A consultation meeting for the Union Budget of 2023-24 attended by Chief Ministers, Deputy Chief Ministers, as well as Finance Ministers of States, has urged the Centre to rein in its reliance on raising revenues through cesses and surcharges which reduce their share in the divisible pool of taxes.
What do Cesses and Surcharges mean?
Cess and surcharge are the taxes levied by the Union Government in order to raise funds for government operations.
Though both Cess and Surcharge add money to the government’s revenue, these are different in many aspects;
The cess rate stands fixed at 4%.
Authorities calculate the cess on the surcharge and the total tax.
The Government levies a cess on every taxpayer.
Authorities use cess for a particular purpose only and cannot use it for any arbitrary reason.
Cess aims to raise funds for some particular expenditure cause.
The surcharge rate varies between 10%, 15%, 25%, and 37%, depending on the total income of a taxpayer.
The surcharge is calculated on the total tax amount only.
The Government levies a surcharge on those individuals who have a higher taxable income.
A surcharge, on the other hand, can be used for any reason. The reason does not have to be specified.
A surcharge aims to place a tax burden on those whose income is beyond Rs.50 lakhs.
Sharing of revenue between the Centre and the States:
Taxes Levied by Union but Collected and Appropriated by the State:
The taxes on the following items are levied by the Union Government but the actual revenue from them is collected and appropriated by the States includes;
Stamp duties on bills of exchange, cheques, promissory notes, bills of landing, letters of credit, policies of insurance, transfer of shares, etc.;
Excise duties on medicinal toilet preparation containing alcohol or opium or Indian hemp or other narcotic drugs.
Taxes Levied and Collected by the Union but assigned to States:
The taxes in this category are levied and collected by the Union Government although they are subsequently handed over to the states wherefrom they have been collected.
Such taxes included duties in respect of succession to property other than agricultural land;
State duty in respect of property other than agricultural land terminal taxes on goods or passengers carried by railways, sea or air, taxes on railway freights and fares;
Taxes other than stamp duties on transactions in stock exchanges and futures markets;
Taxes on the sale or purchase of newspapers and advertisements published therein;
Taxes on the purchase or sale of goods other than newspapers where such sale or purchases take place in the course of interstate trade or commerce.
Taxes Levied and Collected by the Union but Shared:
Taxes on income other than agricultural income and excise duties other than those on medicinal and toilet preparations are levied and collected by the Union Government but shared with the states on an equitable basis.
The basis of distribution is determined by the Parliament through a law.