NEW DELHI: Amid strong reservations expressed by states over the growing share of surcharges and cesses in the Centre’s total gross revenue, finance minister Nirmala Sitharaman told parliament that the major reason for the increase is the imposition of GST compensation cess, which is entirely used for payment of compensation to states.
The finance minister informed that the share of surcharges and cesses in the Centre’s gross revenue has gone up from 8.6% in 2010-11 to 28% in 2021-22. The finance minister also said that resources from the other cesses (other than GST compensation cess) are allocated to different schemes and programmes in the Union Budget, which are implemented by states and other implementing agencies.
Surcharges and cesses are collected for specific purposes, and revenues collected through them are not part of the Centre’s tax pool, which is shared with the states. As per the 15th Finance Commission recommendations, the Centre has to share 41% of its tax revenue with the states. This is the reason for several states raising concern over the growing share of surcharges and cesses in the Centre’s gross tax collection.
Major cesses include the GST compensation cess, road and infrastructure cess, agriculture infrastructure and development cess, as well as health and education cess. Major surcharges include surcharges on corporate and income taxes.
In 2021-22, the Centre collected gross tax revenue of Rs 27 lakh crore of which Rs 7.6 lakh crore was collected through different surcharges and cesses. However, the government collected only Rs 1.05 lakh crore through GST Compensation Cess in 2021-22. The Centre raised around Rs 2.7 lakh crore only through different cesses on petroleum products. Surcharges and health & education cess on corporate and income taxes accounted for around Rs 1.10 lakh crore in 2021-22.
In his pre-budget meeting with the finance minister in November, the finance minister of Tamil Nadu Palanivel Thiagarajan said that the increase in cesses and surcharges has deprived the states of their legitimate share of revenue collected by the Union government. He has advised the Union government to merge the cesses and surcharges into the basic rates of tax 3 so that the states receive their legitimate share in devolution.
State vs Centre finances
28%: Proportion of cess and surcharge in Centre’s gross tax revenue in 2021-22
8.6%: Proportion of cess and surcharge in Centre’s gross tax revenue in 2010-11
Rs 2.7 lakh cr collected through cesses on petroleum products in 2021-22
Rs 1.05 lakh cr collected through GST Compensation Cess in 2021-22
Rs 7.6 lakh cr collected through cesses and surcharges in 2021-22