THIRUVANANTHAPURAM: Kerala approaches Supreme Court against central government for cutting borrowing limit and reducing tax share, but to no avail. The central government is moving to reduce tax share for states again.

Of the total tax collected by the central government, only 41 percent is shared with all the states. The remaining 59 percent will be taken by the central government. The move is to reduce this to 40 percent from next year. The center will take 60%. Kerala has demanded that the tax collected should be shared equally, 50 percent each.

The commission will submit its recommendations for the financial year 2026-27 to the center on October 31 this year. Ahead of that, the Center may propose to the Commission to reduce the tax share to 40 percent

States bear 60 percent of the total government project expenditure in the country. Most of it is in the health and infrastructure development sectors. With the implementation of GST, the direct tax revenue of the states was low, so the Center increased the cess and surcharges since the cess and surcharge revenues do not have to be shared with the states.

The Center will save 35,000 crores

The Central government says that in 1980, only 20% of the total tax was given to the states. This was later increased to 42 percent. In the last Finance Commission, it was reduced to 41%. This time, the move is to reduce it again to 40%. If the share of Kerala is reduced by one percent, there will be a shortfall of about Rs 12,000 crore. If the share of the states is reduced by one percent, the Center can save an average of Rs 35,000 crores per year.

Kerala had requested 16th Finance Commission Chairman Arvind Panagariya to make the population density of each state a criterion for sharing the taxes collected by the Centre with the states. Contrary to that, the move is to cut the tax share.