Karunanidhi rejects Centre’s revenue sharing scheme

Karunanidhi said in a statement that the States’ share of Central tax revenues should be distributed on a gross basis and not on a net basis, as decided by the Cabinet. He pointed out that the Inter-State Council had decided that the revenues should be shared on a net basis.

Since the loss to the States will be around Rs 2,000 crore, the states facing a financial crisis would be affected, Karunanidhi said.

State Government officials were not available to clarifications onthe issue. The Indian Express contacted S Venkitaramanan, former Reserve Bank Governor and Finance Secretary at the Centre. Venkitaramanan, who is a member of the Tamil Nadu Planning Commission explained the issues involved as follows:

The proceeds of certain taxes such as excise and personal income-tax are being divided between States, according to the formula of devolution laid down by successive Finance Commissions

The States felt that the divisible pool should include certain taxes like customs and income tax on companies which would expand with the growth of the national income of the country. The States wanted a flat share of 29 per cent of most Central taxes to be divided among them.

This recommendation was made by the 10th Finance Commission. The Finance Minister also made a “sincere attempt” to introduce necessary legislation.

But, according to the reports, the final draft includes only the net amount of all taxes in the new divisible pool.

The difference between the gross basisand the net basis usually occurs due to the cost of collection of the taxes.

Venkitaramanan said: “I don’t know the basis of the Rs 2,000-crore figure being talked about. The States have legitimate claim to 29 per cent of the all central taxes according to the spirit of the Finance Commission recommendation. It should not be whittled down by too large a reduction for the cost of collection.”