When asked at Lok Sabha on August 2, Finance Minister Nirmala Sitharaman, who shared the central government, replied ₹5.95 trillion euros to state governments from taxes earned in 2020-21.
The center makes money through various taxes such as corporate tax, income tax, goods and services tax, Union excise tax, and customs duties. Part of the taxes is shared with the state governments.
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As can be seen from the graph above, the total amount central government shared with states in 2020-21 was the lowest in five years. At the same time, the total amount that went to the center was the highest in five years ₹14.24 trillion. This happened in a year in which the governments of the states were already provided with money due to the Covid pandemic.
It is interesting that the share of the state governments ₹7.61 trillion in 2018-19 and has since fallen on ₹5.95 trillion. Meanwhile, the share of the center of ₹13.17 trillion tons ₹14.24 trillion in the same period.
These are absolute numbers that don’t take into account the size of India’s economy. The following graph shows the ratio of the tax share of the city center to gross domestic product (GDP) together with the ratio of the tax share of states to GDP. GDP is a measure of the size of an economy.
As shown in the graph below, the center’s tax share of the GDP ratio in 2016-17 was 7.2% of GDP. It was also 7.2% in 2020-21. In the meantime, the share of states has fallen from 4% of GDP to 3% in the reporting period.
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Lift the load
Over the years, the central government’s gross tax collection, which is spread across the center and states, has declined. But the diagrams show that the center did not have to bear the cost of this slowdown; the states had to.
One reason for this is that the central government has made a lot of money in recent years by increasing excise taxes on gasoline and diesel. At the same time, however, it has ensured that most of the consumption taxes are incurred in the form of consumption taxes and surcharges, which it does not have to share with the state governments. Currently from the total excise duty of ₹The federal government shares 32.90 per liter of gasoline with the state governments, only 57 Paise or 1.7% of the total amount.
This has helped keep the central government untouched even though gross tax receipts have declined.
Vivek Kaul is the author of Bad Money.
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