The 14th Finance Committee led by former RBI Governor YV Reddy raised the share of countries in the divisible pool from 32% to 42Its suggestions are relevant from 2014-15 to 2019-20 for a period of five years. Basic calculations indicate that according to this formula, countries would lose more than Rs 45,000 crore in the present tax on account of their share of corporate tax alone as close to 15 percent of the predicted corporate tax earned by the Union government in this year would be through surcharges and would cease to be paid by businesses on their corporate tax liability.
State governments are set to lose Rs 45,000 in their share of corporate tax that the Union government will collect in 2019-20. Successive central governments rely on surcharges and cessations to support their income. However, this practice is unfair to state governments as surcharges and cesses are not considered part of the divisible pool and consequently not shared with the state governments as per the formula devised by the finance commission.
In 2017-18, the actual corporate tax collected by the Union government was Rs 5.71 lakh crore. And this sum was mopped up by 15 percent or nearly Rs 85,000 by the surcharge, cessation, penalties, and interest recovery, etc 42 percent of the cessation and surcharge collection on corporation tax works out to be Rs 35,700 crore, according to the formula proposed by the 14th finance commission.
Corporate tax is one of the Union government’s two largest sources of income, while the other is GST. The state has estimated in the provisional budget that it will receive Rs 7.61 lakh crore from GST and Corporate Tax Rs 7.6 lakh crore in this fiscal year.
In the interim budget, then finance minister Piyush Goyal had projected more than 13% jump indirect tax collection in this financial year. According to the budget estimates, corporation tax collection will be Rs 7.6 lakh crore this year, a jump of nearly Rs 90,000 over the previous year. And this time, the share of cessation and surcharge will also rise significantly.
The state has expected a surcharge (Rs 73,368 crore) and a cessation (Rs 34,463 crore) to gain Rs 1.08 lakh crore. This represents over 14 percent of the complete corporate tax income of the government in the present fiscal year. According to the formula of the finance commission, countries will lose nearly Rs 45,000 crore in corporate tax alone this year as the cash received by the Union government in the form of corporate tax surcharges and cessations will not form part of a divisible pool of national taxes separated between the Center and countries.
Writer: Sakshi Gupta