M A I N   N E W S

More tax revenue for states
Finance panel fixes share at 37.5 p.c.
Tribune News Service

NEW DELHI, July 27 — The 11th Finance Commission has recommended an increase in the transfer of gross revenue receipts from the Centre to states from the existing 29 per cent to 37.5 per cent.

The report for 2000-2005 tabled along with the action taken report in both Houses of Parliament today has recommended 28 per cent devolution of revenue from Central taxes to states and the cap of 37.5 per cent includes overall Central tax and non-tax transfers.

The percentage share of Punjab on devolution of Central taxes is 1.1 while that of Haryana is 0.9. Himachal Pradesh gets 0.6 per cent while Jammu and Kashmir gets 1.3.

Uttar Pradesh gets the highest percentage of 19.8 per cent followed by Bihar (14.6), Madhya Pradesh (8.8), West Bengal (8.1) and Andhra Pradesh (7.7 per cent).

In the action taken report (ATR) apart from accepting the increase in transfer of funds to states the government has agreed to measures on debt relief, grants-in-aid, and calamity relief. The suggestions would be considered in due course, it said.

Besides 28 per cent devolution of shareable Central taxes and duties annually for the next five years, the commission has recommended transfer of additional 1.5 per cent of the net proceeds of Central taxes to those states which do not levy sales tax on sugar, tobacco and textiles.

The commission has also recommended discontinuation of the existing National Fund for Calamity Relief and instead suggested setting up of a National Calamity Contingency Fund which could be created with an initial core of Rs 500 crore.

This should be financed by levy of a special surcharge on Central taxes for a limited period. The drawals from the fund should be accompanied by imposition of special surcharge.

This system has been suggested as the intensity and magnitude of a severe calamity could not be anticipated and provided in the regular budgetary mechanism.

The commission has, however, recommended continuance of the existing scheme of calamity relief funds to states with an aggregate size of Rs 11,007.59 crore during 2000-05.

This includes the Centre’s share of Rs 8255.69 crore and the states’ share of Rs 2751.90 crore worked out in the ratio of 75:25. The recommendation has been accepted by the Centre.

The commission has also proposed to continue the existing debt relief scheme but linked it to improvement in the ratio of revenue receipts of a state to its total revenue expenditure with enhanced incentive. The Centre will implement it through an executive order.

Among the major recommendations which the Centre is yet to consider is the introduction of an index linked to input user charges, including electricity and water.

The commission suggested regular revision of the royalties on minerals, dispensing with routine appointment of pay commissions every 10 years, introduction of a pension scheme that does not become a burden on state exchequer.

It has also asked the Centre to consider introduction of a multi-year budgeting process.

Taking a comprehensive and overall view of the transfer of revenues, the commission said, “We have set an indicative limit of 37.5 per cent of the Centre’s gross revenue receipts protecting the interests of both the Centre and states, the report said.

It said, “Our overall scheme of resource transfers is characterised by providing a structure of incentives which is designed to reward fiscal prudence and discourage fiscal profligacy.’’

It said the scheme of debt relief proposed is designed to promote improvement in revenue balances without resorting to such doubtful methods as write-offs and moratorium, barring a few exceptional cases.

The commission has favoured bringing services increasingly under the tax net for improving buoyancy of indirect taxes.

Highlights

The following are the highlights of the recommendations of the 11th Finance Commission report tabled in Parliament today:

• 37.5 per cent of the gross revenue receipts of the Centre (both tax and non tax) suggested to be transferred to the states
• Share of states fixed at 28 per cent of net proceeds of all shareable union taxes and duties for each of the five years starting from 2000-01 and ending 2004-05
• Attention should be paid to the system of budgeting and budgetary control. Expenditure reforms commission should look into this.
• Fast growing services sector to be increasingly brought under tax net to improve buoyancy of indirect taxes.
• Tax base of states and local bodies needs to be widened
• Constitution may be amended to empower Parliament to revise the ceiling on professional tax
• No need to appoint pay commissions as a routine at an interval of 10 years.
• Consideration needs to be given to evolve a system under which pensions do not become an unsustainable burden on states exchequer
• Fresh look needs to be given to the Gadgil formula.