The Imperial Gazetteer of India defines cess as a levy, imposed over and above the basic tax liability of a person or body corporate, and earmarked for a particular purpose. In modern times, cess is imposed by governments with a qualifying prefix such as “education cess” or “irrigation cess”, to be used for resource and infrastructure development.
In modern Pakistan, imposition of cess has become synonymous with large-scale industry in the country. The most obvious examples, of course are Gas Infrastructure Development Cess (GIDC); and Infrastructure Cess imposed by custom authorities, ostensibly collected to develop gas pipeline and port facilities, respectively.
Both measures have been contested in courts since their imposition almost a decade ago. And are cited as textbook examples of poor public finance management, used by subsequent governments as tools to plug revenue gaps, instead of infrastructure development.
But the history of cess collection in fact goes back to colonial India, when the fiscal measure became synonymous with imposition of Cotton Cess Act in 1923. The imposition of cotton cess, however, requires a step back in history.
According to US Department of Commerce & Labor publication titled “Cotton Fabrics in British India”, back in 1857, there was only one mechanized steam-powered cotton mill in United India when subcontinent came under direct Crown rule.
By the end of First World War, the industry had undergone a mushroom growth, with over 220 units all over subcontinent. Domestic market was no longer dependent on finished yarn and cloth imported from mills of Lancashire. Before the war, textile mills in this north-western English region had boasted over fifty percent share in global textile output.
However, unlike Lancshire industry, Indian cotton mills had access to indigenous cotton production of highest quality. As textile units in Britain began to shut down in the post-war era fuelling unemployment, the colonial government imposed a cess on production and export of Indian cotton products, to protect Lancashire industry from colonial competition.
Ironically, that cotton cess imposed almost hundred years ago had also been imposed with the ostensible purpose of “improvement and development of the growing, marketing, and manufacture of cotton”, just like cess imposed in the modern times by Pakistani government. The cess was levied on all mills that convert ginned cotton into yarn whether for domestic consumption or exports, to be collected under a fund established and expended by a ‘Central Cotton Committee”.
The Committee has since lived on as Pakistan Central Cotton Committee, a national apex body empowered to collect monthly returns, collect cess, and inspect mill records. Article 12 of the Act defined application of proceeds of cess “to be used for promoting agricultural and technological research in the interest of cotton industry” after deduction of incidental expenses of the Committee and its functions.
The dismal situation of cotton crop in the country over the past decade indicates that something is amiss in PCCC’s discharge of its functions. Its responsibility towards advancing the cause of cotton research in the country appears to be going sorely unfulfilled. As chairman Karachi Cotton Association pointed out in an interview with BR Research, no new cotton variety has been introduced for at least last three years, even as crop performance continues to deteriorate year after year.
But agricultural cess collection is not limited to cotton. Pakistan also has a Sugarcane (Development) Cess Rules, dating back to 1964. Because cane is often understood to be the preferred crop of large landholders, cess is collected from both zamindar and processing mill.
As in the case of cotton, sugarcane cess is also collected for the stated objective of advancing research for development of new cane varieties. And while the crop has done well compared to cotton in recent years, development and marketing of new varieties has been far and few, with industry association emphasizing the cess funds needs to be reallocated for the purpose of R&D.
It is no surprise that much like colonial times, funds collected as cess since independence have been misused – or at least misallocated – to plug fiscal gaps. However, as extreme weather events and climate change have shown in recent years, Pakistan’s agriculture sorely feels the need to introduce fresh varieties that are both climatically resilient, have higher productivity, and generate better returns for growers. The federal and provincial governments may very well be too cash-strapped to allocate additional funds for agricultural research in the country. However, they must at least ensure utilization of crop cess for the purpose they are collected - or abolish them.