The Fifteenth Finance Commission (XVFC) led by Chairman N K Singh, on Monday, submitted its final report for the period 2021-22 to 2025-26 to President Ram Nath Kovind. Commission members Ajay Narayan Jha, Anoop Singh, Ashok Lahiri, and Ramesh Chand, along with panel Secretary Arvind Mehta accompanied the Chairman in the meeting with the President.
The report will be available in the public domain once it is tabled in the Parliament by the Union government along with an explanation on the action taken on the recommendations contained in the report.
The Finance Commission determines how the tax revenues collected by the Union government are distributed among the states. As per the terms of reference (ToR), the Commission was mandated to give its recommendations for five years from 2021-22 to 2025-26 by October 30, 2020. The Finance Commission said in a statement that it was asked to give its recommendations on several issues in its terms of reference. Apart from the vertical and horizontal tax devolution, local government grants, disaster management grant, the Commission was also asked to examine and recommend performance incentives for states in many areas like power sector, adoption of direct benefit transfer (DBT), solid waste management etc.
The Commission was also asked to examine whether a separate mechanism for funding of defence and internal security ought to be set up and if so, how such a mechanism could be operationalised. The Commission said that it has sought to address all its ToRs in this report to the Union government.
The Commission said that it has analysed the finances of each State in great depth and has come up with state-specific considerations to address the key challenges that individual States face.
“The cover and title of the Report are also unique in this Report- ‘Finance Commission in Covid Times’ and the use of Scales on the cover to indicate the balance between the States and the Union,” the Commission said in a statement.
At a time when several states have been at loggerheads with the Union government over delayed GST compensation at a time when revenues have come under pressure due to COVID-19, and expenditure related to it, the share of central taxes collections that states get will be watched keenly.
In the interim report for 2020-21, the share of states in taxes was cut down to 41% after Union Territories of Jammu and Kashmir and Ladakh were formed. The interim report also decided to use the 2011 Census to calculate devolution of tax to states. However, southern states opposed the move arguing that using the 2011 Census instead of the 1971 Census would penalise them for effective population control measures. As per the share of tax shown in the interim report, Karnataka, Kerala, Telangana and Andhra Pradesh were set to receive reduced share of tax revenue. Karnataka’s share was cut down to 3.647% from 4.713% recommended by the 14th FC. Meanwhile, Kerala’s share was reduced to 1.943% from 2.5%, Andhra’s to 4.111% from 4.305% and Telangana’s to 2.133% from 2.437%. Tamil Nadu was the only state whose share had increased to 4.189% from 4.023% previously.
Last year, the Commission had submitted its report containing recommendations for the year 2020-21 which was accepted by the Union Government and tabled in the Parliament on 30 January 2020.