{"id":35266,"date":"2025-01-11T19:00:23","date_gmt":"2025-01-11T13:30:23","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=35266"},"modified":"2025-01-11T19:00:24","modified_gmt":"2025-01-11T13:30:24","slug":"states-for-tax-devolution","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/11-01-2025\/states-for-tax-devolution","title":{"rendered":"Union Government Releases \u20b91.73 lakh Crore to States for Tax Devolution"},"content":{"rendered":"\n<p><strong>Syllabus: GS2\/ Polity, Centre-State Relations, GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Centre released tax devolution of \u20b91.73 lakh crore to the state governments to accelerate capital expenditure and finance welfare activities.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A <strong>higher amount<\/strong> is being devolved this month <strong>to enable states<\/strong> to accelerate <strong>capital spending and finance<\/strong> their development and welfare-related expenditures.<\/li>\n\n\n\n<li><strong>Uttar Pradesh, Uttarakhand and Bihar <\/strong>have received the largest shares of funds.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is Tax devolution?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Tax devolution <\/strong>refers to the<strong> distribution of tax revenues<\/strong> between the<strong> central government and the state governments.\u00a0<\/strong><\/li>\n\n\n\n<li><strong>Objective: <\/strong>To promote fiscal federalism, strengthen the financial autonomy of state governments, and empower them to meet the needs of their respective populations.\u00a0<\/li>\n\n\n\n<li><strong>Article 280<\/strong> of the Indian Constitution <strong>mandates the creation of the Finance Commission,<\/strong> which determines the formula for devolution of taxes.\n<ul class=\"wp-block-list\">\n<li>The central government collects taxes (like income tax, GST, etc.) and a portion is shared with the states based on the <strong>Finance Commission&#8217;s recommendations.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Formula Used:<\/strong> States&#8217; share is<strong> decided by a formula<\/strong> meant to incentivize demographic performance and each states effort to mobilize its own tax revenue.\n<ul class=\"wp-block-list\">\n<li>The formula also takes into account geographic area, forest cover and the state&#8217;s per capita income.\u00a0<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The Centre also aids States through <strong>additional grants for certain schemes<\/strong> that are jointly funded by the Centre and the States.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Constitutional Provisions Related to Centre State Financial Relations<\/strong><br>&#8211; <strong>Articles 202 to 206 <\/strong>deal with the financial administration of states, including provisions related to their budget, expenditure, borrowing, and taxation powers.<br>&#8211; <strong>Articles 268 to 272<\/strong> outline the distribution of revenues between the Union and the states.<br>&#8211; <strong>Article 280<\/strong> provides for the establishment of a Finance Commission every five years (or as specified by the President).<br>&#8211; <strong>Article 282<\/strong> allows the Union government to provide financial assistance to states for any public purpose.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Current Share of the States<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Recommendations of the 14th FC: <\/strong>It hiked the tax devolution to states <strong>to 42% from 32%,<\/strong> and also added a new provision of <strong>revenue deficit grants <\/strong>to states facing any resource gap.\u00a0<\/li>\n\n\n\n<li><strong>The 15th finance commission, <\/strong>under the chairmanship of <strong>N K Singh<\/strong> has revised tax devolution and <strong>brought it down to 41% from 42%.\u00a0<\/strong>\n<ul class=\"wp-block-list\">\n<li>So the current tax devolution to states stands at<strong> 41% till 2026.\u00a0<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The <strong>90:10 rule<\/strong> is still applicable to the <strong>northeastern and hill states,<\/strong> although there is no special status category.\u00a0<\/li>\n\n\n\n<li>All the other states receive <strong>Central funding in a 60:40 ratio,<\/strong> 60% being the Central government&#8217;s contribution and 40% states.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Concerns of the States<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Demand for more funds:<\/strong> States argue they should receive more funds than recommended by the Finance Commission.\n<ul class=\"wp-block-list\">\n<li>States argue that they have greater responsibilities, including education, healthcare, and policing services.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Disparities Among States:<\/strong> Developed States like Karnataka and Tamil Nadu feel they receive less money from the Centre than they contribute in taxes.\n<ul class=\"wp-block-list\">\n<li>In other words, it is argued that more developed States with better governance are being penalized by the Centre to help States with poor governance.\u00a0<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Divisible Pool Concerns: <\/strong>Cesses and surcharges, which are not shared with the States, can constitute up to <strong>28% <\/strong>of the Centre\u2019s tax revenues, leading to revenue losses for States.<\/li>\n\n\n\n<li><strong>Criticism of the Finance Commission:<\/strong> Critics believe the Finance Commission may not be fully independent due to the Centre&#8217;s role in appointing its members, leading to potential political influence.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Ahead<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>GST and Cooperative Federalism:<\/strong> Strengthening the Goods and Services Tax (GST) framework for smoother tax collection and distribution between the center and states, ensuring a fairer tax system for all regions.<\/li>\n\n\n\n<li><strong>Improved Tax Administration: <\/strong>Modernizing state tax administration and improving compliance.<\/li>\n\n\n\n<li><strong>Fiscal Equalization: <\/strong>Ensuring a balanced devolution of resources, considering the economic disparities among states, so that poorer states receive more support.<\/li>\n\n\n\n<li><strong>Capacity Building:<\/strong> Strengthening the financial management and capacity of states to better utilize devolved funds for development.<\/li>\n<\/ul>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/centre-releases-173-lakh-crore-towards-tax-devolution-to-states\/article69084660.ece\" target=\"_blank\" rel=\"noopener\"><strong>TH<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Centre released tax devolution of \u20b91.73 lakh crore to the state governments to accelerate capital expenditure and finance welfare activities.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-35266","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/35266","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=35266"}],"version-history":[{"count":1,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/35266\/revisions"}],"predecessor-version":[{"id":35267,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/35266\/revisions\/35267"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=35266"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=35266"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=35266"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}