Cess, surcharge share doubles to 19.9 pc of central taxes in F | Prelims Specific Notes for IAS/clevernotes

Cess, surcharge share doubles to 19.9 pc of central taxes in FY21
• Context: The share of cesses and surcharges in the gross tax revenue of the Centre has nearly doubled to 19.9 per cent in 2020-21 from 10.4 per cent in 2011-12.
Analysis
• Under the existing Finance Commission (FC) framework, the cesses and surcharges collected by the Centre are not part of the tax devolution (‘Cess and surcharge not a subject in the domain of Finance Commission’ apart from taking adverse note of it).
• And, the massive spike in the same has forced the FC to suggest higher grant-in-aid to the states to compensate for the low growth in tax devolution which is pegged at 41 per cent during the operation of the 15th FC award.
o The key reason for higher growth in grants-in-aid and lower growth in tax devolution to the states is the increase in the proportion of the central cess and surcharges as they are not part of the tax devolution to the states.
• As a result, the transfer from the Centre to the states including non-finance commission transfers declined to 48.6 per cent in 2019-20 from 53.4 per cent in 2011-12.
• The top-five states in central tax share and grants-in-aid are Uttar Pradesh at 16.3 per cent, Bihar (9.1 per cent), Bengal (7.7 per cent), MP (7.3 per cent) and Maharashtra (6.4 per cent).
• The report has recommended revenue deficit grants to 17 states till 2025-26. These states are Andhra Pradesh, Assam, Haryana, Himachal Pradesh, Karnataka, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttarakhand and Bengal.
• The latest FC report comes against the background of the coronavirus pandemic, which has ravaged the finances of the Union and the states.
o Thus, it lays down a realistic fiscal consolidation path offering three scenarios for fiscal deficit at the Union level and a range for aggregate state fiscal deficits over its award period of FY22-FY26, instead of the earlier practice of putting a number to fiscal consolidation.
• The report suggests the share of the states in the divisible pool of central taxes at 41 per cent during the award period, down from 42 per cent in the 14th FC award period of FY16-20.
o The reduction is due to the conversion of Jammu and Kashmir into a Union territory.
For “Difference between the usual taxes, surcharge and cess” refer to 28th Sep file.