State Finance Ministers on Friday urged Union Finance Minister Nirmala Sitharaman to come forward and play a larger role — in the current uncertain global economic scenario — in improving financial health of the States. They called for steps such as phasing out of Centre’s practice of resorting to increased levy of cesses and surcharges, which not being part of tax divisible pool tended to reduce the revenue share of the States; continue the system of GST compensation grant for the next five years after June 2022 besides clearing of pending GST compensation dues at the earliest.

These demands and suggestions came at the pre-budget meeting that the Finance Minister Sitharaman had with State Finance Ministers in the capital. Later in the day, the Finance Ministry announced disbursement of ₹ 17,000 crore to the States towards GST compensation pending for April -June 2022.

Reviving economy

Addressing the pre-budget meeting, Tamil Nadu Finance Minister Palanivel Thiaga Rajan said that considering the persistent macroeconomic challenges, the Union Government should come forward and play a greater role to support the States in reviving economic growth in the country.

He said that the practice of Union government in continuously increasing the levy of cesses and surcharges is “antithetical to the spirit of fiscal federalism”. 

The cesses and surcharges, which do not form a part of the divisible pool of taxes, have adversely affected the transfer of resources to the States, he said.

Cesses and surcharges, as a percentage of gross tax revenue have increased manifold from 10.4 per cent in 2011-12 to 26.7 per cent 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”, he added.

K N Balagopal, Finance Minister of Kerala, said that the Centre may either take measures to phase out such practice of levy of cesses and surcharges or devise a legally tenable mechanism so that States would be benefited on pro-rata basis. 

“The Union may restrict surcharges and cesses as a fixed per cent of Gross Tax Revenues (GTR) so that the divisible pool of taxes does not shrink substantially. At present, the share of divisible pool is less than 30 per cent of GTR when fifteenth Finance Commission has recommended 41 per cent of the net proceeds be distributed to the States. This gap should come down”, Balagopal added.

Meanwhile, Chhattisgarh Chief Minister Bhupesh Baghel on Friday reiterated the State’s demand of refund of NPS amount, GST compensation and transferring of the amounts collected as ‘additional levy’ from coal block companies. 

He urged Centre to transfer the coal royalty amount of ₹ 4140 crore to the State at the earliest. 

Secure future

Demanding refund of NPS amount, Baghel said the State government has restored old pension scheme in Chhattisgarh for securing the future of government employees and their families. He added that ₹ 17,240 crore deposited with NSDL till March 31 should be returned so that it can be put in the general provident fund of the employees. 

Baghel further informed the Union Finance Minister that the State government’s share will be deposited in a separate pension fund, which will be used to meet pensionary obligations in future. Along with this, it will be invested in Government of India and State government securities.

The Chief Minister said Chhattisgarh had requested to continue the system of GST compensation grant for the next five years after June 2022, but it was not increased. He demanded an amount of ₹1,875 crore for GST compensation be settled at the earliest.

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