Finance panel seeks legal system to compensate PRIs in Punjab for revenue loss

Ruchika M Khanna
Chandigarh, March 30

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Bereft of any financial muscle after the rollout of the Goods and Services Tax, local bodies and panchayati raj institutions (PRIs) in Punjab have been left at the mercy of the state government for funding.

The Sixth Punjab Finance Commission, which submitted its final report to the Punjab Governor yesterday, has recommended that compensatory payment must be statutorily backed if local bodies suffered any loss of revenue.

The report, which is to be sent to the state government by the Governor and later laid in the Vidhan Sabha for approval, mentioned that the government should have compensated these bodies for abolition of taxes and levies. The local bodies were getting 10 per cent of the total VAT collections in Punjab before the GST rollout in 2016-17. Other states, including Maharashtra, abolished local taxes only after statutorily compensating for the losses, it said.

The recommendations are significant considering these will be effective till the 2025-26 fiscal. If accepted, the government will be bound to implement these. The record of implementing the recommendations of the previous five Finance Commissions, however, has been abysmal, said commission chairman KR Lakhanpal while talking to The Tribune.

Lakhanpal, who retired as the Punjab Chief Secretary, said in the absence of statutory mechanism, the grants had been delayed or denied since 2016-17. He said the commission didn’t take a narrow approach of going only by the terms of reference of the Sixth Finance Commission. He said since local bodies varied in their financial strength, the grant-in-aid would be useful for helping the financially weaker bodies. He said he was hopeful the Punjab Government would emulate the path followed by growth-oriented states by accepting the recommendations.

Allow share in taxes

Instead of allotting fixed percentage of the state’s own tax revenue to the local bodies and PRIs (generally 4 per cent), we have recommended reassigning of certain taxes and a share in taxes and grants-in-aid. — KR Lakhanpal, Commission chairman