States Might Have To Settle As Centre Seeks Higher Share Of Taxes From 16th Finance Commission: Report

The government has notably used up 42 per cent of the budgeted Rs 11.11 lakh crore for FY25 so far, in comparison to 54.7 per cent spent during the same period last year

Loans have been on the decline, falling almost 13 per cent up to October, as the government prioritised providing freebies due to the elections, the report noted.

Source : ABPLIVE AI

The Central government is planning to go after a larger share of tax devolution from the 16th Finance Commission, which might have an impact on the States’ share in the taxes. The commission is scheduled for May 2025.

Speaking with Moneycontrol, an official said, “As part of the submission, the Union government will seek to increase its share, which means to decrease the share of states in the tax devolution. This recommendation would be supported by expenditure carried out in the past by the Centre and the tax receipts it receives.”

This development can be attributed to the elevated market borrowings and repayments. The source noted that while interest payments also continued to increase, the expenditure is not being utilised productively in the domestic economy.

The authorities have been trying to boost spending via infrastructure development, however, capex has remained weak. The government has notably used up 42 per cent of the budgeted Rs 11.11 lakh crore for the current 2024-25 fiscal year (FY25) so far, in comparison to 54.7 per cent spent during the April-October period in the preceding fiscal year.

Loans have been on the decline, falling almost 13 per cent up to October, as the government prioritised providing freebies due to the elections, the report noted. These loans also included those given out to states for infrastructure facelift.

Citing another official, the report said that this demand from the Centre for a larger share of the overall taxes could end up in conflict with the states, as some are lookign for a hike in their share in the tax pool to as much as 50 per cent.

As per the recommendations of the 15th Finance Commission, 41 per cent of the divisible tax pool of the Centre is disbursed to the states in 14 installments annually, from the 2021-22 to 2025-26 period.

“The Centre will submit a memorandum recommending the share of devolution between the Centre and the states to the 16th Finance Commission. Some states are asking for a higher share. While the formula deciding how much share goes to which state may stay the same. Some states have been asking for a 50 percent share, but that is an arbitrary demand. Centrally sponsored schemes are already taking care of the spending on many of the sectors on the state list,” the second official added.