The southern states are the biggest losers in a new formula for sharing taxes

NEW DELHI: The participation of states in central taxes has hardly changed for the next financial year, but its renewed formula of how income is distributed among states will generate significant gains for Maharashtra, Rajasthan, Arunachal Pradesh and Bihar. Those of Karnataka, Telangana and Andhra Pradesh are the biggest losers.

The Constitution requires the Center to share tax procede con los estados, que también aprovechan otras fuentes de ingresos como el IVA sobre la gasolina y el diésel, el tax de timbre y los impuestos especiales sobre el alcohol. La fórmula para compartir los ingresos es decidida por la Comisión de Finanzas cada cinco años. Esta vez, sin embargo, la 15ª Comisión de Finanzas decidirá la fórmula durante seis años.

Live plus His report for 2020-21 was presented to Parliament on Saturday. The panel, headed by former bureaucrat and lawmaker NK Singh, will present its final report later this year.

It has suggested that states be given 41% of the Centre’s net tax receipts during the next financial year, as against 42% for 2015-16 to 2019-20, arguing that the 1 percentage point change was on account of Jammu & Kashmir and Ladakh being converted into union territories. The share of the erstwhile state of J&K was estimated at 0.85% of the divisible pool. The 14th Finance Commission had increased the share of states from 32% to 42%.

A part of the change in the relative participation of the states may be due to the change in the criteria and weights of what is called horizontal return. Unlike its predecessor, the 15th Finance Commission has used the 2011 Census as the sole criterion for the population, but has reduced the population's weight to 15% from the previous 27.5%. Although it retains the 15% allocated to the geographic area, it has improved the focus on forests and ecology from 7.5% to 10%.

It has also reduced the weight of income distance (how much lower or higher than the national average a state is) from 50% to 45% to provide higher devolution to the states with lower per capita income. Demographic performance and tax effort have been brought in as parameters to reward the states performing better on both these counts.

Through the new combination of parameters, the 15th Finance Commission has tried to address concerns that some of the states that had managed to control the rate of population expansion were being penalized for this achievement.

Some of the Commission's recommendations have already been accepted, including the use of the escape clause to activate a reduction of half a percentage point in the fiscal deficit target. In fact, a few years ago, Singh headed a panel on the Fiscal Responsibility and Budget Management Act that had originally advocated that the Center deviate from the fiscal consolidation plan in the event of exceptional circumstances.

The Commission’s recommendation on performancebased incentives for agriculture have also been acted upon by finance minister with states being encouraged to enact model laws on land leasing, agriculture produce and Live stock marketing and contract farming to avail of grants from 2021-22.

There are a number of other reforms on which the 15th Finance Commission has encouraged states to move, from reducing losses in the electricity sector to education and the development of districts and aspirational blocks, indicating that it will offer incentives for states with better performance through subsidies -Help when presenting its recommendations for the next five years.

At the moment, he has proposed special support for big cities like Delhi to encourage an improvement in air quality. The Commission also recommended the creation of disaster mitigation funds at the central and state levels, which will be added to the relief funds in case of existing disasters.