The building cess fund is one of those slumber funds which are rarely looked upon in ordinary course of governance but now is attaining heroic status because of India’s fight against corona. As a financial Advisor, I used to always feel after seeing one percent deduction in construction contracts that what purpose this recovery against building cess will fulfill besides being statutory compliance.However, the recent announcement of centre government advising the states to use money available in building cess funds has given a role of white Knight to this fund.
State governments have over Rs 52000 crore under this fund and they are likely to use this fund to do direct transfer of money to registered construction workers.The success of this plan though will depend on the format in which the states have stored the details of construction workers.Those states who have a better registry with account details and other related details may do better than those who are having either incomplete details or are still working on manual accounting system.While the implementation of the above depends on the administrative capacity of the state, the financial utility of Building cess is certainly a case study for many who are working in the realm of Public finance.
The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act) stipulates the welfare measures that have to be undertaken by the employers for its workers in the construction and building industry. Further, the Building and Other Construction Workers Welfare Cess Act, 1996, (Cess Act) has been enacted for levy and collection of cess on the ‘cost of construction’ incurred, from the relevant ‘employer’ with a view to augment the resources for the Building and Other Construction Workers’ Welfare Boards constituted under the BOCW Act.
The building cess under the above act has to be paid on any ‘construction project’ which is above a certain level of expenditure.The cost above which it is applicable is determined by the State governments in their respective acts. However, the percentage of cess levied cannot be less than one percent of the cost of project and not more than 2 percent of the cost of project. The provisions of these acts are applicable to both private and public projects. Interestingly, the major contributors to this cess are also state and central governments who are majorly engaged in doing developmental expenditure.
The building cess is an important tool to mitigate the economic impact of Corona lockdown as it neither burdens the revenue deficit or fiscal deficit of the state nor it amounts to any deficit financing by the centre government.It is like an unintentional saving done by the states which may come very handy in these rainy days provided that enough administrative and accounting capacity available with the state to do the transfers and other expenditure meticulously from this fund.