{"id":36935,"date":"2025-02-07T19:07:28","date_gmt":"2025-02-07T13:37:28","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=36935"},"modified":"2025-08-11T12:43:37","modified_gmt":"2025-08-11T07:13:37","slug":"states-demand-increase-central-tax-share","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/07-02-2025\/states-demand-increase-central-tax-share","title":{"rendered":"States Demand for Increase Share in Central Taxes"},"content":{"rendered":"\n<p><strong>Syllabus: 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>Odisha has joined the growing demand for the Finance Commission to raise States\u2019 share in India\u2019s divisible tax pool to 50%, from about 41% currently.<\/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>Tax devolution refers to the<strong> distribution of tax revenues<\/strong> between the central government and the state governments.&nbsp;<\/li>\n\n\n\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\u2019s<\/strong> recommendations.\n<ul class=\"wp-block-list\">\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.&nbsp;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Formula Used:<\/strong> States\u2019 share is decided by a formula meant to incentivize demographic performance and each state&#8217;s 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\u2019s per capita income.&nbsp;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The Centre also aids States through additional grants for certain schemes 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 to 42% from 32%, and also added a new provision of revenue deficit grants to states facing any resource gap.&nbsp;<\/li>\n\n\n\n<li><strong>The 15th finance commission<\/strong>, under the chairmanship of N K Singh has revised tax devolution and brought it down to 41% from 42%.\n<ul class=\"wp-block-list\">\n<li>So the current tax devolution to states stands at 41% till 2026.&nbsp;<\/li>\n\n\n\n<li><strong>The 90:10 rule<\/strong> is still applicable to the northeastern and hill states, although there is no special status category.&nbsp;<\/li>\n\n\n\n<li>All the other states receive Central funding in a<strong> 60:40 ratio<\/strong>, 60% being the Central government\u2019s contribution and 40% states.<\/li>\n<\/ul>\n<\/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 <a href=\"https:\/\/www.nextias.com\/blog\/finance-commission-of-india\/\" data-type=\"link\" data-id=\"https:\/\/www.nextias.com\/blog\/finance-commission-of-india\/\">Finance Commission<\/a>.\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>It is argued that more developed States with better governance are being penalized by the Centre to help States with poor governance.&nbsp;<\/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<\/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>The 16th Finance Commission<\/strong> should review the States\u2019 demand for a higher tax devolution based on fiscal needs and expenditure responsibilities.<\/li>\n\n\n\n<li><strong>Strengthening Disaster Resilience Funding:<\/strong> A separate central disaster relief fund could be established for disaster-prone States to ease their financial burden.<\/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\/news\/national\/odisha\/odisha-joins-states-pitch-for-50-share-of-divisible-tax-pool\/article69188411.ece\" rel=\"nofollow noopener\" target=\"_blank\"><strong>TH<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Odisha has joined the growing demand for the Finance Commission to raise States\u2019 share in India\u2019s divisible tax pool to 50%, from about 41% currently.<\/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-36935","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\/36935","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=36935"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36935\/revisions"}],"predecessor-version":[{"id":50969,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36935\/revisions\/50969"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=36935"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=36935"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=36935"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}