The report of the 13th Finance Commission, headed by former Finance Secretary Vijay Kelkar, assumes importance since major reforms in both direct and indirect taxes areas are likely to be in place in coming year in the form of Goods & Services Tax (GST) and Direct Taxes Code (DTC) that will replace the existing tax structure in personal Income Tax and Corporate Tax. Finance Commission Kelkar told reporters that “the report dealt with sharing of tax revenue between Centre and States, distribution of funds among states and support to local bodies.” He also indicated that the commission had suggested a roadmap for fiscal consolidation.
Though the commission was first primarily mandated to evolve the formulae for sharing of tax receipts between the Centre and state governments, its terms of reference was further expanded with the Centre requesting it to recommend measures for promoting fiscal consolidation.
The report will be studied in detail by the finance ministry and based on its recommendations the Cabinet will adopt the report. After that the recommendations of the report may find place in the Union Budget for the next fiscal.
The Twelfth Finance Commission had recommended that 30.5 per cent of the sharable Central taxes should be shared with the States and Union Territories. The shareable central taxes include Personal Income Tax, Corporate Tax, Wealth tax, Customs, Central Excise Duty and Services Tax. The Finance Minister has indicated from time to time that once the economy, which has been hit by the global slowdown, is put back on path of higher growth focus will be on fiscal consolidation.
In a bid to push up cycle of demand the government last year unveiled series of stimulus packages by stepping up public expenditure thereby widening the fiscal deficit—the net difference between the government’s expenditure and income.
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