Centre keeps states’ demand of monthly sharing of funds, but only partially
State’s share in the central tax pool was increased from 32% to 42% in 2015 following the recommendations of the 14th Finance Commission.
Facing opposition from many states, the Centre seems to have blinked on its plan to transfer the states’ share of central revenues, every quarter instead of every month.
While it has made no announcement to the effect, the plan, to come into effect from 1 April, hasn’t, at least, not entirely .
Even as there is no formal communication so far on the change in method, in the first two months of the new financial year, many states have got large part of their share as part of the 42% devolution formula.
Apart from discontent among states, stabilization of revenue collection from GST and fear that states will crowd the bond market as they will have to borrow to meet their expenditure are factors that have led to the rethink, said two officials in finance ministry familiar with the development and who asked not to be identified.
“We understand the difficulty that states face if their share of the Central pool of taxes is transferred quarterly.
We are discussing with states to see of the money transfer can be once in two months,” said one of these officials.
Still, the states aren’t happy because they say the entire money due to them is not being transferred every month.
“The Centre is only transferring to us our share of the duties that remain outside GST on a monthly basis.
That too, we are getting the money only around the 20th of every month. But our share of the direct taxes will be
paid quarterly,” said a state finance minister on condition of anonymity.
According to the finance ministry officials, transferring money to states every month is a problem and the Centre sometimes ends up borrowing money to meet its revenue transfer commitments because tax receipts are usually subdued during the first few months of a financial year.
“Tax realisation under GST has been shifted to the 20th of every month. Moreover, corporate and income taxes are received in quarterly instalments, which makes it difficult to transfer the states’ share at the beginning of every month,” explained one of these officials.
State’s share in the central tax pool was increased from 32% to 42% in 2015 following the recommendations of the 14th Finance Commission.
The states use this money to pay salaries, pensions, wages, administrative costs and interest on loans.
In August 2017, the Centre wrote to states that their share from the federal pool of taxes would be sent on the fifteenth of every month till end-March (2018) and quarterly from April.
The states protested; several state finance ministers shot off letters; and some of them opposed the move in their meeting with the finance ministry in the run-up to the Budget.
“Tax receipts pick up as a financial year progresses, but the amount of revenue to be shared with states is already committed and then transferred in 12 instalments throughout the year.
But any change in the schedule has to be done in consultation with states, otherwise it is extremely unfair on them. How will states manage their expenses?” asked a former finance secretary.
As per the data released by the Controller General of Accounts on June 1, the Centre transferred Rs 55,789 crore to states as devolution of share of taxes in April 2018.
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