Fixing the proportion of shareable taxes help address the inefficiency in allocating financial resources to states, thereby strengthening the fiscal federalism. Comment (200 Words)
Refer - The Hindu
Enrich the answer from other sources, if the question demands.
IAS Parliament 5 years
KEY POINTS
· Fiscal federalism is the economic counterpart to political federalism. Fiscal federalism is concerned with the assignment on the one hand of functions to different levels of government, and with appropriate fiscal instruments for carrying out these functions on the other.
· The Indian Constitution lays down the functions as well as taxing powers of the Centre and States. Providing fiscal autonomy to states via tax devolution enhances its administrative functions.
· The Fourteenth Finance Commission has broken new ground in terms of allocation of resources. One of its major recommendations has been to increase the share of tax devolution to 42% of the divisible pool.
· The Planning Commission was replaced by the NITI Aayog, which was simply a think-tank with no powers of resource allocation. In this context perhaps what the Fourteenth Finance Commission did was justifiable.
Suggestions for tax devolution
· The time has come for the Constitution to be amended and the proportion of shareable taxes that should go to the States fixed at the desired level.
· The shareable tax pool must also include cesses and surcharges as these have sharply increased in recent years. Fixing the ratio at 42% of shareable taxes, including cesses and surcharges.
· Allowing the States to levy tax on personal income, with some limitations. The freedom given to the States must be limited. It is important to note that the levy by the Centre and States together should be reasonable.
· Once this power is given to the States, the transfers from the Centre need adjustment, the first adjustment of constitutionally fixing the ratio is the easiest.
Sandeep 5 years
Kindly review thanks
IAS Parliament 5 years
Good answer. Keep Writing.
