Definition
Gross vs Net Tax Revenue
Gross tax revenue is the Centre's total tax collection, while net tax revenue is what remains after the states' share is devolved to them.
The Centre collects taxes such as income tax, corporate tax and its share of GST, adding up to gross tax revenue. A portion of this divisible pool is transferred to the states based on the Finance Commission formula. What the Centre keeps for its own use is the net tax revenue.
The distinction matters when reading the Budget: the Centre's spending capacity depends on net, not gross, collections. Because cesses and surcharges are excluded from the divisible pool, a higher reliance on them increases the Centre's net share at the states' expense.
Related terms
- Cess vs SurchargeA cess is a tax levied for a specific earmarked purpose, while a surcharge is an additional tax on tax, usually on higher incomes, that is not earmarked.
- Devolution to StatesDevolution is the constitutionally mandated transfer of a share of the Centre's divisible tax pool to the states, as recommended by the Finance Commission.
- Finance CommissionThe Finance Commission is a constitutional body set up periodically to recommend how tax revenues should be shared between the Centre and the states.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.