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 commission’s 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.
