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K.R. Srivats
Richa Mishra

New Delhi , Dec. 16

STATES may receive a higher share of the Centre's tax revenue kitty for the five-year period starting from April 1, 2005.

The 12th Finance Commission is set to recommend an increase in the States' share in the divisible pool of taxes from the existing 29.5 per cent (including the 1.5 per cent share on account of additional excise duty (AED) on three items) to 30.5 per cent, sources said.

The Commission is to submit its report to the President, Dr A.P.J. Abdul Kalam, on Friday. Currently, States get 28 per cent share of the divisible pool of taxes comprising excise duty, customs duty, service tax, income tax and corporation tax. Further, the States that do not levy sales tax on sugar, tobacco and textile are compensated to the extent of 1.5 per cent of divisible pool.

It is likely that the 1.5 per cent share for AED in lieu of sales tax would be retained.

For 2004-05, the Government has budgeted States share at Rs 82, 227 crore out of the Centre's gross tax revenue of Rs 3,16,133 crore.

With many of the States under fiscal stress, the report of the 12th Finance Commission is eagerly awaited, as the recommendations would have significant bearing on the resources that would be available to them in the coming years. After the award of the 11th Finance Commission for 2000-05 there were disagreements between the States on the quantum of transfers, with some of them even complaining that high income States are being punished rather than being encouraged for performance.

Under the Constitution, State Governments are assigned significant responsibilities in sectors such as agriculture, industry, infrastructure, education, health and social welfare. There are three main types of Central transfers to the States. They are Finance Commission transfers, Special Purpose Grants for particular schemes and Block Grants that are packaged with loans to help finance State development plans.

The largest of the three types of transfers comes from Finance Commission transfers, which according to experts account for two-thirds of the total transfers (in 2000-01).

Meanwhile, the Commission, it is learnt, is unlikely to make specific recommendations on the principles of sharing service tax between State and Centre on account of the Constitutional amendment that was carried out last year. This amendment is however yet to come into force. The States had recently demanded a 50 per cent share in the current service tax collections of the Centre.

The Finance Ministry is awaiting the recommendations of the 12th Finance Commission for firming up its views on future reforms in taxation of services.

More Stories on : Taxation | Taxation | States | Economy

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