The Finance Commission, which makes recommendations on
sharing of tax revenues by the Centre and states, has
suggested a new path for fiscal prudence in its report
submitted to President Pratibha Patil on Wednesday.
“We had been asked to suggest a new path for fiscal
consolidation...we have recommended (the) fiscal path
for the next five years (2010-15),” Finance Commission
chairman Vijay Kelkar told reporters.
The government had last year consigned the Fiscal
Responsibility and Budget Management (FRBM), the
self-imposed fiscal prudence guidelines, to the
backburner when it stepped up official spending beyond
its means to insulate the economy from the global
financial meltdown.
Fiscal deficit, a reflection of government borrowings,
is estimated to touch 6.8% in 2009-10, up from 6.2% in
the previous fiscal, mainly on account of the stimulus
measures.
Finance minister Pranab Mukherjee said the
recommendations of the 13th Finance Commission “would be
getting reflected in the 2010-11 Budget (to be presented
in Lok Sabha in February)”.
The report, Mr Kelkar said, “dealt with sharing of tax
revenue between the Centre and states, distribution of
funds among states and support to local bodies.”
The Finance Commission report assumes significance in
view of the ongoing reforms in indirect and direct
taxes, which will have a bearing on tax collections.
The government proposes to introduce the goods and
services tax (GST) that will subsume levies like excise,
VAT and service tax from April 1, next year.
The Direct Tax Code, which will replace the Income-Tax
Act, 1961, is currently in the public domain for debate
and suggestions.
As required by the Constitution, the Finance Commission
was set up in November 2007 to suggest devolution of tax
receipts between the Centre and the states.
The government extended the term of the commission in
September 2009 up to January-end and requested it to
submit the report by December so as to give effect to
its suggestions in the Budget.
Besides the chairman, other members of the commission
are BK Chaturvedi, Indira Rajaraman, Atul Sarma and
Sanjiv Misra.
The report, after being adopted by the Cabinet, will be
tabled in Parliament.
Currently, states and Union Territories get Rs 1.64 lakh
crore in a year, or around 30% of the shareable taxes
collected by the Centre.
The total tax revenue of the government, which include
shareable and non-shareable taxes, has been estimated at
Rs 6,41,079 crore during 2009-10.
The Twelfth Finance Commission had recommended that
30.5% of the shareable central taxes should be shared
among the states and the Union Territories.
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.
Among other things, the commission has also suggested
steps to deal with the growing off-budget expenditure,
especially, oil bonds. These expenses are not reflected
in the normal budgetary process but do increase the
liability of the government.
During 2008-09, the off-budget expenses, mainly on
account of oil bonds, had been estimated at 0.8% of the
Gross Domestic Product (GDP).
The report, likely to be made public in February before
the Budget, 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.
