Kerala, 4 other non-BJP states push for higher share in divisive tax pool

THIRUVANANTHAPURAM: Non-BJP ruled Kerala, Telangana, Tamil Nadu, Karnataka and Punjab on Thursday pushed for an increase in the states' share in the divisive pool of taxes and said good performance by them should be incentivised and not penalised by reducing allocation of funds to them.

This common opinion was aired by the finance ministers of the five states at a conclave organised here by the Kerala government to discuss key issues related to the 16th Finance Commission.

Inaugurating the conclave, Kerala Chief Minister Pinarayi Vijayan said that cess and surcharge levied by the Centre were showing a "rising trend" and resulting in the "shrinkage" of states' share in the divisive pool of taxes.

He further said the rise in surcharges and cesses, which are not included in the divisive pool, was happening at a time when the Finance Commission has been recommending a higher share for the states from the net proceeds of the taxes collected by the Centre.

A similar view was expressed by Kerala Finance Minister K N Balagopal in his presidential address at the conclave which was attended by top dignitaries, including Telangana Deputy Chief Minister and Finance Minister Bhatti Vikramarka Mallu, Karnataka Revenue Minister Krishna Byre Gowda, Punjab Finance Minister Harpal Singh Cheema, and Tamil Nadu FM Thangam Thennarasu.

Other notable participants included Leader of Opposition in the Kerala Assembly V D Satheesan and renowned economist and former economic advisor to the central government Dr Arvind Subramanian.

Balagopal said the share of states' in the divisive pool was decreasing as the union government was "cutting it down" by "mobilising revenue through sources which are not divisible, such as cess and surcharges, disinvestment, monetisation of public assets, RBI profits.

Vijayan and Balagopal called for an increase for the states' share in the divisive pool to at least 50 per cent from the 41 per cent recommended by the last Finance Commission, a demand echoed by the ministers of the other states when they spoke at the conclave.

Mallu said there should be an increase in the states' share in Central taxes from 41 per cent to 50 per cent, resisting the Centre's increasing use of cesses and surcharges, reducing the Centrally sponsored schemes and allowing the states to spend on their local priorities.

"We must ensure our states have the resources and autonomy needed to chart their own development path," the Telangana deputy CM said.

Thennarasu said the Indian polity has an "inherent imbalance" in the distribution of powers and responsibilities between union and the states.

He said while the states are entrusted with the majority of responsibility related to the development of society and delivery of public services, including education, health, agriculture, and social welfare, the union retains the majority of the powers of revenue generation.

"It is imperative that states collectively advocate for a 50 per cent share in the Central tax devolution," Thennarasu said.

He too called for urging the Finance Commission to devise a mechanism to restrict the use of cess and surcharges and recommend appropriate measures to protect the interests of the states.

He also said Tamil Nadu was consistently penalised by successive Finance Commissions for its better performance and that its share in the tax devolution has been reduced.

The same claim was made by Vijayan and Balagopal who said Kerala should not be penalised for its good performance.

Karnataka Minister Gowda said that if the state does well it can contribute a proportionately larger share to the union.

He pointed out that the participating states have high per capita income, high development rate and added that Kerala tops the whole country in the Human Development Index.

Gowda said by penalising performance and efficiency, the union government was sending a message that just because you are doing well, you are going to be cut.

"Then where is the incentive for performance and progress. On the other hand, there is an unchecked reward for poorer performance. So this creates a perverse incentive for not making progress," he said.

Speaking along similar lines, Punjab Minister Cheema said he expects the 16th Finance Commission to devise a formula for the allocation of the divisible pool that incentivises states to perform better on the development matters and allocates ample resources to the states that need support to enhance their performance.

During his presidential address, Balagopal said there were "vertical and horizontal imbalances" in the fiscal architecture of India and these were worsening over time and "reached the worst phase with the recommendations of the 15th Finance Commission".

"The system of cooperative federalism in the country is in a bad crisis now. Almost all states, regardless of the political party in power, are suffering from hitherto unprecedented fiscal squeeze," he said.

He also said the fiscal federal relations in our country are being transformed from 'cooperative federalism' to 'subordinated federalism' or 'coercive federalism'.

On Wednesday, Karnataka Chief Minister Siddaramaiah had written to CMs of eight states on the "unfair" devolution of taxes by the Centre, and invited them to a conclave in Bengaluru to collectively deliberate on the issues of "fiscal federalism".

He had addressed among others, CMs of Kerala, Tamil Nadu, Gujarat, Maharashtra and Telangana.