Tamil Nadu Assembly Unanimously Demands Equitable Tax Devolution

The Tamil Nadu Assembly on Friday unanimously adopted a government resolution urging the Union government to ensure the State receives its due share of financial devolution from taxes contributed to the Centre, in accordance with the constitutional principles of fiscal federalism, equity, and fairness.

Moving the resolution, Finance Minister N. Marie Wilson called upon the Centre to adopt a transparent, objective, and equitable methodology for the devolution of Union taxes that “appropriately recognises the contribution, fiscal effort, governance performance, and developmental needs of the States.”

The resolution further urged the Union government to ensure that the criteria adopted for tax devolution do not place any State at a comparative disadvantage for its achievements in population stabilisation and human development. It also stressed that appropriate measures should be taken to safeguard Tamil Nadu’s legitimate financial interests while finalising future arrangements for the devolution of Union taxes.

The resolution comes amid ongoing deliberations over the recommendations of the 16th Finance Commission, which is tasked with determining the distribution of Union tax revenues between the Centre and states for the five-year period commencing April 2026. States have been submitting their views on the terms of reference, and Tamil Nadu has consistently argued that the current formula for tax devolution disproportionately penalises states that have successfully controlled population growth and achieved higher human development indicators.

Tamil Nadu, along with several other southern states, has long maintained that the criteria used for horizontal devolution — such as population and income distance — favour states with higher population growth and lower per-capita income, thereby reducing the share of fiscally disciplined states. The state has repeatedly emphasised that its contributions to the national exchequer are substantial, yet it receives a smaller share of central taxes relative to its economic output.

Finance Minister Wilson, in his address to the House, argued that fiscal federalism must be based on principles of justice and fairness, not merely administrative convenience. He said the Centre’s methodology should reward states that have performed well in governance and fiscal management, rather than penalise them. He also noted that states have legitimate expectations under Article 280 of the Constitution, which mandates the Finance Commission to recommend the distribution of net proceeds of taxes between the Union and the states.

The unanimous adoption of the resolution signals a rare bipartisan consensus in the Tamil Nadu Assembly. Leaders from both the ruling and opposition benches spoke in support of the motion, underscoring the state’s united demand for a fair share. Political observers note that the issue has historically transcended party lines in Tamil Nadu, as successive governments have raised similar concerns with the Union government.

The resolution is likely to be forwarded to the Union government for consideration. It also directs the state government to take up the matter with the 16th Finance Commission and other relevant authorities. The House expressed confidence that the Union government would respond positively, keeping in mind the constitutional spirit of cooperative federalism.

This development is part of a broader dialogue among Indian states about the balance of fiscal powers. Several other non-Hindi-speaking states have also voiced concerns about devolution criteria, arguing that the current formula favours certain regions over others. The final recommendations of the 16th Finance Commission, expected in the coming months, will determine the future course of Centre-state financial relations.