New Delhi: Finance Minister Nirmala Sitharaman defended the Centre’s constitutional approach towards cess and surcharge collections, rejecting criticism from several states that such levies shrink the divisible pool of taxes shared with them.
Replying to the discussion on the Union Budget in the Lok Sabha, Sitharaman addressed concerns raised by members over the increasing share of cess and surcharge in the Centre’s overall tax revenues. She said states should clearly differentiate between gross tax revenue and the net proceeds that are legally shareable under the Constitution.
“States can’t have it both ways. The states should check if the entire net proceeds, which form the divisible pool, after removing cess and surcharge from gross tax revenue, is received by them. There is no need to discuss gross tax revenue,” she said.
The Sitharaman stressed that cess and surcharge are imposed strictly in line with constitutional provisions and are not included in the divisible pool meant for tax devolution to states. She noted that cess collections are earmarked for specific purposes.
The matter has repeatedly surfaced in Centre–state fiscal discussions, with some states arguing that a growing reliance on cess and surcharge effectively reduces the shareable tax base, thereby impacting their revenue receipts.
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