Public Accounts Committee flags failure to transfer ₹9,222 crore in cess collections to designated reserve funds

Published 2026-09-09 · Updated 2026-09-09 · 3 min · 569 words

UPSC CSE Context

Why in News

PAC flagged non-transfer of ₹9,222 crore cess collections to designated reserve funds in 2024-25, citing CAG Report No. 6 of 2026.

Syllabus Connection

GS Paper 2: Parliament and State Legislatures—functioning, conduct of business, powers of PAC; GS Paper 3: Government Budgeting, fiscal policy, public finance.

Exam Relevance

High for UPSC CSE Mains: tests understanding of parliamentary financial oversight, cess vs. surcharge, and fiscal federalism; Prelims may ask about specific cesses or PAC powers.

Core Issue

PAC flags non-transfer of cess collections to reserve funds.

Key Development

CAG found ₹9,222 crore cess collections not transferred to four reserve funds in 2024-25.

Stakeholders

• Public Accounts Committee (PAC)
• Union Finance Ministry
• Comptroller and Auditor General (CAG)
• State governments
• Citizens/taxpayers

Static Knowledge

High-Value Background

• Cess is a tax on tax, levied for a specific purpose and not shared with states, unlike divisible pool taxes.
• PAC is a parliamentary standing committee that examines CAG audit reports on government expenditure.

Exam Linkage

• Useful for questions on parliamentary control over public finance and the distinction between cess and surcharge.

Concepts in Context

• Reserve funds are created under statutory provisions or executive orders for specific purposes, financed by cesses and levies.
• Consolidated Fund of India is where all government revenues are credited, and withdrawals require parliamentary approval.

Dynamic Analysis

Fiscal Federalism

• Cess collections are not part of the divisible pool, reducing states' share in central taxes.
• Non-transfer to reserve funds further centralizes resources, undermining cooperative federalism.
• States have no direct say in cess utilization, exacerbating vertical fiscal imbalance.
• PAC's concern highlights the need for transparent earmarking of cess proceeds.

Parliamentary Oversight

• PAC's criticism of Finance Ministry's explanation shows tension between executive and legislature.
• Ignoring PAC recommendations weakens parliamentary financial control.
• CAG's audit findings provide evidence for PAC to hold government accountable.
• Repeated non-compliance may erode public trust in fiscal governance.

Fiscal Prudence

• Finance Ministry argues idle balances in reserve funds are fiscally imprudent.
• But non-transfer of cess collections violates the purpose for which they were levied.
• Using cess proceeds to finance deficit contradicts the principle of earmarking.
• Large dormant funds indicate poor fund utilization and monitoring.

Governance and Transparency

• Lack of regular crediting to reserve funds reduces transparency in public finance.
• Dormant reserve funds and deposit accounts reflect weak financial management.
• Periodic review of cess collections and objectives is essential for accountability.
• Citizens bear the burden of cess but may not see intended benefits.

Prelims Takeaways

• Cess is not shared with states; surcharge is also not shared.

Mains Value Addition

Arguments

• Cess collections must be used for designated purposes to maintain fiscal credibility.
• Non-transfer to reserve funds undermines the principle of earmarked taxation.
• Parliamentary oversight through PAC is crucial for enforcing financial accountability.
• Fiscal prudence should not override statutory obligations of fund transfers.

Examples

• PMSSN shortfall of ₹6,646 crore in 2024-25 despite collections of ₹21,085 crore.
• Oil Industry Development Fund: only ₹902 crore transferred against cumulative collections of ₹3,12,782 crore.

Data Points

• Cess collections in 2024-25: ₹3,89,220 crore, 10.25% of gross tax revenue.

Counterpoints

• Finance Ministry claims net excess transfer of ₹1,681 crore when including MUSK.
• Revised Estimates for 2025-26 may address earlier shortfalls.

Way Forward

• Conduct periodic scientific assessment of cess amounts, duration, and achievement of objectives.
• Strengthen PAC follow-up mechanisms to ensure compliance with its recommendations.
• Improve transparency by publishing details of cess collections and fund utilization.

Primary/reference source: Economy