Informist, Thursday, Sep 12, 2024

--Kerala CM: Important for states to get central funds without riders
--CONTEXT: Kerala CM Vijayan at Fiscal Conclave
--Kerala CM: Urge fin panel to up states tax devolution share to 50%
--Kerala minister: Hope fin panel proposals aid cooperative federalism
--Kerala minister: Hope fin panel suggestions address states concerns
--Kerala minister: Fin panel needs to reward population control steps
--Kerala minister: See limitation in horizontal tax share to states
--Kerala minister: Centre cutting tax divisible pool by new surcharge
--Kerala minister: Centre cutting divisible pool of taxes by new cess
--Kerala minister: Centre cutting divisible pool of taxes to states
--Kerala minister: Strengthening states key to India's fisc foundation
--Kerala minister: Committed to improve fiscal efficiency in India
--Kerala minister: States suffering fisc squeeze on low tax devolution
--CONTEXT: Kerala Minister Balagopal at Fiscal Conclave in Kerala
--Kerala minister: Indian cooperative federalism at "bad place"
--Telangana Dy CM: Centre must let states spend as per local priorities
--CONTEXT: Telangana Dy CM at Fiscal Conclave in Kerala
--Dy CM Telangana: Centrally sponsored plans put strain on state fisc
--Tamil Nadu Minister: High spend on central plans squeezes state fisc
--Tamil Nadu Minister: Low devolution of taxes squeezes state finances
--Karnataka Minister:Cess over 5% should be tax divisible pool's part
--Karnataka Minister: Urged fin panel to cap cess, surcharge at 5%
--CONTEXT: Karnataka minister at Fiscal Conclave in Kerala
--Karnataka Minister: Losing 200-220 bln rupees/yr post-GST regime

--Punjab minister: Hope fin panel considers states revenue loss post GST
--Punjab minister: Saw significant fall in revenue after GST rollout
--CONTEXT: Punjab minister at Fiscal Conclave in Kerala
--Punjab minister: GST regime limited fiscal autonomy of states

THIRUVANANTHAPURAM – The 16th Finance Commission, led by economist Arvind Panagariya, should consider raising the share of states in the divisible pool of taxes to at least 50% from the current 41%, Kerala Chief Minister Pinarayi Vijayan said today at the Conclave of Finance Ministers. Telangana Deputy Chief Minister Bhatti Vikramarka Mallu, and Tamil Nadu Finance Minister Thangam Thennarasu, who were also present at the conclave, echoed the sentiment on devolution of taxes.

Kerala also wants the finance commission to reconsider the weight of various criteria for horizontal devolution of taxes. Kerala's share in tax devolution came down to 1.92% during the 15th Finance Commission period, from 3.05% during the 11th Finance Commission period, Vijayan said.

The 15th Finance Commission period is set to end on Mar 31, 2026. The 16th panel is to submit its report on the layout of Centre-state financial relations for five years starting 2026-27 (Apr-Mar) by the end of October 2025.

There are major limitations in the criteria for states' share in horizontal devolution of taxes, said Kerala Finance Minister K.N. Balagopal, who was also present at the conclave. The 16th Finance Commission needs to reward population control steps, Balagopal said. In fact, each of the ministers--including those from Karnataka, Punjab--present at the Conclave, highlighted the stark imbalance in sharing of central funds based on population.

In a departure from the past, the 15th Finance Commission used the 2011 census to decide the tax distribution, with a separate factor to reward control of the population. This move meant states with higher populations, as per the latest census, would get more funds from the Centre. This irked many southern states that have over the decades brought their population sharply under control.

Apart from unfair criteria for horizontal devolution, the Centre has also lowered the shareable portion for vertical devolution of taxes by introducing cess and surcharge, Balagopal said. To this, Karnataka Revenue Minister Krishna Byre Gowda added that the 16th Finance Commission should put a cap of 5% on cess and surcharge. "Cess over 5% should be in the divisible pool of taxes."

Vertical devolution refers to the distribution of net tax proceeds between the Centre and the states.

Though Karnataka pitched for capping of the share of cess and surcharge in the Union government's total tax collections, it is beyond the ambit of the finance commission. However, the southern states have collectively requested Panagariya's delegation to calculate the share of taxes by factoring in the rising cesses and surcharges, which are beyond the divisible pool.

Karnataka's Revenue Minister Gowda also highlighted that the state has lost 530 bln rupees in the last five years on account of the rise in cess and surcharge in the Centre's gross tax revenues. The 15th Finance Commission had mandated 41?volution to states from the Centre's gross tax revenue, but owing to rising cess, they are receiving only around 30% of total union taxes, the ministers said.

Indian states are suffering from a fiscal squeeze due to the lower devolution on account of a smaller divisible pool, both Kerala Minister Balagopal, and Telangana Minister Mallu said. The centrally sponsored schemes put additional strain on the states, Mallu added.

States have complained in several instances that, for every penny that the Centre spends on centrally sponsored schemes, states have to invest twice or thrice the amount, and even then these projects are marked as part of the Centre's projects.

States have also been losing out on funds as the Centre has linked the transfer of some funds to certain conditions, Balagopal said. The central government must allow states to spend as per their own local priorities, Mallu added.

Another key concern that the ministers voiced was that of revenue loss on account of the implementation of goods and services tax. Karnataka has been losing 200-220 bln rupees every year in the post-GST regime, the state's Revenue Minister Gowda said. Punjab has also seen a significant fall in revenue since the roll-out of GST, and its introduction has limited the states' fiscal autonomy, Punjab Finance Minister Sardar Harpal Singh Cheema said.

The Centre rolled out GST in 2017 that subsumed most state-wise indirect taxes like Value-Added Tax, and service tax and instead replaced them with uniform tax applicable across jurisdictions. This was done to halt the cascading of taxes. However, VAT and excise continues in states on liquor and oil. Under the GST regime, there is central GST--Centre's revenues, state GST—states' revenues and integrated GST--divided between the Centre and states in a fifty-fifty ratio.

India's cooperative federalism is in a "bad place", Balagopal said. However, states are hopeful that the 16th Finance Commission will address the concerns of the states and help improve cooperative federalism.

The 16th Finance Commission has currently been holding meetings with state governments to understand their concerns. "We have got the impression that the 16th Finance Commission is willing to recognise the contribution of the states and recalibrate," Karnataka's Gowda said. "We are hoping the gross injustice meted by the 15th Finance Commission will be partially corrected by the 16th commission."

"Strengthening states is key to India's fiscal foundation. We are committed to work towards better fiscal efficiency in India." Balagopal said. End

Reported by Krity Ambey and Priyasmita Dutta

Edited by Aditya Sakorkar

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