Why levy a Cess for education?

A question of priorities and an excuse for extravagance

Taxpayers and restaurant-goers in India will find a cess (2%) and a higher education cess (1%) added to their taxes and bills. The cesses are earmarked taxes collected to ostensibly finance education and higher education.

Like with most of the budget, few ask why this must be so.

The fundamental purpose of government revenue—the reason it collects all sorts of taxes on income, sales, excise—is to fund development expenditure. What could be more important for our country than spending on basic education, public health and basic infrastructure? Whatever the government spends on these heads must be fully financed from its primary revenues. In other words, these subjects should have the first claim on the government’s resources. Whatever might be our politics or ideology, no one can deny that these should be our priorities, and after we have adequately provided for these, we should spend on other things.

Why then does the government charge a cess for education and another cess on higher education? This seems to suggest that the fundamental priorities of the government are not concerned with improving the lot of the poor, the needy and the citizenry as a whole, but something else. The message is “Ladies and gentlemen, since we’ve allowed other things to have the first claim on the government’s revenues, we don’t really have money for the most important priority, so we’re raising earmarked funds for education.” Beyond the technicalities of the economic effect of the cess, and without regard to ideological positions on how education ought to be delivered, the fundamental signal here is that the government’s priorities are wrong. The government is like an irresponsible husband wasting the family income on useless things and then seeking help to support his children’s school fees.

The cess is what is known as an earmarked tax. In terms of its economic effects, it has been found that “earmarking can be beneficial, but the conditions for this are quite strong and are rarely met in practice. The earmarked tax (which may be a separate tax or a fixed proportion of a broad tax) needs to be kept separate from other revenue, be applied exclusively to the expenditure programme for which it is identified, and fully fund (but not over-fund) that programme rather than being mixed with general revenue.”

Money is fungible. If you give 100 rupees to a college student to buy his books, and he uses 100 rupees of his own pocket money to buy cigarettes, it’s tantamount to your money being used for cigarettes. This is the gimmick involved in the education & higher education cess. People who might object if the government had charged a “Moon Mission cess”, a “Nuclear Arsenal cess” or a “Petrol Subsidy for the Middle Class cess” are less likely to do so if the cess were collected for a “good cause”. That does not change the fact that every rupee collected in the name of an education cess is a rupee being spent on the most wasteful, most extravagant and most unnecessary items.

The finance minister needs to explain why a cess is necessary when tax revenues have been growing steadily over the last two decades. If the government has the money to subsidise unwarranted tablet computers for college students, why does it burden with cesses?

The making of the March to Dandi

How to move the masses

Mahatma Gandhi and his companions began walking towards Dandi on March 12, 1930. Here are some excerpts from Thomas Weber’s remarkable On the Salt March – The historiography of Mahatma Gandhi’s march to Dandi that illuminate the logic, planning and strategy that went into it.

Before salt was seized upon as the issue for the campaign, Gandhi had come around to believing that while salt in excess may be harmful, a tax is no way to teach moderation…The poor, he claimed, need more salt that they eat and their cattle need more than impoverished farmer can afford. This along with the question of the right of a foreign government to tax a naturally occurring substance became the key issues in the salt debate.

It is quite probable that the final decision to make the salt tax the focus of the agitation came when the “Monograph on Common Salt” produced by the (Federation) of Indian Chambers of Commerce fell into Gandhi’s hands. The brief of the monograph was to examine “the great possibility of making Indian self-contained in her supply of salt.” In the course of presenting its case the document went into great detail tracing the history of the salt revenue in India. It was resplendent with well argued propositions that would have been useful in helping to make up an indecisive mind. The topics touched on included “Rationale of Salt Eating”, “More Salt Needed in the Tropics” and “A Poor Man Needs More Salt than a Rich One”. Mahadev Desai’s article in Navajivan of 2 March 1930 closely followed the arguments of the monograph and already a week before that date the monograph was recommended to Congressmen by Jawaharlal Nehru in a circular to Provincial Congress Committees.

Four days before the (Dandi) March commenced, in a speech at Ahmedabad, Gandhi told his audience that, “I want to deprive the government of its illegitimate monopoly of salt. My aim is to get the salt tax abolished. That is for me one step, the first step, towards full freedom.”

In reality the tax was relatively small and there was no popular mass agitation for its repeal. The breaking of laws against salt did not appear to be the stuff of a struggle for national independence. Motilal Nehru was amused and perhaps even angered by the irrelevance of Gandhi’s move. Indulal Yajnik, (a Gujarati radical), asked “Wouldn’t the Salt Campaign…fail to arouse the enthusiasm of the youth of the nation? Wouldn’t they all see through the farce of wielding a sledge hammer—of satyagraha—to kill the fly of the Salt Act?” But Gandhi knew the mind of rural India better than any of them.

The action that Gandhi planned was largely symbolic—the salt produced by illicit means would be impure and probably unpalatable, but it was breaking a British law which earned rulers money at the expense of the masses. The taking of salt was…the taking of power away from the rulers. It was a symbol of revolt and a very practical symbol at that.

Gandhi expected a long drawn-out movement during which a large mass of people had to be mobilised so the method of struggle needed to be a simple one, one capable of generating emotional feelings and one which everyone could understand everyone, down to the humblest peasant, could participate in. It also had to be a means of action that the government could not prevent in its early stages…Furthermore an attack on the salt tax did not threaten Indian vested interests and so was not alienating the non-Congress supporters.

The authorities were waiting for the March to fail; Gandhi and his supporters had to ensure that it did not. The careful selection of the route was one way to help facilitate the materialisation of the desired outcome. The students of the nationalist university at Ahmedabad, the Gujarat Vidyapith, under the direction of Kakasaheb Kalelkar were deeply involved in the planning stages. A team led by Narhari Parikh search books and records for information on salt and the Salt Laws and then channelled the material back to Mahadev Desai for use in his articles and Gandhi’s correspondence with the Government. Another group, led by Sardar Vallabhbhai Patel, undertook an economic survey of the Matar taluka, the first area the March would pass through after leaving Ahmedabad…Ravishankar Maharaj scouted the area around the Dharasana saltworks and reported back to Gandhi before the March got under way.

Gandhi insisted that (women) stay behind at the Ashram. He explained “Women will have enough opportunity to offer satyagraha. Just as Hindus do not harm a cow, the British do not attack women as far as possible. For Hindus it would be cowardice to take a cow to the battlefield. In the same way it would be cowardice to have women accompany us”

Possibly the strangest inclusion (into the list of Marchers) was Haridas Muzumdar. Muzumdar had lived much of his life in the U.S.A. as a scholar and teacher and propagandist for the cause of Indian independence…It appears that Muzumdar, who was often to prove something of an odd man out during the journey, was included partially for political reasons—Gandhi liked his propaganda work and approved of the Gandhi biography he had written.

(The list of Marchers included one person from Fiji—“originally of U.P. but born in Fiji”—and one from Nepal. There were two Muslims, one Christian and the remaining 76 were Hindus. There were 12 graduates: 7 of Bombay University, 3 of Gujarat Vidyapith and 2 of foreign Universities).] Most of the Marchers to be were between twenty and twenty-five years.) [Thomas Weber, On the Salt March pp 89-121]

Slapping cess

How you should react if the government increases taxes to subsidise petrol

Over at Barbad Katte, Ramesh makes a startling call:

Here is a possible response to the Petroleum Minister’s proposal to levy a cess on income tax payers in lieu of a hike in the price of fuel. Get hold of your neighbourhood Congress man and give him one tight slap. [Barbad Katte]

No, no, it’s not a partisan thing. Go read his post to understand why.

Now, this blog deplores the use violence to make political points (and this has to be said, because there are always some irony-deficient, metaphor-deaf people). Instead, it recommends that taxpayers to line up in large numbers and vote against the simians making economic policy.