Legislative changes are needed in the goods and services tax (GST) law to give a higher share of revenue to producer states such as Chhattisgarh, a senior legislator from that state said on Friday.
Chhattisgarh Deputy Chief Minister T.S. Singh Deo also said the Centre’s share of GST revenue should not be more than 20%.
“The states are getting only 71% of the revenue. The (remaining) 29% that the states were getting during the VAT (value-added tax) regime is going away to the central government, which is completely unfair. What must be corrected is the GST structure that is unfair to producing states and mineral rich-states like ours,” he said.
He explained that while 50% of GST revenue goes to states, of the remaining 50% that goes to Centre, 41% is devolved back to states as per the Finance Commission formula. This brings the states’ share of revenue to about 71%.
This, he said, was lower than what the states were getting prior to the GST regime when VAT was levied.
“Not more than 20% should be going to the Centre from GST,” he added.
Finance Commissions make recommendations on sharing of the Centre’s tax revenue with states and also on tax reforms, efficiency in tax administration and in expenditure reforms.
At present, the formula that applies till FY26, as recommended by the 15th Finance Commission, prescribes devolution of 41% of the Centre’s net tax revenue to the states. Among the states, the share is decided by a formula designed to incentivize demographic performance and the state’s effort to mobilize its own tax revenue, besides its geographic area, forest cover and per capita income.
Deo added that changes to the GST law have been done before and this demand from producer states should be taken up by the GST Council in the spirit of cooperative federalism.
He said state local bodies were being kept away from a third of the devolution of funds, which should be corrected in the terms of reference of the 16th Finance Commission, while the Centre was trying to take ownership of the state-level schemes without providing funds for it.
“On paper, you’re doing devolution, but in effect the central government only gives one-third through the devolution to the panchayati raj,” the legislator said.
“So, eventually the central government is taking ownership of a scheme, which is not being funded by the central government in totality and you leave that much less money for the project or to do development works as per the needs or as per the decisions of the state,” he further noted.
The 16th Finance Commission comes in the post-pandemic macroeconomic context marked by high interest cost and external challenges to growth, especially exports.
Finance Commissions’ terms of reference often become a subject of Centre-state friction, as some states will always remain unhappy about the extent of funds they stand to get while the Centre remains under pressure to be equitable, while rewarding performance and at the same time, be considerate to states that lag behind in prosperity given that low-income states also need to offer comparable services to citizens. Uttar Pradesh and Bihar had the highest share in the 15th Finance Commission’s award.
Countering the criticism that state finance commissions do not function appropriately, Deo said the Centre should not interfere in state matters.
“Everything that they’re trying to do encroaches upon the federal independence or the federal identity of states local bodies by imposing their decision or will which puts into question the decentralized structure. These are the challenges where the INDIA alliance comes in,” he said.
Talking to Mint ahead of the state assembly election results on Sunday, he expressed confidence of his government coming back to power in the state. “We’ve done good work and I think we deserve another term,” he said.
Deo further said that Chhattisgarh government will prioritize increasing the per capita purchasing power of families in the state.
The minister further backed the need for state assets to stay with the state instead of getting privatized, especially when they were profit making and had the capacity to increase the purchasing power of people in that state.
“Why should the government produce these inequalities in income distribution which come about through the unrestricted championing of the private sector?” he said, questioning the Centre’s plans to sell the Nagarnar steel plant to private parties.