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FM may impose 1% extra education cess

FM may impose 1% extra education cess
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First Published: Tue, Feb 27 2007. 04 26 PM IST
Updated: Tue, Feb 27 2007. 04 26 PM IST
New Delhi: Finance minister P. Chidambaram is considering an increase in the education cess on every tax-paying Indian from 2% to 3% in the Union budget to be presented next week, according to a person familiar with ongoing budget negotiations.
The education fee is levied on all major taxes, including income tax, corporate tax and service tax.
If it ends up in the budget and gets approved, the increased education cess is expected to collect an extra Rs6,000 crore, or about 55% more than what was collected this fiscal year, to help fund new seats in higher education that are required to implement the 27% reservation of seats for other backward classes.
The move to raise the cess, levied on the tax amount and not the total income, comes even as almost two-thirds of the money into the education fund remained unspent in the first eight months of the current fiscal year, as reported on 8 February by Mint.
According to data from the ministry of human resource development, which oversees education programmes, the Centre and state governments released 55% of the funds for Sarva Shiksha Abhiyaan (SSA) in 2005-06. But data available for this fiscal year, through November, shows that only 39% of the funds had been released.
Since 2004, Indians have been paying the cess into the fund for SSA, a universal education programme for children between six and 14 years, and a mid-day meal programme for students. A person earning an annual income of Rs7 lakh, for example, pays Rs3,200 as cess every year. Under the proposed increase, he would pay Rs 4,800.
In this fiscal year, the tax yielded Rs11,000 crore for SSA. The reason why much of it remains unspent so far, even though it gets rolled over, is because states need to spend Rs25 for every Rs75 that the Center gives. Relatively poor states, such as Bihar, Jharkhand, Uttar Pradesh and West Bengal have had trouble allocating such funds and actually make requests for less money than the Centre can give. Ironically, many of these states have the highest number of out-of-school children, meaning the SSA is primarily aimed at such states.
Bureaucratic hurdles are also to blame for the funds not being utilized. “In states like Bihar, red tape is a problem,” M.A.A. Fatmi, minister of state for human resource development, had earlier told Mint. HRD officials maintain they expect fund utilization will speed up as the fiscal year draws to a close.
The number of out-of-school children in India has fallen to 70 lakh in March 2006 from about 1.34 crore in July 2005, according to numbers compiled by states.
The starting figure was compiled in a joint study by the government of India and independent market research agency Indian Market Research Bureau.
The law requiring the 27% reservation of seats was passed in the winter session of Parliament amid much controversy. The Veerappa Moily Committee was tasked with implementing quotas for other backward castes and concluded that all government-funded universities should start implementing reservations for these castes to reach 27% within three years. But, the committee said, the reservations should not mean a decline in the number of seats for general students.
To comply, all colleges have been scrambling to increase capacity over the next three years. “The increase in cess will fund secondary and higher education, particularly the shortfall in the recommendations of the Moily Committee report,” this person said.
The committee said this implies a 54% rise in student admissions at an estimated expenditure of Rs16,563 crore spread over five years.
“We are still apprehensive as to how we will do it,” says Minoti Chatterjee, principal of Kamla Nehru College, an all-women college of Delhi University. “There will be teacher vacancies in all colleges. Architecturally, we are not sure if new classrooms can be built.”
Higher education institutes in India already have a 22% reservation of seats for scheduled castes (SCs) and scheduled tribes (STs).
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First Published: Tue, Feb 27 2007. 04 26 PM IST
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