Finance panel seeks better deal to states

NEW DELHI: Here’s some good news for the state governments, most of whom have been facing financial difficulties in the recent past.

The Twelfth Finance Commission is of the view that states should get a higher share from the pool of divisible taxes.

According to highly-placed government sources, the commission is expected to recommend a marginal hike in the share of states from the levies imposed by the Central government.

The share of state governments is likely to be fixed at 30.5% of the pool of divisible taxes as compared to the 28% fixed by the Eleventh Finance Commission with an extra 1.5% to offset the impact of the additional excise duty (AED) on sugar, tobacco and textiles.

These items are not subject to state sales tax.

The report of the Twelfth Finance Commission, headed by former Andhra Pradesh governor C Rangarajan, is likely to be submitted to the government next month.

A meeting of the full-commission (all members and the member-secretary) is expected to take place later this month to finalise the recommendations.

The original deadline for submitting the report was July 2004 but the commission was given more time in view of this year’s Lok Sabha elections.

The recommendations of the commission are to be effective for five years beginning 2005-06.

The government would have nearly four months to work out its views on the commission’s suggestions so that relevant measures are included in the 2005-06 Budget.

In the overall scheme of things too, states are expected to get a better deal. The Eleventh Finance Commission had recommended that 37.5% of all gross revenue receipts of the Centre should be transferred to the states.

The recommendations of the Twelfth Finance Commission assume significance in view of the Fiscal Responsibility and Budget Management (FRBM) Act which has laid down a time-bound road-map for reducing fiscal deficit.

Top officials of the Finance Commission had a series of meeting with representatives of the Planning Commission and various chapters of the report were being given finishing touches, the sources added.

The final numbers will be based on the government’s assessment of the implementation of state-level value-added tax (VAT) with effect from April 1, 2005 and the likely implementation of the Kelkar Committee’s tax reform recommendations, including introduction of goods and services tax (GST).

The commission is likely to make recommendations on devolution of adequate funds to panchayats and municipalities, apart from allocation of resources for infrastructure sectors.

It is also expected to touch up on restructuring of public finances for achieving macro-economic stability. Another aspect watched closely is measures recommended for enhancing capital investment.

Former Cabinet secretary TR Prasad and economist DK Srivastava are members of the Twelfth Finance Commission.

Former Planning Commission member Som Pal resigned earlier this year and former chief economic advisor Shankar Acharya has been serving as a part-member since July.