MAY 19, 2015

By B V Kumar

ONE of the important, but a subtle change that has been introduced by the Finance Act 2015 is that Education Cess and Higher Education Cess leviable on Excisable good sare being subsumed in Basic Excise duty. Consequently, Education Cess and Higher Education Cess leviable on Excisable goods are being fully exempted. However, the standard ad valorem rate of BCD is being increased from 12% to 12.5% and specific rates of BCD on petrol, diesel, cement, cigarettes and other tobacco products were suitably changed.

However Education Cess and SHE Cess would continue on Customs Duty. Similarly, Education Cess on Income Tax at 2% and 1 % of Additional Surcharge [SHE Cess] will continue for the Financial year 2015-16, for all tax payers.

The Ministry of Human Resource Development, Department of School Education & Literacy, in its letter dated 15th June 2007, in response to an RTI enquiry by the author provided the following information:

(Rs. in crores)

The HRD Ministry informed that the question of diversion of any amount from the Cess collected does not arise inasmuch as the Government has opened a non-relapsable Prarambhik Shiksha Kosh (Fund) where the Cess, which could not be utilised is stored and Cess drawn as and when required.

Though the Cess was imposed in 2004, it was only in November 2005 that the Prarambhik Shiksha Kosh was constituted. Once the outlay for Sarva Shiksha Abhiyan (SSA) and Mid-Day Meal (MDM) was approved by the Planning Commission, the Finance Ministry deducted the estimated Cess amount that may be collected to determine the budgetary support. The estimated receipts of Rs. 8,746 crores for the year 2006-07, Rs. 10,393 crores for the year 2007 and Rs. 12,817 crores for the year 2008-09, has been transferred to the Kosh.

Since the collection of the Education Cess was rapidly outstripping the Budget allocations for primary education, the latter became less and less each year.

Surprisingly there have been variations on the actual amount collected from the Education Cess as given by the Ministry of Finance, Department of Revenue, the Ministry of Human Resource Development and the CAG of India.

The latest figures available in the Budget Documents (2014-15) indicate the following collections from the Education Cess.

According to the National Assessment Survey conducted by the National Council for Educational Research and Training (NCERT) less than two out of three students in Class III, can read and understand a passage and fewer than two out of three can do simple Division.

In 2014-15, the Government according to Budget estimates will collect an estimated Rs. 33,818 Crores through its Education Cess, accounting for over 80% of the amount it will spend on the SSA & the MDM programmes.

It can be seen from the above figures that the taxpayers have become the direct financiers of India's most important Flag Ship Programme. However, the question is whether the taxpayers are getting a proper return on their investment. According to the reports of the HRD Ministry the amount which has been credited to the Prarambhik Shiksha Kosh for being spent on SSA and the MDM Programmes remain unspent due to the fact that the State Governments need to spend Rs. 25/- for every Rs. 75/- the Centre gives. Some of the States with budget deficits such as Bihar, Jharkhand, Uttar Pradesh & West Bengal have not been able to allocate such funds on Education to match the Centre's grant,with the result the SSA and the MDM Programmes which would have really helped in improving the literacy and the quality of the population could not utilize the vast resources available at its disposal.

Instead of depending upon the States, it is not understood as to why the HRD Ministry should not step in and open Central Schools in every District and Taluk, to provide quality education at lesser cost and an Industrial training Institute in every Taluk and other major towns within the Taluk so that we can develop a reservoir of trained manpower. It is not enough to start a few Institutes of Higher Learning such as All India Institute of Medical Sciences in six or seven States, an IIT in Karnataka and upgrading the Indian School of Mines, Dhanbad into an IIT and a Postgraduate institute of Horticulture Research and Education in Amritsar and IIMs in J&K and Andhra Pradesh, etc. What we need is availability of educational facilities for the 'Aam Admi' and not Institutes of Higher Learning to a few. We need both, but there should be a proper balance.

It appears that by abolishing the Education Cess on Excisable Goods, by a sleight of hand the revenue from the Education Cess would become part of the Consolidated Fund of India and would not be utilized for the purpose for which it was originally levied. Once it is part of the Consolidated Fund of India, then it can be diverted for any Non-Plan Expenditure. The Finance Minister has also given a hint that the levy of Education Cess and SHE Cess on Income Tax would be continued for the Financial Year 2015-2016, implying that it would not be levied from 2016- 2017 and would be subsumed in the Income Tax levy.