The Goods and Services Tax subsumed a variety of existing Central and State levies. Among them were three environment-related cesses: the high-profile Swachh Bharat Cess and Clean Energy Cess levied on all taxable services since 2015 and on coal since 2010, and the historical Water Cess chargeable since 1977 on water consumption by industry and local authorities.
Unlike a tax, a cess is levied to raise funds for a specific purpose. The proceeds are first credited to the Consolidated Fund of India, and the Centre may, after due appropriation by Parliament, utilise such sums of money for purposes designated under the cess. While in principle a cess is to be levied till the time the Government gets enough money for the specified purpose, several cesses, by virtue of their broad-based objectives, have continued for years and have become an important source of revenue.
Cess and revenuesA case in point is the water cess introduced under the Water (Prevention and Control of Pollution) Cess Act 1977 to augment resources of the Central and State pollution control boards for the prevention and control of water pollution. The water cess is the second most important source of revenue for State pollution control boards (despite non-payment by local bodies in most States) after consent fees. The loss of this revenue will be a huge setback for boards which already suffer from poor technical capacity and autonomy. Even if the loss is made good through budgetary allocation, its routing will play a critical role. The channelling of money through State budgets will make the boards even more vulnerable to the discretion of State governments, which have a dismal track record of empowering the pollution watchdogs.
The Centre collected ₹12,500 crore in 2016-17 through the Swachh Bharat Cess for the Swachh Bharat Abhiyaan (SBA) which aims to make India open-defecation free by 2019 and improve the appalling state of waste management in the country. Though the SBA was included as a CSR activity in 2014 under Schedule VII of the Companies Act 2013, it is clear the programme will require significant public expenditure to meet its 2019 target. It will be interesting to see whether its budgetary allocations are maintained after the abolition of the cess.
Likewise, the clean energy cess levied on coal at the rate of ₹400/tonne in 2016 (progressively increased from ₹50/tonnes in 2010) amounted to a staggering ₹28,500 crore in 2016-17. Touted as a tax on carbon, it met almost 50 per cent of the budget of the ministry of new and renewable energy for 2016-17. This, despite the fact that less than half of the cess collected since 2010-11 was credited to the National Clean Energy and Environment Fund, created to disburse the cess revenue. And, despite the fact that MNRE is only one of the beneficiaries (along with the ministries of water resources, river development and Ganga rejuvenation; environment, forests and climate change; and drinking water and sanitation) of the fund. The abolition of the cess when the Government is projecting itself as a global leader in clean energy seems both symbolically and financially ill-timed. To add injury to insult, the coal cess will continue at the same rate under the Goods and Services Tax (Compensation to States) Act 2017, but will now contribute to the GST compensation fund, a corpus meant for compensating States for revenue losses arising from the shift to the new indirect tax regime.
It remains to be seen if Budget 2018-19 will adequately compensate ministries for the loss of revenue. But the the fact that these cesses were summarily and unceremoniously abolished in the wake of a new tax regime shows that environmental issues are still not part of the mainstream policy discourse. The Government should have used this opportunity to reflect on the changes required to encourage efficiency in resource use, prevention of pollution and management of waste. After all, the Water Cess, while an important source of revenue for the pollution control boards, was effective neither as resource-tax that incentivised judicious use of the scarce resource, nor as a pollution tax despite higher rates for more polluting uses and rebates for installation of pollution control equipment.
Perhaps it’s time for a Green Tax Council, at par with the GST Council, to design and implement environmental fiscal reform in India.
The writer is a senior fellow at TERI. The views are personal