Centre owes over Rs. 81,000 crores to States
The Union government owes over INR 81,000 crores to States as tax shares of last 10 years. This is according to a finding by the Comptroller and Auditor-General of India. In 2006-07, the Centre did not disburse Rs. 10,022.89 crore and in 2014-15, it went up to Rs. 17,322.14 crore. Almost every year has shown such shortages in disbursements.
What is CAG?
The Comptroller and Auditor General (CAG) of India is an authority, established by the Constitution under Constitution of India/Part V Chapter V/Sub-part 7B/Article 148, who audits all receipts and expenditure of the Government of India and the state governments.
Article 279(1) of Indian Constitution
Under Article 279 (1) of the Constitution, the CAG has to ascertain and certify the details of net proceeds of the Centre and its distribution to States. Article 279 is titled "Calculation of net proceeds" and mandates that any tax proceeds in or attributable to any area shall be ascertained and certified by the Comptroller and Auditor-General of India, whose certificate shall be final.
Constitution (Eightieth Amendment) Act, 2000
On the recommendations of Tenth Finance Commission, alternative schemes of sharing of the proceeds of certain Union taxes and duties between Union and the States were proposed under this Amendment. The alternative scheme envisages that 26% out of the gross proceeds of Union taxes and duties is to be assigned to the States in lieu of their existing share in income-tax, basic excise duties.
Tax sharing pre and post 80th Amendenment
Prior to the amendment, taxes on income other than agricultural income and a part of excise duties were only required to be shared with the States. The 80th amendment made it mandatory to share proceeds from other taxes and duties, such as corporate tax, customs, service tax and some of union excise duties. But the process of verification and certification stopped due to uncertainity.
Ambiguity over revenue sharing since 80th Amendment
The issue of sharing of taxes mentioned in the Union List got clarity under 80th amendment to the Constitution in 2000. Due to the ambiguity, CAG did not issue any certificates after 2009. Auditors have found that certificates have not been issued for excise duties and custom duties from 1996-97, for indirect taxes from 1999-2000 and for direct taxes from 2005-06.
How was this sum discovered?
This was detailed in the communication between the CAG and the Finance Ministry between 1996-97 and 2014-15. The difference was discovered during an audit and certification process by the CAG of the net proceeds of taxes and duties for the period. The Constitution of India directs the CAG to ascertain and certify the details of net proceeds of the Centre and distribution to States.
Windfall for the States in the offing
Of this mammoth figure of Rs. 81,647.70 crore, a large State like Uttar Pradesh could end up getting around Rs. 7,000 crore. Other big States would also get massive amounts in that region. This will be a windfall in the offing for the States.