‘Central government does not take decisions on transfer of taxes’, Sitharaman said – contact the State Finance Commission
New Delhi| Finance Minister Nirmala Sitharaman has reacted to concerns raised by southern states over ‘unfair’ transfers of tax money. He has said that states should put their concerns before the 16th Finance Commission. The recommendations of the Finance Commission will decide how the funds are to be distributed.
Population is a criterion for the distribution of tax revenue with the Finance Commission. The southern states, which have managed to contain population growth, feel that they receive less benefit than the northern states, where population growth is much higher.
Finance Minister said – Taxes are transferred as per the recommendations of the Finance Commission
Finance Minister Nirmala Sitharaman said in an interview to PTI that the central government does not decide on the transfer formula. The transfer of taxes is done as per the recommendations of the Finance Commission and disgruntled southern states should approach the Commission for changes in the parameters. “It is for the states, together with the Finance Commission, to express their concerns about the criteria on the basis of which the principles of tax transfers on their behalf have been set”, he said. “And if they think about more than a decade, they’ll find a different thing happening there”, he said. It’s for the states to raise these issues with the Finance Commission”
He said that ultimately, the Central Government takes and follows the recommendations of the Finance Commission, especially the main suggestions. He said that it is not appropriate for them (states) to express their concerns as the central government does not take decisions on transfer of taxes.
The Commission generally makes recommendations for the division of tax revenue for five years
The Finance Commission generally gives recommendations for division of tax revenue for five years. The 13th Finance Commission gave recommendations for 2010-11 to 2014-15 and the subsequent Finance Commission suggested the formula for 2015-16 to 2019-20. The 15th Finance Commission made suggestions for 2020-21 and again for 2021-2025-26 in its first report.
The share of five southern states – Andhra Pradesh, Telangana, Tamil Nadu, Karnataka and Kerala – declined to 15.8 per cent during 2021-22/2024-25 from around 18.62 per cent in 2014-15, the last year of implementation of the 14th Finance Commission report In 2015-16, the figure was 18.04 per cent. This was the first year of implementation of the recommendations of the 15th Finance Commission. The 16th Finance Commission headed by Arvind Panagariya is tasked to provide its recommendations by October 31, 2025, these recommendations will be for a period of five years.
Its predecessor, the Commission, had suggested that States should be given 41 per cent of the Centre’s net tax receipts, compared with 42 per cent for 2015-16 to 2019-20. The 14th Finance Commission had increased the share of states from 32 percent to 42 percent. The 15th Finance Commission used the 2011 census based on the 1971 census used on behalf of the preceding commissions to fix the weight of the population.
Asked whether it was appropriate on the part of some states to ask their residents to have more children, Sitharaman said, “I am not commenting on this, because whatever their view is, it should be conveyed to the Finance Commission.” “No matter what the principle or what the factors are, it should be put to them (states) before the Finance Commission”, he said.
