Siddaramaiah attacks Centre on 'unfair devolution of taxes'; invites 8 CMs for conclave

In a post on X on Wednesday, Siddaramaiah, who seems to be appearing to spearhead a battle against the “unfair devolution of taxes” by the Union government, dashed off letters to the chief ministers of eight states.

The CM revealed in the X post that he has written to the chief ministers of Kerala, Tamil Nadu, Andhra Pradesh, Telangana, Maharashtra, Gujarat, Haryana, and Punjab regarding the unfair devolution of taxes by the Union government. According to Siddaramaiah, states with higher gross state domestic product (GSDP) per capita, like Karnataka and others, are being penalized for their economic performance, receiving disproportionately lower tax allocations.

"This unjust approach undermines the spirit of cooperative federalism and threatens the financial autonomy of progressive states," Siddaramaiah stated.

Fiscal federalism

The Karnataka CM, who has been in the dock for weeks now over the compensation of his wife's property by Mysore Urban Development Authority (MUDA), also said that he has called all the chief ministers to attend a conclave in Bengaluru.

The purpose is to “collectively deliberate” on the issues of fiscal federalism at a time when the Finance Commission needs to make a directional shift and create incentives for growth and better tax mobilization, he added.

The Kerala Conclave

Meanwhile, a one-day conclave of finance ministers from five states is being held today in Thiruvananthapuram to discuss issues related to the 16th Finance Commission and pertaining to fiscal relations between the union and state governments. Kerala Chief Minister Pinarayi Vijayan inaugurated the event, with finance minister K N Balagopal presiding.

According to Vijayan, in the last decade, the surcharges and cesses have shown a rising trend and now comprise around one-fifth of the gross tax revenue of the Union. A direct consequence of this is the shrinkage of the divisible pool of taxes. "The rise in the share of surcharges and cesses has occurred at a time when the Finance Commissions, from the 14th, have recommended a higher share of the net proceeds of the taxes collected by the Union to be distributed to the States,” Pinarayi remarked.

Equity with efficiency and performance

Meanwhile, in his post Siddaramaiah wrote the previous Finance Commissions have laid excessive emphasis on equity at the cost of efficiency and performance. "As a result, states with higher GSDP per capita and higher contribution to the gross tax revenues of the union are progressively receiving lower shares of the central fiscal transfers," the Chief Minister said in the letter.

"The taxpayers of states, which are net donors to the divisible pool, also expect a fair share of their taxes to come back to them,” he said, urging the finance commission therefore to carefully balance equity with efficiency and performance," the letter reads.

Also, the letter stated that the states with strong contribution to the country's GDP and Gross Tax Revenue, help build the nation in more ways than one.

"Therefore, there is an urgent need to balance equity with efficiency and performance for a stronger Union, both politically and economically. It is, therefore, important that states which are receiving smaller shares in horizontal devolution, compared to their contributions to the Gross Tax Revenues of Union, need to articulate a coordinated set of proposals before the Commission," CM Siddaramaiah pointed out in his letter.