29% Tax Devolution Formula Accepted

Amendment likely in next session n December meet to review states share

States stand to gain more than Rs 5,000 crore in tax revenue following a decision by the Inter-State Council (ISC) standing committee on devolution of financial powers. The ISC yesterday accepted the recommendation of the ninth Finance Commission that 29 per cent of tax collections from the central pool should be passed on to the states. The 29 per cent share will be implemented with effect from April 1, 1996.

Union finance minister P Chidambaram yesterday turned down a demand by some states that the states share should be raised to 33 per cent. However, the council has already scheduled a review meeting for December with the specific objective of enhancing the states share.

 

The meeting, which was chaired by Union home minister Indrajit Gupta, was also attended by Chidambaram and Union law minister Ramakant Khalap. Chief Ministers N Chandrababu Naidu (Andhra Pradesh), P K Mahanta (Assam) and Maharashtra deputy Chief Minister Gopinath Munde were among the various state representatives.

The decisions taken at yesterdays meeting will be placed before a full meeting of the ISC, which will be held before the commencement of the monsoon session of Parliament on July 23.

Quoting the Finance Commis-sions recommendation that the states share (29 per cent) should be reviewed after 15 years, Gupta said the committee had decided to review it after five years. In any case, the share would be enhanced during the December review meeting, he quipped.

Gupta also clarified that the 29 per cent share will be over and above Plan and non-Plan assistance to the states.

Gupta revealed that some Chief Ministers were not satisfied with the 29 per cent share but agreed to it when they were told that this would be only a starting figure.

He added that the decision would require a Constitutional amendment, which is expected to be passed during the monsoon session of Parliament.

Draft paper on Article 356 finds little support Page 3

TAX-SHARING FORMULA

26 per cent of gross proceeds of all central taxes (excluding stamp duty, excise duty on medicinal and toilet preparations, central sales tax, consignment tax and surcharge) to be assigned to the states

3 per cent of gross proceeds of all central taxes to be assigend to the states in lieu of existing share in additional excise duties in lieu of sales tax on tobacco, cotton and sugar.

Percentages to be built into the Constitution and frozen for 15 years