Cesses and Surcharges
Out of every ₹100 collected by the Union government as tax, ₹10-11 is collected as cesses and surcharges.
This trend has remained unchanged since the pandemic year (2020-21).
Cesses and surcharges, along with the cost of collecting taxes (₹1-2 per ₹100), are not shared with States in the divisible pool of taxes.
Divisible Pool Shrinking
The share of cesses and surcharges, along with the cost of collection, reached ₹13.5 for every ₹100 in 2021-22.
The divisible pool, which is shared with States, has decreased to below ₹90 per ₹100 collected since 2020-21.
Before the pandemic, the divisible pool was between ₹91-95 per ₹100.
States' Share of Divisible Pool
States currently receive 41% of the divisible pool as per the 15th Finance Commission’s recommendations (FY 21-26).
Prior to this, the share was 42% from FY16 to FY20, and 32% before FY16.
Non-BJP ruling States are calling for a higher share, up to 50%, due to the shrinking divisible pool.
Issues with Cess Utilization
Cesses are often not used for their intended purposes, such as the crude oil cess, which was meant to support the oil industry but is not fully transferred to the relevant funds.
Reports indicate that ₹2.19 lakh crore in cesses between FY20 to FY22 was not properly utilized or transferred.
Changes in States’ Share
The share of Southern States like Kerala, Tamil Nadu, Karnataka, and Andhra Pradesh has decreased over time.
States like Uttar Pradesh and Bihar continue to receive the bulk of the divisible pool share, with Uttar Pradesh expected to get 17.9% and Bihar 10.1% in FY26.
Southern and Eastern States feel short-changed due to a dwindling share, leading to dissatisfaction with the current formula for the divisible pool.
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