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Finance Minister Arun Jaitley sacrificed some of his excise duty collections on petroleum products by passing it to road cess, which has a specific statutory purpose, but he has also taken away money meant for primary and secondary education by exempting petrol and diesel from education cess.
For 2015-16, the total collection under the Central Road Fund is expected to increase 86 per cent to Rs 43,100 crore. This has been made possible because Rs 3.49 (48 per cent of the increase of Rs 7.25 in excise duty since November 2014) has been shifted to road cess in the case of unbranded petrol and Rs 3.36 for branded petrol. The government, however, has also moved about 50 paise a litre on petrol out of the education cess component and to road cess.
The case is similar for diesel, too. The finance minister has taken Rs 3.70 of the excise component in unbranded diesel and Rs 3.63 in branded diesel to supplement road cess. Simultaneously, 30 paise and 37 paise (for unbranded and branded diesel, respectively) on account of education cess have been annulled but the amounts have been adjusted in higher road cess. Though the restructuring hadn't affected petrol and diesel prices, the government was making an enabling provision to increase road cess by an additional Rs 2, said Abhishek Jain, tax partner, EY. The road cess has been increased from Rs 2 to Rs 8 for both the fuels, but the effective rate is Rs 6 as of now.
The road cess levy goes to the Central Road Fund, used for the construction of roads and road-over-bridges. While there has been a 50 per cent rise in government support for the roads sector, budgetary support for education has dropped about three per cent to Rs 54,893. Clearly, the National Democratic Alliance (NDA) government is laying more stress on infrastructure.
The government has done away with the levy of education cess introduced by the United Progressive Alliance government in 2004 from excise duty on all products from March 1, 2015, and from service tax after the finance Bill is cleared by Parliament.
"As part of the movement towards GST (goods and services tax), I propose to subsume the education cess and the secondary and higher education cess in central excise duty. In effect, the general rate of central excise duty of 12.36 per cent, including the cesses, is being rounded off to 12.5 per cent," Jaitley had said while presenting the Budget last week. Education cess at a rate of three per cent will, however, continue to be levied on direct tax and customs duty.
Jain said merging education cess with excise and service tax was required to ring in the GST regime from 2016-17.
A road cess of Rs 1.50 a litre was introduced by the NDA government under Atal Bihari Vajpayee in 2000. Since April 2005, Rs 2 a litre was collected on petrol and diesel as additional excise duty. This went to the Central Road Fund, of which 50 paise cess from diesel went towards national highways. From the remaining Rs 1.50, 50 per cent of the cess collected from diesel was routed to rural road development. Another 50 per cent and the entire cess collected on petrol were allocated to national highways (57.5 per cent), road-over-bridges and unmanned level crossings (12.5 per cent), and state roads (30 per cent). The National Highways Authority of India funds the National Highways Development Project by leveraging the cess flow to borrow additional funds from the debt market.
