Budgetary Treatment of Indian Earmarked Taxes : A Tale of Governance Gaps

Earmarked taxes (called cesses) imposed by the Indian federal government contribute to approximately one-tenth of the federal tax revenues. An analysis of their budgetary treatment reveals many inconsistencies including whether proceeds are maintained in the consolidated fund or extra-budgetary funds. On account of the various processes to be fulfilled by different authorities, the proceeds remain unutilized in the consolidated fund. Consequently, federal government are able to understate their fiscal deficit, which reveals a reason for the popularity of the earmarked taxes