Finance Commission should address high-performing state concerns

• Five Opposition-ruled States demand a 50% increase in the divisible pool of taxes from 41%, a recommendation from the Fifteenth Finance Commission.
• The Centre can only collect a cap on cesses and surcharges, which fund specific central government projects beyond the devolution mechanism.
• Karnataka Chief Minister Siddaramaiah plans to convene a meeting of Chief Ministers of eight Opposition and BJP-ruled States to discuss the growing infringement on States’ autonomy to collect taxes since the introduction of the GST framework.
• The meeting is significant due to the paltry sums allocated in the 2024-25 Union Budget for major plans and the impact of natural disasters on various States across India.
• The Sixteenth Finance Commission’s recommendations on tax devolution are expected by October 2025.
• States like Gujarat, Karnataka, Maharashtra, and Tamil Nadu require tailored capital and social expenditures to address their developmental, climate, and industrial needs.
• The GST framework and the Finance Commission have not addressed contingency expenses, which are now relevant to mitigate extreme weather events.