The increase in the size of the tax kitty owing to cesses and surcharges is being appropriated by the Centre via subterfuge.
Author
Deepanshu Mohan, Professor of Economics and Director, Centre for New Economics Studies, O.P. Jindal Global University, Sonipat, Haryana, India.
Summary
The recent protests by Southern state governments, notably Kerala and Karnataka, supported by other non-Bharatiya Janata Party-ruled states, have highlighted concerns regarding fiscal federalism in India.
Fiscal federalism is concerned with understanding which functions and instruments are best centralised and which are best placed in the sphere of decentralised levels of government. It involves vertical and horizontal dimensions.
Within the domain of vertical devolution, which includes sharing of resources between the Union and states, there are two disturbing trends that need urgent redressal, as argued by professor R. Ramakumar.
Ramakumar argues that the Union government is keeping more of its earnings out of the divisible pool to avoid sharing with states. It’s also not devolving the share of net proceeds to the states, as mandated by successive Finance Commissions.
Central taxes that are shared with states go into a divisible pool, while cesses and surcharges are excluded. The share of the latter has increased from around 10% in 2011-12 to as much as 25% in 2021-22.
However, the increase in the size of the tax kitty owing to cesses and surcharges is being appropriated by the Centre via subterfuge.
Published in: The Wire
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