States ask Centre to rein in reliance on surcharges, cess

In Budget parleys with Finance Minister Nirmala Sitharaman, States seek continuation of GST recompense, greater fiscal support to bolster recovery

Several States, including some governed by the BJP, on Friday urged the Centre to rein in its reliance on raising revenues through cesses and surcharges which reduce their share in the divisible pool of taxes. They also sought greater fiscal support to help revive the economy and reiterated demands for extending the Goods and Services Tax (GST) compensation period.

These issues about the federal fiscal framework were flagged, along with States’ local project wish-lists, at a consultation meeting for the Union Budget of 2023-24, steered by Finance Minister Nirmala Sitharaman in the capital and attended by Chief Ministers, Deputy Chief Ministers as well as Finance Ministers of States.

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Tamil Nadu Finance Minister P. Thiaga Rajan noted that the share of cesses and surcharges had grown from 10.4% of gross tax revenue in 2011-12 to 26.7% in 2021-22. “This has deprived the States of their legitimate share of revenue collected by the Union Government. I exhort the Union Government to merge the cesses and surcharges into the basic rates of tax so that the States receive their legitimate share in devolution,” he submitted.

His plea was echoed by other States, including Kerala’s Finance Minister K.N. Balagopal who told The Hindu that this was a question of federalism. “The Centre has been increasing surcharges and cesses despite the Constitution setting conditions for its imposition. We have been raising this in various forums. But in this meeting, I was happy to note that several BJP-ruled States, including Assam, supported this argument. They also supported our demand for extending the GST compensation, which needs a political decision by the government,” he said.

Hours after the meeting, where States like Tamil Nadu also raised concerns about pending dues from the five-year GST compensation window for States that expired on June 30 this year, the Finance Ministry said it had released ₹17,000 crore to States on Thursday towards the “balance GST compensation for the period April to June, 2022”.

“With this release, Centre has released, in advance, the entire amount of Cess estimated to be collected this year till March-end available for payment of compensation to States. This decision was taken to assist the States in managing their resources and ensuring that their programmes especially the expenditure on capital is carried out successfully during the financial year,” the Ministry said.