The 1% secondary and higher education cess introduced by finance minister P Chidambaram in the Budget on Wednesday is estimated to fetch the government an additional Rs 5,212 crore, but taxpayers will have to shell out about Rs 6,500 crore extra in the coming fiscal to fund public education.

Outlining the reasons for the cess, he said in Parliament, “It has been introduced to fund secondary and higher education as well as for the expansion of capacity by 54% for reservation for socially and educationally backward classes.”

The additional cess will provide the Centre with about Rs 15,636 crore to fund all public education in the next fiscal against the Rs 9,178.38 crore it is expected to collect as education cess in 2006-07.

The decision to levy the new cess comes despite the fact that the Centre has spent only 39% of the funds under the Sarva Shiksha Abhiyan, raised by the education cess in the first eight months of 2006-07.

The move will help the UPA achieve its targets under the National Common Minimum Programme that calls upon the government to double public spending on education to 6% of the GDP over the next five years, from the less than 1% now.

New Slate

• The government estimates to raise Rs 5,212 crore from the additional 1% cess • The 2% education cess is estimated to raise Rs 9,178.38 crore this financial year • It has spent only 39% of the cess funds in the first eight months of 2006-07

It is also in step with the Budget’s focus on the social sector, mainly agriculture, health and education. Chidambaram has introduced many schemes in the education sector in the Budget and has also increased budgetary allocation for secondary education from Rs 1,837 crore in 2006-07 to Rs 3,794 crore in 2007-08.

This cess will also mean the government can carry forward its programme to implement 27% reservation of seats in educational institutions for OBCs. One of the questions in this regard had been how it would finance the programme.

India’s tax system already includes a number of surcharges and cesses, amongst the most important being the cess on high-speed diesel oil, which is expected to bring in Rs 10,200 crore in 2007-08.

Budget Barometer
With cess on education, the top loser seems to be Corporate India
Measures	Implications
• Ad valorem on petrol, diesel: 8% - 6% • Peak rate for non-agriculture products cut to 10% • All coking coal fully exempt from Customs duty • Customs duty on polyester fibres and yarns dropped to 7.5% • Service tax exemption to rise to Rs 8 lakh from Rs 4 lakh • The threshold of income tax exemption increased by Rs 10,000	• Fuel prices could fall n Duties to reach Asean level, protectionism ends • Relief for power plants as inputs to be cheaper • Imported garment sector to get a leg-up, domestic fibre makers to be hit • Two lakh companies to get a breather; revenue loss of 800 crore • Individual taxpayers to get a relief of Rs 1,000