While the central government battles with how much compensation to give to states as part of its move to get the goods and services tax (GST) on track, an interesting issue has come up before the 14th Finance Commission: The BJP-ruled states, primarily, want a 56% jump in the revenues shared with them from the central tax kitty.
Compared with an average of 32% of gross tax collections, the BJP states all want this to be hiked to a uniform figure of 50%.
While some Congress-ruled states like Assam and Kerala have also asked the Finance Commission for a 50% share, states like Maharashtra and Karnataka have plumped for a more modest 40% share.
The 50% figure, mentioned by states to even the previous finance commission, is in all probability an aggregation of all transfers made from the Centre to the states, either by way of tax sharing or by way of grants and loans or assistance to central and centrally sponsored schemes.
According to the FY15 Budget, a total of Rs 7.8 lakh crore is to be transferred to states from the Centre, and this works out to 57% of the gross central taxes projected for the year.
Gujarat’s presentation to the Finance Commission is even more interesting since it was made by Narendra Modi, who was the state’s chief minister at that point in time. While asking for a 50% share in central taxes, Gujarat asked for all cesses and surcharges to be subsumed into this — almost 8% of tax collections today come from cesses/surcharges that are not shared with the states. In addition, Gujarat has also asked for revenues from, say, spectrum sales — Rs 27,000 crore in FY15 — to be clubbed within the overall divisible pool. Were this to be done, the amount available for the Centre will diminish considerably.
While the last finance commission allocated just 17.5% of fund transfers on the basis of fiscal performance, Gujarat wanted less weight to be given to the poor fiscal position of states (30% vs 47.5% now) and more weight be given to their fiscal discipline (20% vs 0% now) and even a 5% weight to their share of all-India GDP (5% vs 0% now).