States Seek Over 41% From Tax Devolution Ahead Of 16th Finance Commission Report — Profit Exclusive
The 16th Finance Commission is currently in the process of visiting states to seek suggestions on the devolution of funds.
Ahead of the release of 16th Finance Commission report, states have sought an increase in their share from the divisible pool of taxes, persons privy to the development told NDTV Profit.
The states have demanded more than 41% from tax devolution, which will be higher than what the 15th Finance Commission had recommended, the persons said, on the condition of anonymity.
As per the provisions laid down by the 15th Finance Commission, state governments are guaranteed 41% from the divisible tax pool. Some of the provinces controlled by the Opposition parties have been demanding a higher share.
The 16th Finance Commission is currently in the process of visiting states to seek suggestions on the devolution of funds. The panel is expected to submit its report to the central government by early 2025.
In September, five Opposition-ruled states—Kerala, Karnataka, Tamil Nadu, Punjab and Telangana—sought an increase in their share from divisible tax pool. The demand was raised at a conclave of finance ministers organised by the Kerala government.
The 16th Finance Commission should raise the share of states from 41% at present to 50%, Kerala Chief Minister Pinarayi Vijayan had said. The increase, Vijayan argued, was required after taking into consideration the surcharges and cesses levied by the Centre.
Notably, the finance commission is a constitutional body set up at a gap of every five years. It recommends the ratio of sharing the tax between the Centre and the states from the divisible pool. At present, 41% of the tax pool is transferred to the states annually in 14 installments. This arrangement is to last till 2026.
Amid the demands for higher tax devolution, the Reserve Bank of India has asked states to review their outgoes on subsidies. "States must contain and rationalise their subsidy outgoings to ensure such spending does not crowd out more productive expenditure," the central bank said in a report released on Thursday.
