States’ tax share shrinks with cess and surcharge.

• The Union government collects ₹10-11 as cesses and surcharges from every ₹100 collected as tax, a trend that has remained unchanged since the pandemic year 2020-21.

• The cost of collection, which includes the amount collected as cesses and surcharges, is not included in the divisible pool of taxes, which is meant to be shared with the States.

• The share of cesses and surcharges, along with the cost of collection, reached a high of ₹13.5 for every ₹100 collected as taxes by the Centre in 2021-22, the highest ratio in at least over a decade.

• The divisible pool has shrunk since the pandemic year 2020-21, falling to less than ₹90 for every ₹100 that the Centre collects.

• All the States put together get 41% of the divisible pool, a figure arrived at as per the recommendations of the 15th Finance Commission for the FY 21-26 period.

• The rise in the share of cesses and surcharges has made the Finance Commissions’ recommendations less effective as the divisible pool itself is shrinking.

• The use of cess is often not used for the specific purposes for which they were collected, with many Comptroller and Auditor General of India (CAG) audit reports pointing out that these cesses are not being completely transferred to the reserve funds or adequately utilised for the intended purposes.

• The share of each State in the divisible pool is calculated based on a formula decided by the Finance Commission, which is mainly determined by income distance, population, demographic performance, forest cover, area, and efficiency in tax collection.

• The share of various States in the divisible pool has undergone significant changes since FY02, with Kerala’s share falling from 3.08% in FY02 to 2.5% in FY17 and is estimated to fall even further to 1.9% in FY26.