States ask Centre to curb its cess habit at pre-budget meeting

In Budget parleys with Finance Minister Nirmala Sitharaman, States seek continuation of GST recompense, greater fiscal support to bolster recovery

Updated - November 26, 2022 12:32 pm IST

Published - November 25, 2022 11:44 pm IST - NEW DELHI

Union Finance Minister Nirmala Sitharaman during her pre-Budget meeting with State and UT Finance Ministers at the Manekshaw Centre in New Delhi on November 25, 2022.

Union Finance Minister Nirmala Sitharaman during her pre-Budget meeting with State and UT Finance Ministers at the Manekshaw Centre in New Delhi on November 25, 2022. | Photo Credit: PTI

Several States, including some governed by the BJP, on Friday urged the Centre to rein in its reliance on raising revenues through cesses and surcharges which reduce their share in the divisible pool of taxes. They also sought greater fiscal support to help revive the economy and reiterated demands for extending the Goods and Services Tax (GST) compensation period.

These issues about the federal fiscal framework were flagged, along with States’ local project wish-lists, at a consultation meeting for the Union Budget of 2023-24, steered by Finance Minister Nirmala Sitharaman in the capital and attended by Chief Ministers, Deputy Chief Ministers as well as Finance Ministers of States.

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Tamil Nadu Finance Minister P. Thiaga Rajan noted that the share of cesses and surcharges had grown from 10.4% of gross tax revenue in 2011-12 to 26.7% in 2021-22. “This has deprived the States of their legitimate share of revenue collected by the Union Government. I exhort the Union Government to merge the cesses and surcharges into the basic rates of tax so that the States receive their legitimate share in devolution,” he submitted.

BJP-ruled States echo plea

His plea was echoed by other States, including Kerala’s Finance Minister K.N. Balagopal who told The Hindu that this was a question of federalism. “The Centre has been increasing surcharges and cesses despite the Constitution setting conditions for its imposition. We have been raising this in various forums. But in this meeting, I was happy to note that several BJP-ruled States, including Assam, supported this argument. They also supported our demand for extending the GST compensation, which needs a political decision by the government,” he said.

Hours after the meeting, where States like Tamil Nadu also raised concerns about pending dues from the five-year GST compensation window for States that expired on June 30 this year, the Finance Ministry said it had released ₹17,000 crore to States on Thursday towards the “balance GST compensation for the period April to June, 2022”.

“With this release, Centre has released, in advance, the entire amount of Cess estimated to be collected this year till March-end available for payment of compensation to States. This decision was taken to assist the States in managing their resources and ensuring that their programmes especially the expenditure on capital is carried out successfully during the financial year,” the Ministry said.

On the parley with States, the Ministry said that most participants thanked the Union Finance Minister for financially supporting their States and Union Territories by enhancing borrowing limits, providing two advanced devolution installments and through special assistance for capital expenditure.

“The participants also gave numerous suggestions to the Union Finance Minister for inclusion in the Budget Speech,” the statement noted, adding that Ms. Sitharaman assured them that each proposal would be examined.

Chhattisgarh Chief Miniter Bhupesh Baghel asked the Centre to resolve the issue of refunds of the corpus given to the National Pension Scheme, as the State has restored the old pension scheme. He said that ₹17,240 crore deposited with the National Securities Depository Limited till March 2022 should be returned so that it can be put in the General Provident Fund of the employees.

Mr. Balagopal, who also asked for the GST revenue share of States to be raised to 60% from the present 50%, said that States are going through severe financial problems, particularly after the GST rollout. “Now, if the revenues shared with States decrease (due to cesses), it would further harm our developmental and welfare activities,” he emphasised.

Also read | Industrialists seek Budget measures to spur demand, help add jobs to offset global slowdown

The Kerala Minister also said that the Centre should phase out spending more on subjects under the State List of the Constitution, and give more flexible funds as grants instead of through centrally sponsored schemes with rigid criteria. “This must be the spirit of cooperative federalism,” he noted.

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