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VAT panel seeks hike in States’ share in central taxes

Special Correspondent

Centre urged to augment the public distribution system

NEW DELHI: The Empowered Committee of State Finance Ministers on Value Added Tax (VAT) on Tuesday sought an increase in the States’ share in Central taxes to 50 per cent. At present, the share of the States in the divisible pool of central taxes is pegged at 30.5 per cent.

The panel also asked the Centre to augment the country’s public distribution system (PDS) to help the State governments in combating inflation. “In order to contain inflationary pressures, [the] PDS should be augmented and expanded in coordination with the States,” panel chairman Asim Dasgupta told journalists.

These demands were placed before the 13th Finance Commission, which is headed by Vijay Kelkar.

At the meeting with the Commission, Dr. Dasgupta emphasised that the devolution of central taxes to States should be raised to at least 50 per cent.

Also, all central surcharges and cess should be included in the divisible pool and an additional devolution could be considered for distribution among the North-eastern and special category States. This apart, the States should be empowered to tax all taxable services concurrently.

Alongside, the market borrowings of the States should be raised to 50 per cent in keeping with the requirements of the States. Besides, the States should be provided the option to access market borrowings and issue tax-free bonds, Dr. Dasgupta said.

Dubbing the centrally-sponsored schemes as an imposition, the VAT panel sought the transfer of such programmes to the States with equivalent funds so as to provide federal flexibility in their implementation. “The States should not be asked to bear the burden of such schemes. They find this as an intrusion in fiscal space by the Centre,” Dr. Dasgupta said.

As for the States’ debt problems, the panel noted that the total loan burden of the States, including small savings related loans and from other Central Ministries should be taken up for a comprehensive review by the Finance Commission.

It also demanded a wider definition for natural calamity and doubling of the corpus of the National Calamity Contingency Fund in keeping with the problems of global warming and inflation.

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