September 5, 2025
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Cess undermining federalism as tax proceeds bypass states, prompting calls for compensation amid GST rationalisation.
Cess receipts retained wholly by the Union have increasingly shrunk the divisible pool available for state distribution, with cess and surcharge rising as a share of Union tax revenues and significant balances unutilised. The growth of cesses, excluded from the divisible pool, has reduced states' share of gross tax revenue despite prior increases in tax devolution. Concurrently, GST rate rationalisation and the cessation of the anti-profiteering committee have raised state concerns about compensation and disputed revenue-loss estimates, as several state ministers sought mechanisms to offset fiscal impact.