In Q4, the economy strengthened as the Centre allocated an additional Rs 45,000 crore from the divisible pool to states

The Centre issued an ‘additional’ Rs 45,000 crore in tax devolution to state governments in FY21, thanks to improved tax revenue buoyancy in the fourth quarter, the finance ministry said on Thursday. The devolution was higher by 8.2 per cent than the revised estimate (RE).

“The states will earn Rs 5,49,959 crore, or 41% of the shareable pool of taxes and duties, according to RE 2020-21. However, based on initial estimates of the shareable pool that will be raised in 2020-21, the ministry of finance has devolved a total of Rs 5,94,996 crore,” the ministry said in a statement.

The devolution target for 2020-21 was cut by Rs 2.34 lakh crore, or 30%, from the Budget forecast of Rs 7.84 lakh crore.

The additional funds were allocated in two instalments: Rs 14,500 crore was distributed with the 14th daily devolution instalment on March 26, and Rs 30,500 crore was distributed to the states on March 31, 2021. The top recipients are Uttar Pradesh (Rs 1,06,687 crore), Bihar (Rs 59,861 crore), and Madhya Pradesh (Rs 59,861 crore).

The Centre’s intensive use of the cess route to raise its own tax income has hampered the divisible tax pool’s development in recent years, harming state tax revenue. Though the pattern existed during the 14th Finance Commission’s award era (FY16-20), it was most noticeable in FY20, when tax transactions unexpectedly decreased. Tax payments to states are down 15% year on year in FY20. Tax payments to states increased from 28 per cent in FY13 to 35 per cent in FY16 but have since dropped to 33 per cent in FY20.

Thanks to higher mop-ups from corporate and personal income taxes, the Centre could raise around Rs 90,000 crore more in net tax receipts in FY21 than the RE of Rs 13.4 lakh crore, according to a FE survey. Following transfers to the states, it could receive an extra Rs 30,000 crore in “Union excise duty.” GST revenue has also been high.

According to Revenue Secretary Tarun Bajaj, tax receipts in FY21 would be “substantially higher” than in RE. The net tax revenue increased 9.1% year over year in April-February, despite a revised forecast of a 1% drop As per the Controller General of Accounts.


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