CHENNAI: Tamil Nadu Finance Minister Palanivel Thiaga Rajan on Thursday made a strong demand to the Union government to merge the cesses and surcharges into the basic rates of tax so that states receive their legitimate share in devolution.
Participating in the pre-budget meeting chaired by Union Finance Minister Nirmala Sitharaman in New Delhi, Rajan said, "The fathers of the Constitution provided the states with some powers of taxation and mandated a sharing of taxes between the Union and states. This original balance which was already skewed against true fiscal federalism has been skewed even further towards the Union over a period of time."
Elaborating on this, Rajan pointed out that the increased levy of cesses and surcharges, which do not form part of the divisible pool of taxes, has adversely affected the transfer of resources to the states.
"Cesses and surcharges as a proportion of the Gross Tax Revenue of the Centre have almost tripled from 6.26 percent in 2010-11 to 19.9 percent in 2020-21. In effect, states are deprived of a share in approximately 20 percent of the revenue collected by the Union," the minister underscored.
Rajan said if these taxes were added to the divisible pool, the states would have obtained an additional transfer of approximately Rs. 1.5 lakh crore as their share from the pool of central taxes during the current financial year.
Throwing more light on the consequences of the above realignment, the minister said the ratio of grants-in-aid to share in central taxes has increased from 62.67 percent in the financial year 2010-11 to 130.7 percent during 2020-21 for Tamil Nadu.
"While the share in taxes is a legitimate right and provides the state the autonomy to cater to local needs and aspirations, the grants-in-aid are discretionary and tied funds. This greatly impinges on the federal structure enshrined in the Constitution,” he added.
Rajan also demanded the rollback of the Union government's recent decision to increase the GST for the textile and apparel sector from 5 percent to 12 percent saying this move would increase the financial burden on already-stressed MSME textile and handloom sectors which are reeling under the effects of the Covid pandemic.
The minister sought the immediate intervention of the Union government to control the rising prices of goods and raw materials such as steel, copper, aluminum, coke, brass, and cotton yarn through suitable modifications such as in import duty structure, as they have an inflationary effect on the prices of all other commodities.