Centre owes Rs. 80,000 crore to States, says Comptroller and Auditor General (CAG) Report Friday Aug 12,2016

The Centre owes the States over Rs. 80,000 crore from its net proceeds of the period between 1996 and 2015, according to a Comptroller and Auditor General (CAG) report tabled in Parliament on Friday Aug 12,2016

The revelation has the potential to significantly impact the finances of most States, because most of them could end up getting a few thousand crores each.

“During the certification of ‘net proceeds’ by the CAG, based on the recommendations of the successive Finance Commissions, it was noticed that during the period from 1996-97 to 2014-15 an aggregated amount of Rs. 81,647.70 crore was short devolved to the States,” says the CAG report, on ‘Compliance of Fiscal Responsibility and Budget Management Act, 2003.’

The report says that according to Article 279 of the Constitution, the CAG is “required to ascertain and certify the ‘net proceeds’ (any tax or duty the proceeds thereof reduced by the cost of collection), whose certification shall be final.”

In response to the CAG finding, the Finance Ministry responded in June 2016 that the “accuracy of the figures intimated by CAG are required to be ascertained and need to be reconciled with that of Budget Division, Department of Economic Affairs as the calculations for State share of Central Taxes and Duties are based on set practices and norms which have been meticulously followed year after year.”

The CAG report points out that in July 2000, the Finance Ministry requested for CAG certification of net proceeds of taxes afresh ante-dated from 1996-97 because of the 80 constitutional amendment. 

The amendment resulted from the recommendations of the 10 Finance Commission for an alternative way of sharing proceeds of union taxes and duties between Centre and States. 

“On receipt of request from the Ministry, clarifications were sought by the CAG office followed by reminders, which were not provided,” the CAG report says. Finally the “certificates on net proceeds were issued by the office of CAG on 10 February 2016,” the report says. 

The report also points out that the draft certificate of the CAG on net proceeds of taxes, together with detailed calculations were made available on December 14, 2015, and reminders were sent on December 31 and January 6, 2016. “As such opportunity was provided to the Ministry before issuing the final certificate in terms of Article 279 of the Constitution,” the report says, dismissing Ministry’s objections to the report.