HYDERABAD: The State Finance Department will request the 15th Finance Commission (FFC) to reconsider the devolution of taxes to the State in the final FFC report. State officials are studying the FFC’s report to prepare a supplementary memorandum, which they will submit to the FFC in a month’s time.
The government is likely to request the FFC to give some weightage points to the State’s fiscal discipline in its final report. “We are studying the FFC report. We will submit the supplementary memorandum to the FFC in a month. The present report submitted by the FFC is only for 2020-21. We will suggest various options that are financially beneficial to the State,” an official in Finance department told Express.
The 15th Finance Commission, in its interim report, assigned the State 2.5 points for tax effort. The 11th and 12th Commissions gave the State 7.5 points for fiscal discipline and the 13th commission gave 17.5 points. The 14th Commissions ignored the same. “Many states have suggested inclusion of tax performance as a criteria to incentivise states with higher efficiency of tax collection. This commission (15th) is of the view that the inclusion of tax effort as a criterion will reward the States with higher tax collection efficiency and will also encourage states to be more tax-efficient,” the FFC report stated on tax effort.
The sources, however, said that the Telangana was efficient in tax collection. At the same time, the fiscal discipline too was good. If all states were given more weightage points for fiscal discipline, then Telangana will definitely benefit in getting more share in Centre’s divisible pool of taxes.
“The FFC formula is not prepared only for Telangana, it is meant for all states. We will give our suggestions after studying the FFC’s interim report,” an official said.
No special grant
Finance officials confirmed that the Centre did not approve the recommendation for a special grant of `723 crore to Telangana. The FFC stated that the special grant is adequate to make up the shortfall between the united transfers received by the States in the form of tax devolution plus revenue deficit grant in 2020-21 vis-a-vis the corresponding amount in 2019-20. As Centre denied this recommendation, the TS stands to lose much in next financial year in Central share of taxes.
Eliminate extra-budget borrowings: FFC
The FFC also commented on extra-Budget borrowing. “Government expenditure should legitimately be covered within the respective budgets. Financing expenditures through off-budget borrowing and para-statal entities raises public debt and detracts from compliance with the letter and spirit of the provisions of the Fiscal Responsibility and Budget Management Act. Such outstanding liabilities need to be clearly identified and eliminated in a time-bound manner, with transparent reporting of deficit and debt as provided in the Act,” the FFC stated.