Why the construction worker welfare tax remains largely unused

The plight of female workers during white trim work in the town of Frazer. Photo credit: Ekta Sawant

One way to be aware of issues of irregularity and poor performance in local government organs and departments is to follow audit reports from agencies such as the Comptroller and Auditor General of India (CAG) .

This article is the fifth in the series: Understanding Public Project Audits, written by experts from India’s Accounts and Audit Service.

The long lines of migrant workers, many from the construction industry, on highways and outside train stations during the COVID-19 lockdown are not such distant, unpleasant memories for most of us. . This vulnerable part of the population has literally been trapped between the devil and the big blue – the loss of work/wages on the one hand and the impossibility of returning home on the other.

But the adversities facing the construction workforce are not limited to pandemic times alone. This segment of the workforce has long suffered from multiple disadvantages such as low wages, high risks, and lack of medical and social security system.

The Karnataka Building and Other Construction Workers Welfare Board was established in 2007 in recognition of the need to provide specific welfare measures to these workers. The objective was to use the funds generated by the imposition of a 1% tax on the cost of construction to provide social benefits to construction workers.

However, several years later, there has been little change in the plight of construction workers. While the funds available at the Council’s disposal have shown healthy growth given the construction boom, its footprint in terms of welfare activities has been rather stunted. Despite being cash rich with a corpus of Rs. 7151.26 crore as of March 2019, the Council has failed to fulfill its mandate.

The Office of the Principal Accountant General (Audit I) conducted a comprehensive audit of the functioning of the Council during the period April 2014 to March 2019 to assess:

  • Whether the Council has achieved the objectives of effectively extending social protection measures to construction workers through the implementation of programs and the creation of infrastructure;
  • Whether the internal control mechanism and human resource management were adequate to support the efficient and economical use of the collected tax.
construction workers at the construction site
Informal sector workers, especially street vendors, construction workers, health and gig economy workers are the sections most affected by the restrictions imposed to fight the coronavirus. file picture

Read more: Women construction workers face serious health and safety risks at work and beyond


The audit examined records from the Commission’s central office, four of the 11 Assistant Labor Commissioners (ALC) offices and six of the 16 district offices. A survey of recipients was conducted to assess the impact of the Commission’s activities on construction workers. Some of the important observations were:

  • Between April 2014 and March 2019, the revenue of the Commission amounted to Rs 5,452.60 crore. However, only Rs 420.72 Crore (7.7%) was utilized for the implementation of social protection schemes.
  • The law stipulates that at least 95% of the funds must be used for the benefit of construction workers and that administrative expenses must not exceed more than 5% of the total expenses for a year. However, it was noted that administrative expenses varied between 9% and 72% of total expenses during the audit period.
  • Virtually no effort has been made to publicize the newly introduced programs. A beneficiary survey was conducted among 286 out of 1,136 workers at 30 construction sites in six districts, in conjunction with labor department officials, to assess the extent of worker registration and outreach construction. The survey showed that only 27% were registered in Karnataka and only 2% were registered in other states. The rest, i.e. 71%, were not recorded and attributed this to lack of awareness, lengthy process, delays in approvals, etc.
  • The benefits have been extended to 3.64 lakh workers, only 3-8% of the total number of registered workers. Assistance under the “Marriage” and “Education” schemes accounted for 82% of the total expenditure of the scheme, while the share of schemes such as pension, accident benefits, maternity and hospitalization, etc. ranged from 0.35% to 9%.
Commercial street reworked after inauguration
Workers digging up Commercial Street after it was damaged by rains after its inauguration. Photo: Ananya Revanna

No data, no awareness

  • The misuse of funds was attributable to many factors. One of the main shortcomings found was that the Council had not conducted any survey or designed any other system to estimate the number of eligible beneficiaries and create a database that would help in decision-making. In addition, the Board did not have details of the number of registered workers, re-registration, number of applications received and benefits paid under each scheme.
  • Despite the presence of an “expert committee” for the drafting of the statutory rules, there were inconsistencies/restrictive clauses which were detrimental to the interests of the construction workers. In the case of the Thayi Lakshmi Bond scheme, under which assistance is provided to a registered worker for the delivery of a child, an amendment has been made to provide assistance in the form of a bond for a minimum period three years instead of a cash payment to the beneficiary’s account. The rationale was unacceptable as it served no purpose and went against the intent of the scheme.
  • Although a time limit was prescribed for the filing of applications, no time limit was prescribed for the approval of applications. Delays in sanctioning grievances ranged from 33 months in selected districts to 78 months at Council level.

Read more: Caught between government, builders and contractors, workers court hunger and misery


  • In the case of educational aid, the Council has changed the rules to limit educational aid to students enrolled in regular courses at recognized institutions physically located in Karnataka. Accordingly, although funds are not a constraint, students enrolled in distance learning courses, home study courses, online courses, etc. were not eligible. The Council cited the expansion of aid to education as the reason for this amendment. This explanation was not convincing as it resulted in restricting the scope of assistance and was particularly detrimental to the interests of the migrant population.
  • Continued failure to obtain exemption under the Computers Act 1961 resulted in avoidable tax liability totaling Rs 2,358.94 crore for the financial years 2011-12 to 2017-18. Funds to this extent could therefore not be used for the purpose for which they were intended.
  • Institutional mechanisms were weak – non-constitution of the State Advisory Committee, delays in developing framework and recruitment rules, 36% vacancy in ALC/OL cadres, absence of internal audit mechanism and grievance settlement. This had a negative impact on the registration of establishments/workers and caused undue delays in the processing of applications.
  • Although it committed Rs 1.66 crore for the development of registration/renewal software etc., the Council had no software to provide better services to workers and monitor the use of funds.

The state government acknowledged the findings and accepted recommendations such as a special campaign to register unregistered workers by linking to ration cards, Jan Dhan Yojana, state RERA data, etc.

The audit report that was filed in the state legislature on December 9, 2020 can be accessed here.

[The authors are from the Indian Audit and Accounts Service. Views are personal.]

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