Share Of Cesses And Surcharges In The Gross Tax Revenue.

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  • The share of cesses and surcharges in the gross tax revenue of the Centre has nearly doubled to 19.9 per cent in 2020-21 from 10.4 per cent in 2011-12, leading to the 15th Finance Commission to recommend a higher grant-in-aid and lower tax devolution to the states, according to a report.
  • Under the existing Finance Commission (FC) framework, the cesses and surcharges collected by the Centre are not part of the tax devolution.
  • The massive spike in the same has forced Finance Commission to suggest higher grant-in-aid to the states to compensate for the low growth in tax devolution which is pegged at 41 per cent during the operation of the 15th FC award,.
  • The key reason for higher growth in grants-in-aid and lower growth in tax devolution to the states is the increase in the proportion of the central cess and surcharges as they are not part of the tax devolution to the states.
  • As a result, the transfer from the Centre to the states including non-finance commission transfers declined to 48.6 per cent in 2019-20 from 53.4 per cent in 2011-12.

What is cess? 

  • It is a form of tax levied or collected by the government for the development or welfare of a particular service or sector.
  • It is charged over and above direct and indirect taxes.

Importance 

  • Article 270 of the Constitution allows cess to be excluded from the purview of the divisible pool of taxes that the Union government must share with the States.
  • A divisible pool is a portion of Gross Tax Revenue (GTR) that is distributed between the Centre and the States.
  • It consists of all taxes, except surcharges and cess levied for specific purpose, net of collection charges.


Source : Financial Express

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