among which are gold, silver, imported apple, imported alcohol (excluding beer), imported pulses, imported palm oil, imported urea, and petrol/diesel including branded ones. While Basic Custom Duty (BCD) has been lowered on 25 of these products, Basic Excise Duty (BED) and Special Additional Excise Duty (SAED) have been lowered on unbranded and branded petrol-diesel. The new cess will only offset the reduction in customs or excise duty and thus will not raise the tax incidence for consumers.

Drawing power from Articles 270 and 271 of the Constitution, the Centre collects cess and deposits it in the Consolidated Fund of India. However, the money is then supposed to be transferred to a segregated fund to be used for specific purpose.

There are two aspects — usages and effect. The AIDC is proposed to be used to improve agricultural infrastructure aimed at not only boosting production but also in helping conserve and process farm output efficiently.

Considering the debate on the new farm laws, the AIDC was perhaps meant to send out the message that the Centre is going the extra mile to improve the lot of farmers. But on the flip side, the money collected through cess and surcharge are not part of the divisible pool, from which devolution of Central taxes takes place to the States.

When customs duty or excise is replaced by cess, the pie from which States get a share tends to shrink. Take the example of unbranded petrol. While the new AIDC will be levied at ₹2.50 per litre, the basic excise duty and special additional excise duty have been reduced by equal or lower amounts. While States would so far have got 41 per cent of the ₹2.50 per litre of petrol sold (₹1.02 per litre) while the balance would have remained with Centre. Now, the Centre will have the entire ₹2.50 levied as AIDC at its disposal.

The selling prices of the 29 commodities are unlikely to change much as AIDC is only a left pocket to right pocket transfer. The tax component in the final price will remain the same for most of the products. However, if you are planning to buy gold and silver, there is good news as the duty component has come down by 2.5 per cent and this is expected to lead to some moderation in the prices. At the same time, the Finance Ministry says post imposition of cess, final central tax outgo on petrol and diesel have come down by few paise. For all other products covered under AIDC, the consumer will not see any change in his/her bill and it is the duty of the importer and producer to make specific entry while filing tax/duty returns.

Rather than individuals, it is States that need to worry as they may get less money in line with the devolution formula. This could affect some States’ specific welfare schemes. However, the Centre has assured that the amounts lost will not be significant and, in fact, States will be benefited through this cess as the spending will be earmarked for the States. It is just a question of who will be providing the money.

This is one Budget fine-print that doesn’t come back to bite you.

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