States’ share in central taxes stays 41%, South set to gain

In line with the 16th Finance Commission’s recommendations, the Centre will continue to transfer 41% of all taxes collected by it — income tax, corporation tax, STT, customs, excise and central GST — to states, with four of the five southern states set to get a higher share of revenue over the next five years.

Along with the overall devolution of taxes by the Centre, the commission recommends state-wise transfer (horizontal devolution) based on a formula.

With the panel deciding to reward states making higher contribution to the national GDP, Karnataka, Kerala, Andhra Pradesh and Telangana will see an increase in the share of the money transferred by the Centre to states, with Tamil Nadu being the sole exception in the South as its share will dip 0.1%.

The other major gainers include Gujarat and Maharashtra, while Madhya Pradesh, Uttar Pradesh, Bengal, Bihar and Arunachal Pradesh will be among the big losers.

The panel has not recommended revenue deficit and sector- or state-specific grants as was the case in the past.

Instead, it has asked states to focus on increasing revenues, including through use of technology to shore up GST mop-up. The commission has flagged unconditional cash transfers, which are now a fifth of subsidies and transfers by states.

To push orderly urbanisation, it has recommended a focus on drainage and quick reclassification of census towns into urban local bodies.