Taxed by the Pandemic, Centre may go for a Coronavirus Cess in Budget 2021

The government has discussed a coronavirus cess or surcharge ahead of the budget to fund additional spending due to the pandemic, including that on vaccines, sources aware of the matter told ET. Some preliminary talks on revenue-raising measures have been held, but a final decision on whether to impose a new levy in the form of a cess or surcharge will be taken closer to the budget, which is scheduled to be announced on February 1.

In its budget recommendations, the industry has asked that no new taxes be levied as the economy is under stress. Experts also opposed the idea, saying the timing wasn’t right.

“Proposal for a cess has been discussed,” said one of the persons cited above. Initial discussions have centred around a small cess on high-income earners and some indirect taxes. Another proposal is to add a cess to excise on petroleum and diesel or on top of customs duties. The goods and services tax is administered by the GST Council and the Centre cannot unilaterally levy a cess on it. Private estimates peg expenditure on the vaccine rollout, including logistics, at ₹60,000-65,000 crore.

Many States had Imposed Cess

India will start the inoculation drive on January 16. The Centre is likely to bear the cost of vaccination, although distribution, manpower training and logistics are being handled by the states. Besides, additional spending is also likely on infrastructure, the rural economy and the Atmanirbhar Bharat Rozgar Yojana in the next financial year to support the economy. The Centre prefers a cess to generate funds quickly instead of raising taxes. Central cess collections aren’t shared with states under revenue devolution.

Many states had imposed a cess on their taxes earlier in the fiscal after the pandemic broke out to raise funds after revenues plummeted as spending slowed – GST is the biggest source of revenue for states.

Jharkhand introduced a Covid cess on minerals, while Punjab imposed more tax on liquor. Delhi imposed a 70% corona cess on liquor, which was withdrawn in June but VAT was raised. “The fact that a large part of the population, especially the MSMEs and individual taxpayers, have been adversely impacted and that many households are struggling financially due to job losses and salary cuts, it is advisable to maintain status quo on the tax rates," said Vikas Vasal, national leader, tax, Grant Thornton Bharat LLP.