States upset as Centre to defer tax payments

NEW DELHI: The central government will transfer states’ share of federal revenues only once every three months beginning next financial year, leaving most states worried over their alreadystretched finances.

States now get 42% of central taxes on the first day of every month, much of which goes into paying salaries, pensions, wages, administrative costs and interest on loans.

On August 16, the central government wrote to states that their share from the federal pool of taxes will be sent on the fifteenth of every month till end-march. Thereafter, the money will be transferred once every quarter.

Finance ministry sources told Hindustan Times that the central government has often had to borrow money to meet its revenue transfer commitments because tax receipts are usually subdued during the first few months of a financial year.

A slight alternation in the payment schedule would give the Centre additional elbow room as well as a clearer line of sight on revenue collection under the new Goods and Services Tax (GST) regime.

“There are uncertainties about revenue collection and the quantum of tax credits under the new tax regime,” a senior ministry official said on the condition of anonymity because he is not authorised to speak to journalists.

“With a major shift such as the GST, this is natural in the first few months of its implementation. Given this situation, the tax devolution schedule has been slightly altered.”

But the plan has sent shock waves through states whose profligacy of the past few years is in sharp contrast to the central government’s fiscal prudence.

MOVE WOULD GIVE THE CENTRE A CLEARER LINE OF SIGHT ON REVENUE COLLECTION UNDER THE NEW GST REGIME