In a Union, natural for some to pay more taxes PDF Print E-mail
Tuesday, 20 March 2018 04:45
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Unfortunate that Karnataka chief minister should be raising issues like the south subsidising the north


At a time when the BJP’s major alliance partner in the south, N Chandrababu Naidu, has pulled out of the NDA, while alleging Andhra Pradesh hasn’t got a fair deal, Karnataka chief minister Siddaramaiah’s statement that the south is subsidising the north is likely to gain traction in the run-up to the general elections. Historically, the Karnataka chief minister has said, six states south of the Vindhyas contribute more taxes and get a lot less. For every rupee of tax contributed by Uttar Pradesh, The Economic Times quotes him as saying, the state receives Rs 1.79 from the central government, while Karnataka receives `0.47. Given that Siddaramaiah has also been raising a demand for a separate flag for Karnataka—he has traced back the red and yellow flag to the oldest Kannada kingdom in the 4th century AD—it is also possible that the move could be just an attempt to add pressure on the Centre to agree to that demand.

There can be little dispute over the fact which the chief minister has presented. It is a fact that poorer states contribute less money to the central exchequer. This, however, is not a policy flaw, it is a part of the central design of a union of states. Much like in the case of income taxes, it is the rich that pay more, richer states pay more excise duty and, to the extent they have more manufacturing/service units, even more corporate taxes and GST. And, this money gets used to help the poor or poorer states to overcome historical disadvantages, whether due to lack of natural resources or poor levels of education. If, on the other hand, Siddaramaiah’s view was to be taken at face value, a Mumbai can argue that it needs to get more facilities/funds than the rest of Maharashtra since it contributes more taxes; ditto for Bangalore versus the rest of Karnataka.

Apart from the fact that equity demands that the poor or poorer states get more funds to look after themselves, there are also policy reasons for why some states are poorer than others. Had previous governments, for instance, not insisted on the freight-equalisation policy, a lot more industry would have developed around Bihar and West Bengal, and they would have been paying more taxes than some of the southern states. Similarly, were the argument of equal-payment-equal-transfers to be adopted, mineral-rich states could demand that their produce not be sold within the country, agriculture-rich states could impose high taxes on any ‘export’ to another state, states could demand to be paid for the number of soldiers they send to the army … Siddaramaiah, though, is justified in asking for a speedier transformation, in the sense that the poorer states can’t keep getting central dole without any conditions attached to it. To a certain extent, previous finance commissions have tried to address Siddaramaiah’s point by giving some weightage to the fiscal performance of states. Perhaps, future finance commissions need to give a greater weightage to this. But, it is the nature of a federal structure that poorer states will always get a larger share of central taxes. Making this an election issue will be divisive, so it is to be hoped the Karnataka chief minister doesn’t repeat his charges.


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