Swachh Bharat Cess

The Swachh Bharat Cess (SBC) was a tax levied by the Government of India to fund and support the Swachh Bharat Abhiyan (Clean India Mission). Introduced in 2015, this cess was imposed on all taxable services to generate dedicated revenue for improving sanitation, cleanliness, and waste management infrastructure across the country. It represented the government’s attempt to link fiscal policy directly to a major public health and cleanliness initiative.

Background and Introduction

The Swachh Bharat Cess was announced in the Union Budget of 2015–16 and came into effect on 15 November 2015 under the Finance Act, 2015. The cess was introduced at a rate of 0.5% on all taxable services, effectively increasing the overall service tax rate from 14% to 14.5%.
This levy was not a tax in itself but an additional charge over and above the existing service tax, with its proceeds earmarked exclusively for financing Swachh Bharat-related activities. The legal authority for imposing the cess came from Chapter VI of the Finance Act, 2015, which empowered the central government to levy and collect it as a duty of excise or service tax.
The Swachh Bharat Cess formed part of the government’s broader agenda to achieve the objectives of the Swachh Bharat Abhiyan, a national cleanliness campaign launched on 2 October 2014 by the Prime Minister of India, coinciding with the birth anniversary of Mahatma Gandhi. The mission aimed to eliminate open defecation, improve solid waste management, and promote hygiene practices across urban and rural India.

Objectives and Purpose

The primary purpose of the Swachh Bharat Cess was to:

• Mobilise additional financial resources to support cleanliness and sanitation projects.
• Promote public participation and awareness regarding cleanliness and hygiene.
• Strengthen waste management systems and improve public health standards.
• Encourage behavioural changes towards maintaining a cleaner environment.

Funds collected under this cess were to be used for activities directly linked to the Swachh Bharat Mission, including the construction of toilets, waste collection and disposal, rural sanitation, and campaigns promoting hygienic practices.

Mechanism of Levy and Collection

The Swachh Bharat Cess was levied on the value of taxable services as defined under the Finance Act, 1994, and collected in the same manner as the service tax. Key features included:

• Rate: 0.5% on the value of taxable services.
• Applicability: All taxable services were covered unless specifically exempted.
• Payment and Return: The cess was paid to the Central Government and reported in service tax returns using designated accounting codes.
• Utilisation: Unlike regular tax revenues that merge into the Consolidated Fund of India, the proceeds of this cess were meant to be used exclusively for sanitation initiatives.

Scope and Coverage

The cess applied to a wide range of services, such as telecommunications, banking, insurance, hospitality, entertainment, and transportation, among others. However, services already exempt from service tax—such as healthcare, education, and certain transport services—remained outside its ambit.
The inclusion of almost all taxable services ensured that the revenue base for the cess was wide, thereby generating substantial funds for cleanliness initiatives without imposing a heavy burden on any single sector.

Implementation and Administration

The administration of the cess followed the same procedures as those applicable to the service tax system, which was under the jurisdiction of the Central Board of Excise and Customs (CBEC), later restructured as the Central Board of Indirect Taxes and Customs (CBIC). Service providers were required to clearly mention the amount of Swachh Bharat Cess on invoices issued to customers.
The government emphasised transparency and accountability in the use of funds, with the revenue channelled towards urban and rural development ministries for implementing sanitation projects.

Relationship with Krishi Kalyan Cess and GST

Following the success of the Swachh Bharat Cess, the government introduced another levy called the Krishi Kalyan Cess (KKC) in 2016 at a rate of 0.5%, aimed at financing agricultural development. As a result, the total indirect tax on services increased to 15% (14% service tax + 0.5% Swachh Bharat Cess + 0.5% Krishi Kalyan Cess).
However, both these cesses were abolished with the implementation of the Goods and Services Tax (GST) regime on 1 July 2017, which subsumed various central and state indirect taxes into a single comprehensive tax framework. Under GST, the concept of separate cesses on taxable services was largely discontinued, though specific compensatory cesses continue to exist for select goods and services.

Economic and Social Significance

The Swachh Bharat Cess symbolised a shift in India’s fiscal approach by linking taxation directly to a social welfare objective. Economically, it represented a small yet steady revenue stream that funded public sanitation programmes without major fiscal disruption. Socially, it reinforced the notion that cleanliness is a shared national responsibility, involving both citizens and government institutions.
Some of the benefits and impacts included:

• Increased government funding for rural and urban sanitation infrastructure.
• Enhanced public awareness and participation in cleanliness campaigns.
• Acceleration of toilet construction under the Swachh Bharat Mission.
• Better coordination between local bodies and central agencies in implementing sanitation policies.

Criticism and Challenges

Despite its noble objectives, the Swachh Bharat Cess faced certain criticisms:

• Administrative Complexity: The additional cess complicated tax compliance for businesses already dealing with multiple levies.
• Transparency Concerns: Questions were raised about how efficiently the funds were utilised and whether they reached the intended beneficiaries.
• Marginal Contribution: The revenue generated, though symbolically significant, was relatively small compared to the overall funding requirements of the Swachh Bharat Mission.
• Short Tenure: The cess remained in operation for less than two years before being merged under GST, limiting its long-term impact.