Q. Consider the following statements:
Statement-I: The financial transfer to States by the Union has seen a decline in recent years.
Statement-II: Revenue collection by the Union government through cess and surcharge has increased.
Which one of the following is correct in respect of the above statements?
Explanation –
Statement I is correct. The Union government has been reducing financial transfers to states, especially as a proportion of gross tax revenue. For example, the share of states in gross tax revenue declined from 35% in 2015-16 to 30% in 2023-24.
Statement II is correct. Revenue collection through cess and surcharge have significantly increased over the years. For instance, cess and surcharge collection rose from 5.9% of the Union government’s gross tax revenue in 2015-16 to 10.8% in 2023-24.
The increase in cess and surcharge collection (Statement-II) is one of the reasons for the decline in financial transfers to states (Statement-I). This is because cess and surcharge revenues are not shared with states, allowing the Union government to retain more of its tax collections.
Therefore, Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.
Source: The Hindu
