A one-day conclave of Finance Ministers from five opposition-ruled states took place in Kerala’s capital on Thursday (September 12).
The meeting, chaired by Kerala Finance Minister K.N. Balagopal, was attended by Telangana Deputy Chief Minister Mallu Bhatti Vikramarka, Karnataka Revenue Minister Krishna Byre Gowda, Punjab Finance Minister Harpal Singh Cheema, and Tamil Nadu Finance Minister Thangam Thennarasu.
Discussions revolved around recommendations to the 16th Finance Commission, which will decide the financial relations between the Centre and the States.
State leaders pressed for a larger share of tax revenues from the central government and raised concerns over the rising use of cesses and surcharges by the Centre. Here are the key takeaways from the conclave:
1. Increase in states’ share of divisible pool: Finance Ministers from the five states called for the States’ share in the divisible pool of central tax revenues to be raised from the current 41 per cent to 50 per cent.
The divisible pool is the portion of gross tax revenue distributed between the Centre and States, excluding cesses and surcharges levied for specific purposes.
2. Cap on cesses and surcharges: Kerala Chief Minister Pinarayi Vijayan said the cess and surcharge levied by the Centre was showing a “rising trend” and resulting in the “shrinkage” of states’ share in the divisive pool of taxes.
A cess is a type of tax imposed by the government for specific purposes, until the government is able to collect enough funds for that purpose. For instance, infrastructure cess is levied to generate funds for infrastructure projects across the country.
The Ministers proposed that any amount collected above a set cap should be included in the divisible pool and shared with the states. Karnataka Revenue Minister Krishna Byre Gowda suggested a cap on the Centre’s cesses and surcharges at 5 per cent of gross tax revenue.
3. Stop “penalising” states that perform well: The ministers asked the ‘penalising’ of well-performing be stopped. The issue revolves around the devolution formula used by the Finance Commission of India, which determines how tax revenues collected by the central government are divided among the states.
States have argued that the current formula, which places significant emphasis on factors such as population and income inequality (favoring poorer states) disproportionately benefits less developed states, despite their poorer governance or performance on developmental metrics.
4. Declining revenue share for Tamil Nadu: Tamil Nadu Finance Minister Thangam Thennarasu highlighted that the state’s share of the central tax pool has been steadily decreasing.
Tamil Nadu’s allocation has dropped from 7.93 per cent under the Ninth Finance Commission to 4.07 per cent under the 15th Finance Commission. Thennarasu called for a reversal of this trend to ensure equitable treatment for all states.
5. Impact of GST on states’ fiscal autonomy: Punjab Finance Minister Harpal Singh Cheema raised concerns over the Goods and Services Tax (GST) regime, stating that it has limited the fiscal autonomy of states.
Punjab has seen a considerable decline from its pre-GST revenue base. “I’m certain that other states also have faces losses. This is an issue which I hope the 16th Finance Commission will thoroughly consider,” The Hindu quoted him as saying.
Cheema urged the Finance Commission to review the losses incurred by states due to GST and ensure that states are compensated adequately.
6. Federal Balance of Power: Telangana Deputy Chief Minister and Finance Minister Mallu Bhatti Vikramarka stressed the need for recalibrating the Centre-States financial relationship.
He called for a more equitable and federal approach, arguing that the current financial policies of the Centre were stifling the development of states and eroding their financial autonomy.
With inputs from agencies
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Cess to taxes: Key takeaways from meeting of five opposition-ruled states in Kerala
