States should get some part of cess, surcharges collected by Centre, say experts

There is a need to share at least some portion of the cess and surcharges collected by the central government with the states, experts said on Friday.

They were participating in a seminar on ‘Re-imagining Fiscal Federalism’ organised by the city-based think tank NCAER.

Responding to the various issues flagged by Finance Commission chairman N K Singh, Tamil Nadu Finance Minister Palanivel Thiagarajan made a case for giving more fiscal autonomy to the states.

A similar opinion was expressed by former Kerala Finance Minister Thomas Isaac, who underlined the need for rolling back the fiscal control of the central government and giving the freedom to the states to at least increase the State GST rates.

Rajya Sabha MP and former Bihar Finance Minister Sushil Modi opined that some portion of the cess and surcharges collected by the central government should form part of the divisible pool, which is shared with the states as per the recommendations of the Finance Commission.

“I feel like there should either be some inherent limitation on how much this (Cess) can be levied or there should be some requirement that it should be in the divisible pool.

“We have a one-sided kind of system where there is no limit or ceiling or cap on the cesses and that it doesn’t require to be in the divisible pool. I think is a skewed balancing of rights,” said Thiagarajan.

Modi too said there is a need to work out some kind of formula so some part of the cess should become part of the divisible pool.

On the cess issue, Singh said that following any of these paths will require a constitutional amendment because the constitutional amendment introduced in 2000 specifically kept cess out of the divisible pool.

Responding to a question, the former Bihar finance minister also said that under the current dispensation it would not be possible to bring petrol and diesel under the ambit of the Goods and Services Tax (GST).

“I don’t think it is feasible to bring petrol, diesel, and other petroleum products under GST in the near future,” he said. According to him, the combined revenue loss by bringing motor fuel in the ambit of GST would be about Rs 4 lakh crore.

In his response, Thiagarajan said more and more products should actually be left to the states.

“So, I would be for more product staying within the states and less going into GST as a fundamental principle,” he said.

Initiating the discussion, Singh said fiscal policies in the country are marked by 3 Cs — complexity, confusion and contradiction.

The 15th Finance Commission was constituted by the President in November 2017 under the Chairmanship of N K Singh to make recommendations for the period 2020-2025.

It recommended the share of states in the central taxes for the 2021-26 period at 41 per cent. This is less than the 42 per cent share recommended by the 14th Finance Commission for the 2015-20 period.

The adjustment of 1 per cent is to provide for the newly formed Union Territories of Jammu and Kashmir, and Ladakh from the resources of the Centre.