Centre’s cess and surcharge receipts under rose 53% in FY21

The surge in cess and surcharge largely reflects the restructuring of taxes on petrol and diesel in FY21 wherein the basic excise duty was lowered while cess and surcharge component was raised.

The Centre’s receipts from cesses and surcharges under indirect taxes (GST and non-GST) receipts rose 53% on year to Rs 4.4 lakh crore in FY21, minister of state for finance Pankaj Chaudhary told Lok Sabha on Monday.

Except the GST compensation cess, which is transferred fully by the Centre to states, other cess and surcharges are not directly shareable with them.

The surge in cess and surcharge largely reflects the restructuring of taxes on petrol and diesel in FY21 wherein the basic excise duty was lowered while cess and surcharge component was raised.

Replying to another question, Chaudhary said the government agrees with the view that the agenda for a revamped direct taxes structure should be not just to phase out exemption, but also to widen the tax base.

“The government has taken many steps to restructure the direct taxes regime to increase direct tax revenues for the Centre, through curbing tax evasion, widening/deepening of tax base, promoting voluntary compliance, reducing litigation and promoting digital transactions,” Chaudhary said.

Currently, the taxes on unbranded petrol and unbranded diesel are Rs 32.90/litre and Rs 31.80/litre, respectively; the taxes include basic excise duty of Rs 1.4, road and infrastructure development cess of Rs 18, agriculture and infrastructure development cess of Es 2.5 and special additional excise duty (surcharge) of Rs 11.

A similar tax structure prevails for diesel on which the total Union government-imposed taxed are Rs 31.8/ litre. These taxes are a big component of the final prices of the fuels to the consumer and the bulk revenue from the taxes are not shared with the state governments being not part of the divisible pool. For example, out of Rs 32.9/litre taxes collected from petrol, the Centre shares only 60 paise with the states.

Of course, higher central levy helped the states to benefit as they levy sales tax/VAT on petroleum product prices inclusive of the Union government’s taxes. In FY21, state governments’ combined tax collections from the auto fuels were Rs 2 lakh crore, the same level as in FY20.

Given that the fuel consumption could rise in the second half of a year, the FY22 receipts from petrol and diesel could be around Rs 4 lakh crore or about Rs 90,000 crore more (subject to adjustment if the third Covid wave occurs) than FY22 Budget estimate, officials reckon.

Robust receipts from excise duty, which rose 88% year-on-year to Rs 3.34 lakh crore in FY21, helped the Centre register a 5.9% increase in its net tax revenue receipts in the financial year despite disruptions in economic activities due to Covid first wave.