With a simple statement yesterday, finance minister P Chidambaram resolved a long-standing demand of the states "" he promised a single pool of divisible taxes between the Centre and the states, reports our Economy Bureau.
At present, not all taxes are shared. The Centre gets to keep all of customs duties, 52.5 per cent of excise duties and 22.5 per cent of income taxes. This had become a major bone of contention betw-een the states and the Centre.
The 10th Finance Commission (a Finance Commission convenes every five years under a constitutional mandate to determine the states' share of taxes) had recommended a single pool of divisible taxes. It had also recommended that the states should get 29 per cent of this single pool. That was in November 1994.
The finance minister yesterday accepted both recommendations, paving the way for statutorily putting more money in the hands of the state governments. Most of them have been passing through a fiscally difficult time for the last few years. The new injection of funds, which will come about after the relevant Constitutional amendment has been made, will greatly relieve state finance ministers.
The 10th Finance Commission had supported its recommendation on two grounds. One, that it would improve the Centre's room for manoeuvre because at the moment, the Centre didn't really feel impelled to expand direct tax collections since it got to keep only 22.5 per cent. Secondly, the commission argued, the states would be able to share in tax buoyancy all taxes, not just income, corporation and excise duties.