The 14th Finance Commission had recommended that states’ share in the divisible tax pool be raised to 42 per cent, from 32 per cent earlier.
The Centre expects to collect a staggering Rs 3.02 lakh crore from cess and surcharges in 2018-19 (FY19), up 8.5 per cent from Rs 2.78 trillion in 2017-18 (Revised Estimates).
This revenue will flow directly to the Centre and will not be shared with states.
To put this number in perspective, the Centre’s entire capital expenditure for FY19 is pegged at Rs 3 lakh crore.
The 14th Finance Commission had recommended that states’ share in the divisible tax pool be raised to 42 per cent, from 32 per cent earlier.
The divisible pool consists all tax revenue collected by the central government, except those classified as surcharges and cess levied for a specific purpose and collection charges.
The Budget pegs the states’ share in the divisible tax pool at Rs 7.88 trillion in FY19, up from Rs 6.73 trillion in FY18.
Working backwards, the divisible pool works out to around Rs 18.76 trillion in FY19, up from Rs 16.02 trillion in FY18 (2017-18).
After adjusting for the goods and services tax (GST) compensation cess of Rs 61,300 crore in FY18 and Rs 90,000 crore in FY19 that will be transferred to states so that they do not incur any losses on account of the shift to the GST, the cess and surcharge collection accruing to the central government works out to around Rs 3.02 lakh crore in FY19, up 8.5 per cent from the previous year.
In FY18, the Centre will end up collecting Rs 2.78 lakh crore through this route, as opposed to a Budget target of Rs 2.95 lakh crore, implying a shortfall of Rs 17,000 crore.
This slippage is largely because certain cess and surcharges levied on top of indirect taxes have been subsumed in the GST.
Take, for example the Swachh Bharat cess and the Krishi Kalyan cess added on top of the service tax.
In FY18, the Centre had budgeted it would collect Rs 13,300 crore and Rs 8,800 crore, respectively, through this route.
But given the shift to the GST in July, it ended up collecting only Rs 4,100 crore and Rs 2,700, respectively.
This shift to the GST also creates another fiscal complication for the Centre.
Photograph: Ajay Verma/Reuters
