Opinion | Tax for Dividing The Nation or Developing?

Mumbai, Delhi, Tamil Nadu and Gujarat are the four top states that account for 70 per cent of the total direct tax collections in the country. Even out of these four states, Mumbai alone contributes one-third of the entire collection. Imagine if the people of Mumbai demand that since Mumbai contributes more than even Maharashtra, it should be treated separately, and its money should be invested only in Mumbai? Or if the people of Bengaluru say that since the city contributes more in tax than the rest of Karnataka, it should be treated separately? I even wonder what if men of Karnataka protest against women of Karnataka getting free bus rides just because the men there pay more taxes than women.

The nation never thought of such things, but recently, the Congress government in Karnataka cooked up a new issue of the Centre discriminating with southern states while allocating money.

The tax devolution criteria work on the “rich states pay for poor states” principle. The devolution formula is based on six factors in which 45 per cent (the highest) weightage goes to income distance, 15 per cent to area, 15 per cent to population of the state, 12.5 per cent to demographic performance, 10 per cent to forest and ecology and 2.5 per cent to the tax and fiscal efforts of the state.

According to the 14^th Finance Commission, out of Rs 100, Karnataka used to get Rs 4.713. Still, seeing Karnataka’s overall performance improved, the 14^th and 15^th Finance Commission revised the numbers to Rs 3.646 and Rs 3.647, respectively. The argument of BJP doing ‘anyaay’ (injustice) should be thrown into the dustbin immediately because under the 13^th Finance Commission (2010-2014), Karnataka received Rs 61,691 crore, followed by Rs 1,51,309 crore under the 14^th FC (2015-2019), Rs 1,29,854 crore (already in the last four years) under the 15^th FC (2020-2026) and this number will reach Rs 1,74,339 crore at the end of the fifth year.

Talking about the grants received by Karnataka from the Centre, under the UPA government (from 2004 till 2014), Karnataka received just Rs 60,780 crore, while under the NDA government in the last ten years (till January 2024), the state got Rs 2,08,832 crore which accounts for about 243 per cent increase. Apart from all this, Karnataka will also receive Rs 18,005 crore as additional grants-in-aid till March 31, 2024. Karnataka has also received Rs 6,280 crore as a 50-year interest-free loan.

In 2013, the UPA government set up a committee under the RBI Governor Raghuram Rajan which recommended the inclusion of the backwardness index to determine the allocation of funds to the states. It was decided by the UPA government that 60 per cent of the Central funds would automatically be transferred to the poorest states. Data shows that using this same formula of fund allocation, Karnataka’s share of funds was cut down from 4.39 per cent to 3.73 per cent. In the same formula, maximum weightage was given to the state’s population and then to the area of the state, making the allocation a bit random.

In 2013, the allocation of funds also became a hot political topic as Nitish Kumar requested the UPA to list Bihar under a “special category state” to receive more funds and in return, he would support the UPA in Bihar elections and Lok Sabha elections. However, with Rajan’s new formula, Bihar lost the tag of “special category state” and it was granted to seven Northeastern states, Sikkim, Uttarakhand, Jammu and Kashmir and Himachal Pradesh.

(Source: New backwardness index to determine funds allocation to states)

States get money from the Centre for development, but implementing “freebies” in the name of “development” and then crying for lack of funds will trigger the Finance Ministry. The pattern of crying for funds is the same amongst all those state governments implementing freebies for better performance in upcoming elections, be it Punjab, Tamil Nadu, Kerala, Himachal Pradesh or Karnataka. Gone are the days of dividing the nation by caste or language. So, let the “tax-dividing nation” debate be buried for once and forever.

Ritwik Mehta is Founder, Niti Tantra and a Political Strategist. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect News18’s views.