Finance Commission likely to get extension for working on devolution to UTs of J&K, Ladakh

The Finance Commission may get extension as the panel has to examine devolution to Union territories of Jammu and Kashmir and Ladakh in the light of Jammu and Kashmir Reorganisation Act, 2019.

According to the Act, the distribution of taxes suggested by the 15th Finance Commission to the state of Jammu and Kashmir will have to be apportioned to the Union Territories of J&K and Ladakh.

The award made by the Fourteenth Finance Commission to the existing state of Jammu and Kashmir will be apportioned between the successor Union territories of Jammu and Kashmir and Ladakh by the central government on the basis of population ratio and other parameters.

According to the law, the President of India, 'on the appointed day', has to make a reference to the Finance Commission for distribution of taxes to the two Union territories, 15th Finance Commission Chairman N K Singh said on the sidelines of an event organised by TIOL here.

The appointed day was October 31, the day when the state was officially split into two Union territories, and the Finance Commission is yet to receive a communication from the President, he said.

There would be additional terms of reference for examining the devolution to the Union territories of Jammu and Kashmir and Ladakh, he said without giving any response to whether the government has extended the term of the 15th Finance Commission.

He further said the panel is yet to receive additional terms of reference.

Earlier in July, the Union Cabinet headed by Prime Minister Narendra Modi approved the extension of the term of 15th Finance Commission by one month to November 30.

On the GST compensation, Singh said the central government has already committed a 14 per cent compound annual growth rate in compensation for the states' revenue shortfall and would cover the first two years of the Commission's award period.

"We have factored this in the projections which we have made. The states have to improve their tax buoyancy for the balance three years not covered under the guaranteed 14 per cent rate," he said.

Expressing concern over the low tax buoyancy, he said the finance ministry has announced major initiatives including changes in GST and improving compliance which will have multiplier effect.

"I do also believe that the medium-term impact of the fundamental change in rate of corporate taxes in the long run will make India an important and more competitive investment destination," he said.

Singh also said that in some ways tax reforms are even more challenging today.

The goods and services tax (GST) and direct tax need to be simplified so that tax-to-gross domestic product ratio improves, he added.