New Delhi: For the first time on Saturday, the 15th Finance Commission report will be tabled in the Parliament. Contrary to expectations, sources informed News18, the Commission has not increased the divisible tax pool to states.
The interim report is likely to stick to 42 per cent divisible tax pool to states.
The states had earlier suggested that the 15th Finance Commission should increase the vertical devolution from 42 per cent to 50 per cent. GST compensation was demanded to be continued beyond the stipulated 5 years. The states had further suggested that 5 per cent of the divisible pool be assigned to local bodies as a basic grant, of which 1 per cent should be for Panchayats in the PESA area.
Among other recommendations, the report is likely to propose a non-lapsable fund for defence. Funds for the Defence sector is also likely to get an allocation in Budget.
The report also roots for disaster management funds to be allocated in the upcoming financial year.
The 14th finance commission had recommended an increase in the devolution of funds to state governments and a hike in the share of untied funds they received. The suggestion was heralded as a new era for fiscal federalism in the country, and one that would significantly empower state governments at a time when they were facing rising developmental demands.
However, the share of Union transfers to states (as a proportion of gross tax revenues) has actually declined over the past few years as compared to the 13th finance commission period.
One of the key reasons why states demanded a higher tax devolution was because states’ share in gross tax revenues has not risen. Infact, cesses and surcharges have increased sharply in recent years. While they add to the Union government’s tax kitty, they are not part of the divisible pool that needs to be shared with states. As a result, while the share of states in the divisible pool grew, their share in overall tax revenues stagnated since the non-divisible pool of cesses and surcharges grew faster.