Karnataka Invites CMs of 8 States for Conclave on Centre Unfair Devolution of Taxes
Karnataka Invites CMs of 8 States for Conclave on Centre’s ‘Unfair Devolution of Taxes’
Bengaluru, September 12, 2024: Karnataka has invited the Chief Ministers of eight Indian states for a high-level conclave to address concerns over what it describes as the Centre’s “unfair devolution of taxes.” The conclave aims to unite states in expressing their grievances over the allocation of funds, especially as the 16th Finance Commission, chaired by Dr. Arvind Panagariya, prepares to submit its report to the Centre in 2025.
The initiative, spearheaded by Karnataka Chief Minister Siddaramaiah, reflects growing dissatisfaction among several states regarding the formula used by the central government for distributing tax revenues. States like Tamil Nadu, Kerala, West Bengal, and Telangana have voiced similar concerns over the perceived imbalance in the division of resources.
According to a senior Karnataka official, “The conclave is essential to ensure that states receive their fair share of tax revenues, which is crucial for developmental projects and welfare schemes. The current system disproportionately benefits some states while leaving others with insufficient funds.”
Finance Commission Consultations Underway
The timing of this meeting coincides with the ongoing consultations held by the 16th Finance Commission. Headed by Dr. Panagariya, the Commission is tasked with reviewing and recommending a framework for the distribution of taxes between the Centre and the states for the five-year period starting in 2026. The final report, expected by 2025, will be instrumental in shaping fiscal relations between different tiers of government.
Key issues that the conclave aims to highlight include Karnataka’s objections to the weightage given to population criteria in revenue sharing and the lack of flexibility in centrally sponsored schemes, which some states argue limits their autonomy.
Unity of States
The invitation has been extended to states like Kerala, Tamil Nadu, West Bengal, Punjab, Chhattisgarh, Telangana, Odisha, and Rajasthan. All of these states have expressed concerns over the current tax devolution system. While some are governed by opposition parties, others have independent regional parties that often clash with central policies.
A source within the Karnataka government revealed that the state will propose the formulation of a joint memorandum to the Finance Commission, pressing for changes in the devolution formula to ensure greater fiscal fairness.
Opposition to Population-Based Formula
One of the key concerns likely to dominate the conclave is the Centre’s population-based criteria for tax devolution. Southern states like Karnataka, Tamil Nadu, and Kerala, which have successfully implemented population control measures, argue that the formula penalizes them for this achievement, while benefiting states with higher population growth.
“The unfair distribution of taxes is costing us essential resources needed for healthcare, education, and infrastructure,” said a senior official in the Tamil Nadu government.
Political Ramifications
The conclave is expected to have significant political ramifications, especially with the Lok Sabha elections approaching in 2024. With a growing number of states dissatisfied with the central government’s policies on tax devolution, the conclave could serve as a platform for the opposition to unify on fiscal issues.
This initiative also places additional pressure on the central government, particularly the Ministry of Finance, which has been defending the current formula as a balanced approach that accounts for the needs of both developed and developing states.