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States may get higher tax share
December, 31st 2009

The government will be able to meet the fiscal consolidation target set by the 13th Finance Commission in the five years between 2010 and 2015, chairman of the commission Vijay Kelkar said after submitting its report to President Pratibha Patil on Wednesday.

The report, it is believed, suggested higher share of states and union territories in the central taxes. The 12th Finance Commission had suggested 30.5% share of the states and union territories in the central taxes. The new report, a senior government official said, has increased their shares.

Currently, states and the UTs get Rs 1.64 lakh crore in a year. The total tax revenue of government, which includes shareable and non-shareable taxes, has been estimated at Rs 6,41,079 crore during 2009-10. The shareable central taxes include corporation tax, income tax, wealth tax, customs, excise duty and service tax. The taxes, which are not shared with states include some cesses like education and road.

In its report, the 13th Finance Commission has laid down the fiscal consolidation roadmap for the next five years. It includes accounting for liabilities of the central government such as oil, food and fertiliser bonds into the fiscal accounting and the impact of various other obligations of the government on the deficit targets.

In the past, to meet the Fiscal Responsibility and Budget Management (FRBM) targets, the government had got into the practice of issuing oil and fertiliser bonds, and these off-budget expenditure were generally not accounted for, while estimating the fiscal deficit.

During 2008-09, the off-budget expenses, mainly on account of oil bonds, had been estimated at 0.8% of GDP.

Kelkar said he was optimistic that government would be able to meet the fiscal consolidation targets even if it continues with the stimulus packages in the short-term. "Fiscal targets laid down in the report are very much achievable," he said.

The 13th Finance Commission deals with the devolution of central taxes for the next five years, starting April 1, 2010. It assumes importance since reforms in the direct and indirect taxes areas are likely to be in place in the next couple of years. Both the Goods and Services Tax (GST) and Direct Taxes Code are likely to be implemented during this period.

GST was initially scheduled to be implemented from April 1, 2010 but now both the empowered group of state finance ministers and the Centre have said that it is likely to be delayed by at least six months as the two sides have not yet completed framing of the legislation and reached a consensus on the unified rate. The commission's report will be presented in Lok Sabha in the Budget Session in February and its recommendations will reflect in 2010-11, Budget, FM Pranab Mukherjee said.

The report also looked at the implications of environment and climate change, ways to improve outcomes and outputs of public expenditure, and impact of GST on trade, Kelkar said.

"We have recommended a share, which will be the share between the Centre and the states of the centrally collected taxes," Kelkar said. The implementation of GST will not affect the revenue of states as it is tax neutral. "Our assumption is revenue neutral. Fortunately, in GST, both the Centre and the states wanted a revenue neutral rate. There won't be any impact as rates would be neutral, and the revenues of states and centre would be protected."

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