Fin panel favours more state share in tax revenue

Written by Surabhi Rastogi | Surabhi | New Delhi | Updated: Jan 1 2010, 03:45am hrs
The Thirteenth Finance Commission, which submitted its report to President Pratibha Devisingh Patil on Wednesday, has recommended increasing the share of states in the Centres tax revenues and returning to the Fiscal Responsibility and Budget Management (FRBM) Act targets by 2015.

Vijay Kelkar, chairman Thirteenth Finance Commission said on Wednesday, We had been asked to suggest new path for fiscal consolidation...we have recommended fiscal path for the next five years (2010-15). While he did not elaborate on the recommendations, he said the report dealt with sharing of tax revenue between centre and states, distribution of funds among states and support to local bodies.

Finance minister Pranab Mukherjee said the recommendations of the 13th Finance Commission would be getting reflected in the 2010-11 budget. The Finance Commission report assumes significance in view of the ongoing reforms in indirect and direct taxes, which will have a bearing on the tax collections. The report, after being adopted by the Cabinet, will be tabled in Parliament.

The finance panel led by former finance secretary Vijay Kelkar was set up in November 2007 to suggest devolution of tax receipts between the Centre and the states, assess the impact of the goods and services tax on trade and industry as well as look into the need to manage the environment. It was later also given the mandate to work out a new roadmap for fiscal consolidation for the Centre.

States may be allocated about 5% more than their current share in the Centres tax revenues, a senior government official said. Under the current devolution formula, states receive 30.5% or Rs 1.64 lakh crore in a year.

The empowered committee of state finance ministers had asked the Thirteenth finance panel to increase their share in the divisible pool of central taxes to 50% as they had to shoulder a large part of the expenditure on development and administration. Further, they had argued that the implementation of the recommendations of the Sixth Pay Panel would burn a deep hole in their pockets.

The Kelkar led panel is also understood to have recommended that the Centre should return to the FRBM targets by 2015. Under the FRBM Act, the Centre had to wipe out its revenue deficit by 2009 while the fiscal deficit had to be trimmed to 3% of the GDP. But thanks to the additional public spending because of the economic slowdown, the targets had to be deferred.