Taxpayers expect taxes to work for them, Siddaramaiah tells finance commission; CM cautions against skewed weightage to equity
Bengaluru, Aug 29, 2024
Synopsis
Chief Minister Siddaramaiah has urged the Finance Commission to cap cess and surcharge at 5% of gross tax revenue and include collections above that in the divisible pool for sharing with states. Karnataka has faced substantial losses due to non-sharing, and Siddaramaiah advocates for better resource allocation to economically advanced states.
Chief Minister Siddaramaiah on Thursday urged the 16th Finance Commission to cap cess and surcharge at 5% of gross tax revenue and move collections above that into the divisible pool for sharing with the states.
Cess and surcharge are not part of the divisible pool. Over the years the union government has increased its reliance on cess and surcharge. This has caused substantial loss to all the states. The loss to Karnataka on account of the non-sharing of cess and surcharge was Rs. 53,359 crore during the five-year period from 2017, the CM said, addressing Chairman Arvind Panagariya and other visiting members of the Commission.
The CM pressed for vertical devolution to states to be at least half of the divisible pool. All non-tax revenues of the Centre too should be included in the divisible pool. “Economically advanced states are committed to supporting poorer states, but this should not come at the expense of their own residents or economic efficiency. A larger proportion of resources generated by the states should be shared with them.”
The Finance Commission, Siddaramaiah said, must examine the impact of extremely high emphasis given to equity on the incentives of well performing states. “The taxpayers of such states expect their taxes to work for them. This creates public trust. The Finance Commission therefore needs to do a tightrope walk while balancing equity with efficiency and performance.”
Karnataka has been central to India's growth story. It contributes approximately 8.4% to the national GDP with only about 5% of the population. The State ranks 2nd in total GST contribution to the country, he said.
Despite Karnataka's substantial contribution of about Rs 4 lakh crore to Centre’s gross tax revenue every year, the state gets about Rs 45,000 crore in the form of devolution and about Rs. 15,000 crore grants-in-aid. This meant that for every rupee Karnataka contributed, only 15 paise was returned to the state, the CM explained.
The 15th Finance Commission’s award reduced Karnataka’s share in central taxes and duties from 4.7 % to 3.6 %, causing a loss of Rs. 68,275 crore during the five year period. With the Centre not accepting the state-specific grants, Karnataka lost about Rs 79,770 crore in the five-year period.
Karnataka has seen a revenue transfer of Rs 35,000-40,000 crore per year to other states during the 15th Commission period. The figure was astounding because the net transfers outside of Karnataka amount to about 50 -55% of the total revenues it generates. “Due to the disproportionate weightage given to equity, Karnataka and similarly placed states end up getting penalized for their good performance, both fiscally and demographically.”
Despite such a reduction of central transfers, Karnataka has kept its commitment to its flagship schemes such as the five guarantees, while not compromising on capital expenditure, Siddaramaiah said.
The CM urged the Commission to recommend a grant of Rs 27,793 crore as Bengaluru needed an investment of Rs 55,586 crore over the next five years.
[The Economic Times]
