Union Budget 2021 India: Will there be a Covid-19 Cess?

Published: 15-01-2021

The curious eyes and ears of India’s Union Budget-2021 enthusiast are anxiously waiting to know about the actual implementation of a pandemic cess in GST and Income tax. By introducing this additional cess/surcharge, the government of India is planning to generate extra revenue to fund the cost of vaccination for Covid through this cess.

Prior to the unveiling of budget-2021 on 1st February 2021, by honorable Finance Minister of India, initial rounds of discussions regarding revenue-sharing were taking place. Industry-wide experts are of the opinion that owing to financial crunch witnessed by our economy, the timing might not be feasible to impose it.

Owing to the economic slowdown, the states are finding it difficult to generate revenues and corporate tax-cuts. For a major part of 2020, GST (Goods and Service Tax) has also faced its share of challenges. To add to it, India’s growth rate is projected to be contracting by 7.7% and on the other hand Fiscal deficit is expected to rise. As per report from PTI “India has already crossed 135% of its fiscal deficit targets for FY 21 in December-2020.”

At the same time, as per estimates from various private sources, the vaccination and other allied cost may amount to the tune of Rs.60,000 to 65,000 crore ( estimated as a total for all the phases). The centre might be bearing the cost while the operational and the logistics expenditure be borne by the states.

An analysis by the industry wide experts says that there will be many roadblocks, for implementing this new surcharge and not to forget the wide -variety of reactions by the different levels of taxable income group of our country.

The first and most important would be how to implement the cess and subsequently introducing a clause to pull it back. Here arises the important question -as to how much would be the percentage of Covid-19 Cess on direct taxes? A study by the tax-experts says that it would be proportional to funds required to be raised, at the same time being balanced by remaining internationally competitive in the present scenario of lowering of corporate taxes.

Secondly, it is very important to have time bound implementing deadline for this kind of taxes, only when its extension could be avoided, otherwise a lack of it would mean a very difficult situation to wrap-it-up.

The Centre cannot take a one-sided decision on levying the cess, since GST (Goods and Service Tax) is regulated by the GST council of India.As per Economic Times , Delhi Friday, 15th January 2021 “While the constitution provides that the GST Council may recommend imposition of any special rate to raise additional resources during any natural calamity or disaster, the imposition of cess will open the Pandora box for levying cess in future even by states”.