CESS AND SENSIBILITY

Southern states say cess and surcharge eat into their share of resources, urge 16th Finance Commission to consider contribution to national economy

- INDIVJAL DHASMANA

As the 16th Finance Commission, headed by Arvind Panagariya, takes feedback from stakeholders, some states have complained to it that the Centre is increasingly taking recourse to cess and surcharge to circumvent its recommendations on tax devolution. Southern states have again raised the issue of giving more weight to the criterion of population control in deciding the transfer of central taxes to the states or else revert the population yardstick to the 1971 Census against the 2011 one considered by the 15th Finance Commission.

The southern states also wanted to reduce the weight given to the income distance criterion and, instead, consider the contribution of states to the national economy as one of the yardsticks.

Finance commissions use different yardsticks to recommend transfer of funds from the Centre to the states.

These generally are income distance, population, area, etc. A few commissions considered additional criteria, such as demographic change, population control, tax efforts, fiscal discipline, forest cover, and index of infrastructure.

The 16th Finance Commission would give its recommendation for the five-year period from 2026-27 to 2030-31.

Divided over divisible pool

Tamil Nadu Chief Minister MKStalin says the commission should devolve at least 50 per cent, if not more, of the divisible pool to states. Karnataka Chief Minister Siddaramaiah supports this line of thinking.

The divisible pool consists of all Central taxes-income tax, customs duty, excise duty, and goods and services tax-but does not include cess and surcharge.