Security tax? The 15th Finance Commission (which will decide the distribution of tax revenues between Centre and states) is expected to create a defence and internal security fund by setting aside money from gross tax revenues of the central government. This would mean less money for sharing with states. While the Centre wants states to share the financial burden of maintaining and upgrading its security apparatus, states fear that they may be left with less funds at a time when developmental demands on them are rising. The defence budget for 2019-20, at Rs 3.05 lakh crore, is 1.45% of GDP of which just a little over a third is capital expenditure.
But then… Defence is in the Centre’s remit in the Seventh Schedule of the Constitution, which sets out the responsibilities respectively, of the Centre, the states and jointly of both. While Article 280 of the Constitution empowers the commission to decide how taxes are distributed, Article 266 says that the Consolidated Fund of India is a shared pool for all national priorities. Creating a fund outside this structure is against the Constitutional principle, some experts have said. The finance ministry had earlier rejected the idea of a non-lapsable defence fund on two grounds: unspent monies represent opportunities forgone in other vital areas (such funds are often idly parked instead of being used to pay off urgent bills) and once started for defence, such funds would proliferate.
Shrinking kitty: The actual devolution of the revenues of the Centre to the states is much less than the 42% recommended by the 14th Finance Commission, thanks to a sizeable chunk of the Centre’s collections being in the form of cesses and surcharges that are not shareable with the states. While the share of taxes in the divisible pool has grown, their share in the overall tax revenue has fallen because of the faster growth of the non-divisible pool of cesses and surcharges.
