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The Centre-State Cesspool

Prosenjit Datta     January 7, 2019

The central government had long ago figured out that introducing a new cess was a great way to generate tax revenues while pretending that tax rates were being kept low. The great advantage of a cess was that unlike tax revenues, it did not need to be shared with states.

A cess could always be introduced in the name of a worthy goal - like say, education, infra, and roads etc. Ostensibly, this money would be used for a specific purpose - for more public schools, for highways, etc - though in practice the central government has rarely given out details of how much money collected via cess was spent specifically for the purpose it was ostensibly collected, and what were the specific outcomes of that spending.

Now states have caught on to the game. Kerala first mooted the idea of a state cess to help rebuild the state ravaged by floods. Now Uttar Pradesh has mooted the idea of a cow cess. Pretty soon, you could have each state creating and levying multiple state specific cesses. And then the idea of the one country, one tax behind the introduction of the Goods and Services Tax (GST) would be given a quiet burial.


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