Karnataka's share in Central taxes declining

Karnataka's share in Central taxes declining

State to get Rs 62,774 crore for the next five years

The amount was arrived by the 13th Finance Commission for the period 2010-15 commencing from April 1 this fiscal.

Percentage wise, Karnataka’s share in the net proceeds of sharable Central taxes is the lowest ever at 4.328 per cent.

Incidentally, there has been a continuous decline in the share of finance commission mandated devolution of taxes to the State.
Karnataka’s own share has come down from 5.4 per cent to 4.46 per cent during the last 30 years.

Sources point out that decline in the State’s share in devolution of taxes is the higher weights being assigned to relative per capita Gross State Domestic Products (GSDP) or backwardness.

In other words, the more backward the State, more the devolution of Central taxes from the Centre.

Equal weights for need factors
Officials in the Finance Department said the State government had suggested to the 13th Finance Commission during its visit to Bangalore last year that equal weights be assigned to the “need factor”- that is population, area and human development index and efficiency factor like tax effort and proportion of revenue expenditure met through the State’s own resources.

However, the 13th Finance Commission has fixed 25 per cent weight for population, 10 per cent for area, 47.5 per cent to fiscal capacity distance and 17.5 per cent for fiscal discipline to work out the devolution.
Simply put, fiscal capacity distance gives a measure of the financial deficiency of the State.

High weightage to fiscal capacity distance, which takes into account two indicators - per capita GSDP and tax-GSDP ratio - would translate to more Central taxes to the states with financial deficiency.
“The State had sought that the tax devolution be worked out providing 50 per cent weightage to tax effort and fiscal self reliance but the commission in its recommendation provided only 17.5 per cent”, the officials said.
The State now tends to get lower devolution of Central taxes compared to many states.

While Karnataka share’s is 4.32 pc, neighbouring Andhra Pradesh and Tamil Nadu by virtue of being more backward in terms of fiscal capacity distance get a larger share of 6.937 and 4.969 per cent respectively. Uttar Pradesh and Bihar get the lion’s share of Central taxes at 19.677 and 10.917 per cent respectively by virtue of the large population size, area and also high fiscal capacity distance.
DH News Service

Finance Commission        %
* Sixth                         5.4
* Seventh                     5.22
* Eighth                        4.8
* Ninth                         4.54
* Tenth                        4.86
* Eleventh                    4.93
* Twelfth                      4.46
* Thirteenth                   4.328 (% indicates net proceeds of sharable Central taxes to State)