BENGALURU: The 16th Finance Commission on Thursday said that it is open to considering the Karnataka government’s suggestion on rejudging the criterion with regard to devolution of taxes to the states, but the final decision is “far away”.
Commission chairman Dr Arvind Panagariya said Karnataka has submitted a proposal stating that the 45% weightage given to the distance of per capita income of a state, assigned by the 15th Finance Commission, should be reduced to 25%.
“We understand the spirit behind the proposal. The process of consultation is under way. Final decisions are quite far away,” he told reporters after holding meetings with Chief Minister Siddaramaiah and officials of the state’s finance department.
Dr Panagariya clarified that the state’s suggestion to bring levying of cess and surcharge into the divisible pool to be shared between the Centre and the states requires an amendment to Article 261 of the Constitution.
“At this stage, it is very difficult to give a view on it. One item excluded from the divisible pool is cess and surcharge, which go directly into the Centre’s consolidated fund. There had been issues with several FCs that something ought to be done. Because that deprives the states of sharing one part of revenue,” he said.
‘No new panel to compensate for past happenings’
“Within the Constitution there is a provision for cess and surcharge with a reason and rationale that in case of emergencies such as war for example, the Centre will be able to quickly raise revenues by imposing cesses specifically for those reasons. The previous finance commissions did not recommend this kind of amendment. We have not taken a view on it now,” Dr Panagariya stated.
He ruled out the idea of excluding Bengaluru’s Gross State Domestic Product while calculating the state’s per capita income, which is a criterion to estimate the tax devolution as the commission has no estimates at the district or city level in any case that can be practically done.
On Siddaramaiah’s appeal to the 16th Finance Commission to look into Rs 79,770 crore losses incurred by the state during the 15th Finance Commission, Dr Panagariya, however, clarified that no new commission will award compensation for the past happenings.
“We should understand the constraints of economics and politics,” he said.