The Thirteenth Finance Commission, headed by the former finance secretary Vijay Kelkar, will submit its report to the President on Wednesday. Finance commission suggests the formula for sharing of taxes between the Centre and states.
The report of the commission is significant as it comes just before the government is considering major direct and indirect tax reform. The government has already put out a draft Direct Taxes Code for discussion with a possible roll out from 2011.
The goods and services tax (GST), the indirect tax reform, is expected to be rolled out from April 1, 2010.
The commission will have to take into consideration the impact of these changes while deciding the devolution to the states from the taxes collected by the centre. These include income tax and various indirect taxes such as excise, customs and service tax.
The commission had also been asked to to map the road for fiscal accounting of liabilities on account of oil, food and fertiliser bonds, issued in lieu of cash subsidy to petroleum and fertiliser companies.
The commissions suggestions, which will cover a five-year period starting from April 1 2010, are not binding, but they are generally implemented by the government. The Commission was asked to submit its report by October 31 2009. It was, however, given, a three months extension.
In a representation to the commission, state governments had asked for an increase in their share in the divisible pool of the central taxes to 50% from the current 30.5%.
They had also demanded that all central surcharges and cess should be included in the divisible pool.
At present, money collected through cess that are imposed for specific purpose and are not shared with the states.