States ask Centre to curb its cess habit at pre-budget meeting

Source: The post is based on the article “States ask Centre to curb its cess habit at pre-budget meeting” published in The Hindu on 26th November.

What is the News?

The Finance ministers of states and union territories held their pre-Budget meeting with the Union Finance Minister. 

What are the issues raised by the States at the pre-budget meeting with the Finance Minister?

On Cess and Surcharge: Cesses and surcharges as a percentage of gross tax revenue, have increased from 10.4% in FY12 to 26.7% in FY22.

– Since, cesses and surcharges do not form a part of the divisible pool of taxes. This has deprived the states of their legitimate share of revenue collected by the Union Government. 

– Hence, the states have urged the Union government to make cess and surcharge part of the divisible pool of central taxes so that the States receive their legitimate share in devolution.

On Centrally Sponsored Schemes(CSS): The state’s financial autonomy is getting compromised as its contribution to centrally sponsored schemes has increased. 

– They demanded that the Centre and state funding ratio should be 90:10 (rather than 60:10) in these schemes.

Higher Borrowing Limit to States: Given the financial difficulties faced by states, the borrowing limit for states should be at 4% of GSDP for another year. 

– The Centre has set the borrowing limit at 4% of GSDP for FY23 with another 50 bps window if states carry out reforms in the power sector.

On GST: States like Tamil Nadu also raised concerns about pending dues from the five-year GST compensation window for States that expired on June 30, 2022.

– States have also demanded that the GST revenue share of States should be raised to 60% from the present 50% as the States are going through severe financial problems.

Old Pension scheme: Chhattisgarh Chief Minister asked the Centre to resolve the issue of refunds of the corpus given to the National Pension Scheme, as the State has restored the old pension scheme.

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