Derek O'Brien Criticizes Rising Cess Impacting State Revenues

New Delhi, Sep 5 (PTI) - Trinamool Congress Rajya Sabha leader Derek O'Brien raised concerns over the growing share of cess in the Centre’s tax revenues, describing it as detrimental to federalism. He highlighted how numerous states have voiced concerns over the diminishing divisible pool of tax revenues.

In a blog post, he mentioned that amidst the discussions on GST, cess is the real concern, undermining federalism. Funds collected as cess go entirely to the Union government, with no contribution to the states. Cess accounted for 7% of the Union government's total tax revenues in 2012 and is expected to reach 20% by 2025.

O'Brien pointed out that Rs 5.7 lakh crore of cess and surcharge remains unutilised since 2019. He noted that 22 states, including many BJP-ruled ones, protested against the shrinking divisible pool, requesting a larger share of tax collections from the 16th Finance Commission. The current share is 41%, which states want to increase to 50%.

The RBI noted that the divisible pool shrank from 89% of gross tax revenue in 2011 to 79% in 2021, despite a 10% increase in tax devolution to states as recommended by the 14th Finance Commission. Between 2015 and 2024, cess in operation has surged 462%, exceeding Rs 2 lakh crore. Cess is an additional tax, the proceeds of which may or may not be shared with states, unlike the divisible pool.

O'Brien also echoed former West Bengal Finance Minister Amit Mitra's views, stating that GST rationalisation is favorable if it benefits the common people. He noted that the anti-profiteering committee, which ensured reduced GST rates were passed on to consumers, has been discontinued.

He further highlighted that 11 ministers in the GST Council had sought compensation, but their demands were sidelined. In a press conference, the revenue secretary announced a projected revenue loss of Rs 48,000 crore, but O'Brien contended that the actual figure could exceed Rs 1 lakh crore, considering the supply chain.

O'Brien also referred to a 2015 report by a Parliamentary Select Committee, of which he was a member. The report recommended a maximum GST rate of 18% and avoidance of multiple taxes. "Now, done. Better late than never," he remarked.

The GST Council recently approved a two-tier rate structure of 5 and 18%, set to be implemented from September 22. Previously, opposition-ruled states expressed concerns about revenue implications and sought a compensation mechanism. However, the states later joined forces to reduce tax rates for the common person.