GST — 9 Months Later

The Goods and Services Tax (GST) has been in existence for close to nine months now. By now, we have sufficient data and other evidence to figure out, how well the nation has taken to this new tax.

Let’s first start with how the GST collections have been between July 2017 and February 2018. Take a look at Table 1.

 

Table 1: GST collections

(Amount in Rs Crores) MonthCollection
August, 201793,590
September, 201793,029
October, 201795,132
November, 201785,931
December, 201783,716
January, 201888,929
February, 2018*85,174

Source: Lok Sabha Unstarred Question Number 4809 and www.pib.nic.in
* Up to March 26, 2018.

As can be seen from Table 1, the GST collections have fallen over the months, after having peaked in October 2017. Let’s dig into the numbers in a little more detail. The total GST collections for the month of February 2018 stand at Rs 85,174 crore. Out of this the central GST amounts to Rs 14,945 crore. In the month of January 2018, the total central GST collected had amounted to Rs 14,233 crore.

If this trend of central GST collected continues in the months to come, the central government might get into some major trouble on the revenue front. The question is why? In 2018-2019, the central government expects to collect a total of Rs 6,03,900 crore, as central GST. This amounts to Rs 50,325 crore per month, on an average.

The current central GST collections are nowhere near this number.

In comparison, in February 2018, Rs 42,456 crore was collected as integrated GST, which is split between central and state governments. In January 2018, the total integrated GST collected had been at Rs 43,794 crore.

Further, Rs. 12,140 crores is being transferred from integrated GST to central GST account for February 2018. Thus, the total central GST collection for the month will be at Rs 27,085 crore (Rs 14,945 crore + Rs 12,140 crore). This is nowhere near the Rs 50,325 crore that the central government expects to collect every month through central GST.

If this trend continues in 2018-2019, the revenue expected to be earned from GST, will be way short of what has been projected, unless central GST collections improve significantly from their current level.

Clearly, there is a problem here.

Around 1.05 crore taxpayers have been registered under GST up until now. Out of this number 86.37 lakh taxpayers are required to file a monthly return, the rest come under the composition scheme and are required to file the GST return quarterly.

Of the 86.37 lakh taxpayers who need to file their returns monthly, 59.51 lakh filed their return for the month of February 2018, up until March 25, 2018. This basically means that only 69% of taxpayers who are required to file a monthly return, did so. So, nearly a third of the taxpayers who are supposed to be filing tax returns, aren’t doing that currently.

The question is why is this happening? The GST network carried out a survey in October and November 2017, and the answers it got are fairly interesting. Let’s take a look:

1) There were gaps in general understanding of the electronic processes for complying on GST Portal (Specific technical Issues like Digital signature related problems etc.)

2) Helpdesk is not able to respond to problems effectively.

3) Mistakes in return cannot be corrected.

4) Site performance being slow and has multiple problems.

5) Contextual help not available. Errors are generic and non-intuitive.

6) It is extremely difficult to reach helpdesk. It takes a long time to respond to issues escalated.

In fact, almost all the issues raised above could have been tackled if the government hadn’t launched GST in a hurry and come up with a simpler system design. Also, system design isn’t really a strong point with the Indian government. This clearly comes out in the answers to the survey. Anyone who has filed his income tax return would vouch for this.

Over and above what the survey found out, the World Bank in a recent report provided evidence regarding the complexity of the Indian GST system. As the World Bank said: “The Indian GST system currently has 4 non-zero GST rates (5, 12, 18, and 28 percent)… Most countries around the World have a single rate of GST: 49 countries use a single rate, 28 use two rates, and only 5 countries including India use four rates. The countries that use four or more rates of GST include Italy, Luxembourg, Pakistan and Ghana. Thus, India has among the highest number of different GST rates in the world.”

The Indian politicians may have their reasons for doing this, but multiple rates, do complicate things for those who need to follow the GST system (remember self-assessment is at the heart of this system).

Take a look at Figure 1.

Figure 1:Other than having too many rates of tax, India also has one of the highest GST rates in the world. As the World Bank pointed out: “Comparing the design of India’s GST system with those prevailing internationally, we note that the tax rates in the Indian GST system are among the highest in the world. The highest GST rate in India, while only applying to a subset of goods and services traded, is 28 percent, which is the second highest among a sample of 115 countries which have a GST (VAT) system and for which data is available.”

Take a look at Figure 2.

Figure 2:Basically, there are too many design issues with India’s GST, making the system essentially complicated for people to follow. To this criticism, people have pointed out that the earlier system of multiple tax rates with no input credit was even more complicated. This is true. But people making this criticism do not get two points.

First, their criticism is valid for the indirect tax system that prevailed on the sale and movement of goods. It is not valid for services. The service tax system was inherently simpler than the current GST, even though no input tax credit was available (but then the rate tax was also lower at 15%). And 50% of the Indian economy is services, is a point which is worth remembering. Also, the service tax had to be paid after it had been collected from the customer. Now, GST needs to be paid, after the invoice is raised, irrespective of whether the GST has been paid or not.

This has led to many a small entrepreneur facing working capital issues, and in the process financing big corporations, which take their own sweet time to make the payment. As a freelance writer, we have been facing this problem at our small level as well. And it’s not a great place to be in.

Second, the entire idea behind GST was to expand the tax base and get more people to pay tax. A complicated system of filing returns goes against this entire idea. In July 2017, the total number of taxpayers who were required to file tax returns stood at 59.57 lakhs. This has since then increased to 1.05 crore. Nevertheless, the total tax collected has fallen from Rs.92,283 crore to Rs 85,174 crore. What explains this increase in number of taxpayers and falling tax collections? The complicatedness of the GST system.

The GST council is handling this in a very piecemeal manner, where they keep coming up with new rules every month, and create a bigger headache for those who have to follow the system. Instead, what is needed is the simplification of the entire system of following and filing the GST. And that is easier said than done because among other things it would mean admitting to having screwed up, which politicians don’t like to do.

Of course, it is unfair to just blame the system design. Tax evasion, as always, continues. But that was always a given. A simpler system would have clearly helped in tackling this.

The column was originally published on April 2, 2018, on Equitymaster

 

 

Point blank: 7th Pay Commission recommendations will hit govt finances hard

rupee
The Seventh Pay Commission has recommended a 23.6% increase in salaries of central government employees, as well as pensions of retired central government employees. This largesse will cost the government Rs 1,02,100 crore in 2016-2017, the report estimates.

The report estimates that this increase will work out to 0.65% of the gross domestic product (GDP) in 2016-2017.  In comparison, the awards of the Sixth Pay Commission had worked out to 0.77% of the GDP.

The report points out that “while projecting the GDP for 2016-17, we assumed that the real growth rate of GDP will be 7.5 percent and inflation will be 4 percent in 2016-17.” This is perhaps a little overoptimistic, but let me not nit-pick.

Also, the 0.65% of the GDP number may be lower than what the number might eventually turn out to be because it does not take into account the impact of recommending one rank one pension for central government employees as well as para-military personnel.

Further, the trouble with expressing amounts as a percentage of the GDP is that it does not always show the correct picture. It is important to understand what will be the impact of the ‘extra’ Rs 1,02,100 crore on government finances.

In 2005-2006, the total government expenditure had stood at Rs 5,06,123 crore. A decade later in 2015-2016, the total government expenditure is projected to be at Rs 17,77,477 crore. This means an increase in expenditure at around 13.4% per year.

In 2005-2006, the total receipts of the government (less its borrowings) or what it earned, stood at Rs 3,59,688 crore. Ten years later in 2015-2016, the total receipts of the government(less its borrowing) is expected to be at Rs 12,21,828 crore. This means an increase in earnings at around 13% per year.

I am calculating these numbers so as to be make a rough projection for the receipts as well as the expenditure of the government in 2016-2017, the next financial year. Looking at the long-term trend we will assumethat for 2016-2017, the receipts of the government will go up by 13%, whereas its expenditure will go up by 13.4%. While the chances of things playing out exactly like this are low, but please indulge me, in order to understand the broader point I am trying to make.

Hence, the government receipts for the year 2016-2017 are likely to be at Rs 13,80,666 crore (1.13 times Rs 12,21,828 crore, the projected receipts for 2015-2016). The government expenditure for the year is likely to be around Rs 20,15,389 crore (1.134 times Rs 17,774,77 crore, the projected expenditure for 2015-2016).

This expenditure for 2016-2017 does not include the Rs 1,02,100 crore cost of the recommendations of the Seventh Pay Commission. We need to add this.

Hence, the total expenditure is likely to be at Rs 21,17,489 crore. Against this, the government will earn Rs 13,80,666 crore as receipts.

This means that the government will run a fiscal deficit of around Rs 7,36,823 crore. Fiscal deficit is the difference between what a government earns and what it spends. In 2015-2016, the fiscal deficit is projected to be around Rs 5,55,649 crore or 3.9% of the GDP. So what will the fiscal deficit work out to be in 2016-2017 as a proportion of the GDP?

For 2015-2016, the nominal GDP(i.e. not adjusted for inflation) is assumed to be at Rs 14,108,945 crore. The Seventh Pay Commission assumed a real GDP growth of 7.5 percent and an inflation of 4 percent in 2016-17. We will stick to the same numbers and hence assume a nominal GDP growth of 11.5% (7.5% real GDP growth plus 4% inflation).

This would mean the nominal GDP in 2016-2017 would be Rs 15,731,474 crore (1.115 times Rs 14,108,945 crore, the GDP projected for 2015-2016). Hence, the fiscal deficit as a proportion of GDP for 2016-2017 would work out at 4.7% (Rs 7,36,823 crore expressed as a proportion of Rs 15,731,474 crore).

This means the Seventh Pay Commission recommendations if accepted, will push up the fiscal deficit to 4.7% of the GDP from this year’s 3.9%. And this isn’t a good thing, given that the government is trying to achieve a fiscal deficit of 3.5% of the GDP by 2016-2017 and 3% of the GDP by 2017-2018.

The broader lesson here is that if things continue in the way they are now the Seventh Pay Commission recommendations are likely to screw up the government finances big time by pushing up the fiscal deficit.

The way to avoid this situation is by increasing receipts or cutting down on expenditure. If salary expenditure goes up, then other productive expenditure like capital expenditure may have to be cut. And that can’t be good news for the economy.

Further, if the government believes in good economics it needs to shut down loss-making public sector enterprises, but that is unlikely to happen.

On the receipt side the option to raise income tax rates is always there. But that will be a very unpopular move. The finance minister Arun Jaitley in his last budget speech had said: “I, therefore, propose to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years.” So if corporate tax rate is likely to be brought down, that doesn’t leave the government with many options in order to increase its receipts. Perhaps, we may see the service tax rate being raised further in the next budget.

We may also see the government resorting to more standalone surcharges and cesses, like it already has in the form of Swacch Bharat cess. The government will also have to fasten the pace of disinvestment, something most governments haven’t shown interest in doing up until now.

Also, this year the government benefitted substantially from lower oil prices. It captured a major part of the gains by raising excise duty and not passing on the gain to consumers. Next year, any incremental help from falling oil prices may not be available.

All in all, the recommendations of the Seventh Pay Commission, if accepted, will not work out well for the government finances, unless it chooses to change the current way of doing things. Further, it is best that the government instead of accepting an increase of 23.6%, settles at a lower number between 12-15%, to control the damage on its finances.

The government as expected remains optimistic. As the finance secretary Ratan Watal put it: “We will handle this.” I really hope it does.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost.com on Nov 20, 2015

More reasons on why Swacch Bharat cess is a bad idea

narendra_modi
In the November 16 edition of The Daily Reckoning
I had written a column on the recently implemented Swacch Bharat cess. In this column I had talked about how the Swacch Bharat cess is an example of maximum government.

In today’s column I want to make give more reasons on why the Swacch Bharat cess is a bad idea. Just to recount for readers who hadn’t read the earlier column, on November 6, the Narendra Modi government decided to implement a Swacch Bharat cess. The cess amounts to 0.5% on all services, and has pushed up the effective rate of service tax to 14.5%, from the earlier 14%. The cess has come into effect from November 15, 2015.

Any tax that the central government collects needs to be shared with the state governments. But that isn’t the case with cesses as well as surcharges that it collects. The money raised through cesses as well as surcharges is not shared with the state governments.

In fact, take a look at the accompanying table. In 2013-2014, the cesses and the surcharges collected by the central government amounted to Rs 71,713.7 crore. This formed 8.79% of the total tax revenue remaining with the central government after handing over the share of the state governments.

 

Cesses and surcharges (in Rs crore)2013-20142014-20152015-2016
Total cesses and surcharges71713.7102859.4117460.5
Total tax revenue remaining with central govt after sharing with states815854.2908462.8919842.3
Cesses and surcharges as a percentage of total tax revenue remaining with central govt8.79%11.32%12.77%
Source: www.indiabudget.nic.in

In 2014-2015, the cesses and surcharges collected by the central government jumped by a huge 43.4% to Rs 1,02,859.4 crore. They formed 11.32% of the total tax revenue remaining with the central government after handing over the share of state governments. In 2015-2016, this number is projected to further jump to 12.77%. That’s a jump of close to 400 basis points (one basis point is one hundredth of a percentage) between 2013-2014 and now.

What does this tell us? Since the Narendra Modi government has come to power a greater proportion of the central government’s tax revenue is coming from cesses and surcharges. Take a look at the following table. Look at the last two entries which are in bold (The entries before that are exactly the same as in the earlier table).

Cess and surcharge (in Rs crore)2013-20142014-20152015-2016
Total cess and surcharges71713.68102859.4117460.5
Total tax revenue remaining with central govt after sharing with states815854.2908462.8919842.3
Cess and surcharges as a percentage of total tax revenue remaining with central govt8.79%11.32%12.77%
Total tax revenue of the central govt113873412513911449491
Cess and surcharges as a percentage of total tax revenue 6.30%8.22%8.10%
Source: www.indiabudget.nic.in

In 2013-2014, cesses and surcharges formed around 6.30% of the total tax revenue earned by the central government. After the Modi government took over, the number has jumped to more than 8%.

This has been made possible through several things. In the budget presented in February earlier this year, the finance minister Arun Jaitley had subsumed 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% including the cesses is being rounded off to 12.5%,” Jaitley had said during his budget speech. The clean energy cess was hiked from Rs 100 to Rs 200 per metric tonne of coal. The existing excise duty on petrol and diesel to the extent of Rs 4 per litre was converted into a road cess. And there was an enabling provision for the Swacch Bharat cess as well.

What is the problem here? The Modi government made a lot of song and dance about increasing the share of state governments in the tax revenues collected by the central government from 32% to 42%. After having done that, it has also managed to increase the amount of money collected through cesses and surcharges which it does not need to share with the state governments.

This goes against the entire idea of cooperative federalism which Narendra Modi had passionately espoused after coming to power. In fact,  the 14th finance commission report released earlier this year had pointed out: “Almost all States have argued that cess and surcharges should form part of the divisible pool, with some suggesting that this should be done if cess and surcharges continue for more than three years.”

The education cess which brings in a bulk of the money collected under cesses, has been around for a very long time. In fact, the Comptroller and Auditor General in a recent report had pointed out that not all the money collected through the education cess went towards education.

As a news-report in The Economic Times points out: “The CAG report said that against the total collection of Rs 130,599 crore as primary education cess, only Rs 119,197 crore was transferred to the Prarambhik Shiksha Kosh in public account from 2004-05 to 2013-14, resulting in a short transfer of Rs 11,402 crore in the Prarambhik Shiksha Kosh.”

The cess on education as well as the new Swacch Bharat cess which will be used for improving sanitation, raises a very important question. If cesses have to be collected for things as important as education and sanitation, what is the government doing with all the actual tax revenue that it is raising? The tax revenue is essentially being used to finance what we can safely call maximum government. While Narendra Modi had promised to change that, up until now he has operated more or less similarly like the Congress governments before him.

For a cess to be effective it is important that it be ring fenced properly. Take the case of the cess on diesel implemented by the Atal Bihari Vajpayee government to finance the national highway development programme. It was a proper ring-fenced cess where there was total clarity of what the money collected under the cess will be used for.

In comparison, the definition of the Swacch Bharat programme remains very vague and given that it will be very difficult to ring-fence it properly. Also, it needs to be asked how effective can a central government be in implementing a cleanliness and sanitation programme at the local level throughout the country. And given that wouldn’t it make more sense in sharing the money raised with state governments?

To conclude, in order to woo foreign investors to invest in India, the finance minister Arun Jaitley has been talking about a fair and predictable tax regime. In fact, at the 11th Indo-US Economic Summit in September earlier this year he had said: “We can evolve into fairest and predictable taxation regime in India.”

How about offering a fair and predictable tax regime to the Indian tax payer as well, Mr Jaitley?

The column was originally published on The Daily Reckoning on Nov 19, 2015

Swacch Bharat cess shows minimum government is just a slogan

narendra_modi
On November 6, earlier this month, the Narendra Modi government decided to implement a Swacch Bharat cess. The cess amounts to 0.5% on all services, and has pushed up the effective rate of service tax to 14.5%, from the earlier 14%. The cess has come into effect from yesterday i.e. November 15, 2015.

The first question that needs to be asked is how much money will the cess end up raising for the government? During the first seven months of this financial year between April and October 2015, the service tax collections have grown at an excellent pace of 26%.

The total service tax collected during the period stands at Rs 1,12,727 crore. If the government continues collecting service tax at this pace, it will end up with around Rs 2,11,846 crore (1.26 x Rs 1,68,132 crore, which was the total amount of service tax collected last year).

At a service tax rate of 14%, this would mean that an income of Rs 15,13,186 crore will be taxed (Rs 2,11,846 crore divided by 14%). A Swacch Bharat cess of 0.5% would amount to a total of Rs 7,566 crore (0.5% of Rs 15,13,186 crore) collected during the course of the year. But the cess will be collected only for a period of 4.5 months during the course of the year (between mid-November and end March). Once that is taken into account then the amount likely to be collected through the Swacch Bharat cess will be around Rs 2,837 crore. (This is a simple calculation which doesn’t go into technicalities which arise with any kind of tax collection).

Also, given that more tax is collected during the last few months of the financial year, the number is likely to be higher than this. This calculation works with the assumption that the tax collections are distributed equally through the year, which is not totally correct.

Over the last few days, I have come across news-reports which suggest that the government will be able to collect only Rs 400 crore through the Swacch Bharat cess. This is incorrect.

As a PTI newsreport points out:The additional cess would be over and above the 14 per cent Service Tax rate which is already being levied and may yield the government an additional about Rs 400 crore during the remainder of the current fiscal.”

How did this calculation come about? As I mentioned earlier, the total service tax that is likely to be collected during the course of this year should be around Rs 2,11,846 crore. 0.5% of this amounts equals Rs 1,059 crore for the whole year. For a period of 4.5 months this amounts to Rs 397 crore, or around Rs 400 crore.

But there is a basic mistake in this calculation. The cess of 0.5% is on the total income and not on the total tax.
So that was the mathematical part of this column. Now let’s deal with the more important issues. Why has the government come up with a cess of 0.5% instead of increasing the service tax rate to 14.5%?

The financial impact of both would have been the same. The government would end up collecting the same amount of money. The answer lies in the fact that anything collected as a tax needs to be shared with the states. But anything collected as a cess remains with the central government. And that is why the government has come up with a cess amounting to 0.5%, instead of increasing the tax to 14.5%.

As the 14th finance commission report released earlier this year points out: “Almost all States have argued that cess and surcharges should form part of the divisible pool, with some suggesting that this should be done if cess and surcharges continue for more than three years.” But that is not how things stand currently.

Also, the money raised through the cess is to be allocated to the ministry of urban development and the ministry of drinking water and sanitation. The question is how well can a central government sitting in Delhi run a cleanliness drive across the country? Cleanliness ultimately remains a local issue and can be taken care of in a much better way if the governments at the local level are involved, which will not happen in this case.

The Swacch Bharat cess also goes against Narendra Modi’s pet theme of cooperative federalism, which talks about empowering the state governments. In a letter to chief ministers earlier this year, Modi had said: “This Government is…committed to the idea of empowering states in all possible ways. We also believe that states should be allowed to chalk out their programmes and schemes with greater financial strength and autonomy, while observing financial prudence and discipline.”

Further, should the government have come up with a  cess more than half way through the year and ended up complicating the tax system further, in order to raise an amount of Rs 3,000 crore? The answer is no. (I am no tax expert but you can Google and read all kinds of articles which claim to clear all the doubts regarding the Swacch Bharat cess).

Rs 3,000 crore amounts to just 0.3% of the central government’s total share of revenue of Rs 9,19,842 crore, for this financial year. The government could have easily raised this small amount from other sources without complicating the tax system.

For example, it could have shut down MTNL which faced losses of Rs 2,000 crore during the course of the last financial year. Or it could have shut down many other hugely loss making public sector enterprises which India’s miniscule base of taxpayers continue to fund. After shutting down these enterprises, the government could have looked to sell the massive physical assets like land and building that these enterprises own. These sales can fund the Swacch Bharat campaign many times over in the years to come.

But that would mean working towards a smaller government, which Narendra Modi doesn’t seem to like, even though during the course of his election campaign last year he had promised “minimum government and maximum governance”. But what we have got up until now is nothing along the lines of what was promised.

As Arun Shourie told The Hindustan Times recently: “He doesn’t believe in disinvestment. This government has shown an almost criminal neglect in improving tax administration. His idea of development is to have a few large projects like the Sardar Patel statue, which turns out to be made in China, or a bullet train from Ahmedabad to Mumbai, rather than spend that money to improve the speed of all trains in India by 15 mph. He’s increasing the role of the state in everything. ‘Minimum government, maximum governance’ is just a slogan.””

And that is worrying.

The column originally appeared on The Daily Reckoning on Nov 16, 2015

Why the Swacch Bharat cess is a terrible idea

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010
The government announced a new Swacch Bharat cess, yesterday. The cess will amount to 0.5% on all services, pushing up the rate of service tax to 14.5%, from the current 14%. The cess will come into effect from November 15, later this month.

As the press release announcing the decision said: “Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat…The proceeds from this cess will be exclusively used for Swachh Bharat initiatives.”

This decision is in continuation with something the finance minister Arun Jaitley had announced in the budget speech he made on February 28, earlier this year. As Jaitley had said on that occasion: “It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat.”

Thankfully, the government has resisted the temptation to increase the rate of service tax by 2%, through the cess route and settled at 0.5%.

There are multiple reasons why this is a bad decision. As the press release said: “Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat.” What this clearly tells us is that the Swacch Bharat initiative is an important initiative for the government, as it should be.

And given that, it should be financed out through the primary revenues of the government and not through a cess. If the Swacch Bharat initiative is deemed to be important then it should have first claim on the revenues of the government and shouldn’t be financed through a cess.

Second, any cess essentially ends up taxing the same set of people again. Over the years, the government has made very little effort in trying to expand the tax base by simplifying the tax system as well as cracking down on a large set of Indians who do not pay any tax. The annual report of the ministry of finance for 2014-15 puts the total number of income tax assesses in 2013-2014 at 4.7 crore. These includes individuals, families, trusts and corporates. Given a population of close to 125 crore, what this clearly tells us is that not many Indians pay income tax. And this is something that government needs to improve on, instead of taxing the same base over and over again.

Third, any new tax (as a cess is) adds to the complication of the tax system and this keeps people away from paying tax. Further, in the Indian case, a cess tends to be more of a permanent nature than ad hoc as it should be.

Take the case of the education cess on income tax. It has been around for a while now raising the question that isn’t education important enough to be financed out of the primary revenues of the government.

Fourth, while the government has come up with a Swacch Bharat cess, it is wasting thousands of crore on keeping loss making public sector enterprises alive.

Let’s take the example of Mahanagar Telephone Nigam Ltd(MTNL) which offers internet and telephone services in Mumbai and Delhi.

During the course of 2014-2015(the period between April 1, 2014 and March 31, 2015) the company’s income was at Rs 3,400 crore. Its expenditure on the other hand stood at a much higher Rs 5,284 crore. The government(or rather the tax payer) bore the loss of around Rs 1,900 crore.

Or take the case of the government owned airline Air India. The company has accumulated losses of Rs 20,000 crore. The airline keeps making losses. The government keeps putting more and more money into it.

As this August 2015 news-report by PTI points out: “The Finance Ministry today sought Parliament’s nod for making an additional equity infusion into Air India worth Rs 800 crore, less than half the amount sought by the Civil Aviation Ministry for the national carrier.” Thousands of crore have already been infused into Air India. And with so much money going towards such lost causes, it is not surprising that the government has had to introduce a new Swacch Bharat cess.

Fifth, the government can easily finance Swacch Bharat by selling the shares it owns in Axis Bank, Larsen and Toubro and ITC, through the Specified Undertaking of Unit Trust of India (SUUTI). These shares as on November 6, 2015, were worth Rs 53,472 crore. Some portion of these shares can be sold every year to finance Swacch Bharat. At the end of the day what is strategic about the government holding shares in ITC, a company which earns a major part of its revenue through selling cigarettes? The SUUTI’s holding in ITC is worth Rs 30,210.7 crore.

Sixth, by levying a cess for Swacch Bharat, the government is taking the moral incentive out of the equation. As Nitin Pai of the Takshashila Institution puts it: “Levying a cess dilutes the moral incentive that a borderline conscientious citizen faces. Instead of a gnawing feeling when she sees garbage in public places, the marginal citizen is likely to feel the same-old, “I’ve done my part but the government is not doing its job properly.””

Once all these reasons are taken into account the Swacch Bharat cess is a stupid idea. The Narendra Modi government could have done better than this.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Huffington Post India on Nov 7, 2015