Fifteen finance commission submits report on tax devolution to Prez Kovind

 The 15th Finance Commission submitted its report for 2021-22 to 2025-26 to the President Ram Nath Kovind on Monday. The main task of the Commission is to recommend devolution of the central taxes among the union government and the states.

The Commission, headed by former bureaucrat N K Singh, had retained the devolution at the same level in its interim report for 2020-21 as was recommended by the previous Commission, even as at the outset it seemed that it had reduced it. The 14th finance commission had recommended that 42 per cent of the central tax collections be given to the states, up by 10 percentage point over the previous finance commission's suggestion.

The 15th finance commission had recommended that 41 per cent of the central taxes be transferred to the states for 2020-21. The one percentage point decrease is to provide for the newly formed union territories of Jammu and Kashmir, and Ladakh from the resources of the Centre.

However, with the Centre increasingly using the cess to mobilise resources, the states share in overall tax collections by the Centre has gone much below the recommendations of the finance commissions in the recent years.

Finance commission reportPresident Ram Nath Kovind being presented the 15th Finance Commission report.

For instance, the Centre was projected to collect Rs 21.6 trillion in 2019-20 (revised estimates) but the states' share was pegged at just Rs 6.6 trillion to the states which constituted just 30.3 per cent of the overall tax mop up. It should have been 42 per cent, if one goes by the 14th finance commission's recommendations, but it was much less as cess did not form part of the divisible tax pool.

Besides devolution, the ongoing Covid-19 crisis is all set to decide the contours of the 15th finance commission's recommendation.

According to sources, the commission may recommend that the Centre and states combined should spend around 2.5 per cent of the country's gross domestic product (GDP) on the health sector. At present, they spend 0.9 per cent, with 0.3 per cent coming from the Centre and 0.6 from the states.

There were fears that funds to the southern states would be curtailed since one of the terms of reference to the 15th finance commission called for giving weightage to population. However, that fear may be allayed since the commission is likely to more or less neutralise it by giving more funds to those which have done better in terms of population control.

The Commission is also understood to have recommended setting up of non-lapsable defence fund for capital expenditure for the forces, including paramilitary and state police. To be called Modernisation of Defence and Internal Security Fund (MDISF), the fund would get resources from the Consolidated Fund of India and sale of defence land and defence public sector enterprises.