Fix ratio of tax sharing between Centre and States through a constitutional amendment: Rangarajan

From left, co-author G.R. Reddy and author Y.V. Reddy with other dignitaries at the launch of their book.R. Ravindran

From left, co-author G.R. Reddy and author Y.V. Reddy with other dignitaries at the launch of their book.R. Ravindran  

The Centre should bring in a constitutional amendment to fix the proportion of shareable taxes going to states, said former chairman of the Prime Minister’s Economic Advisory Council C. Rangarajan.

“This would avoid repeated changes. Alternatively, we can allocate the entire collection of GST to states as is being done in Australia. This will replace the present formula," Dr. Rangarajan said. 

He was speaking after releasing a book titled ‘Indian Fiscal Federalism’, authored by former RBI Governor Y.V. Reddy and co-authored by Advisor to Telangana Government G.R. Reddy.

‘Appoint committee’

He said that a committee could be appointed specifically to fix the revenue-sharing proportion, before bringing in a constitutional amendment to give effect to that. The 14th Finance Commission, he said, had broken a new path in terms of allocation of resources. 

One of the major recommendations had been to increase the share of tax devolution to 42% of the divisible pool. This was a substantial increase by almost 10%, Dr. Rangarajan said.

“The balance in fiscal space thus remains broadly the same in quantitative terms, but tilts in favour of States in qualitative terms through compositional shift in favour of devolution and, hence, fiscal autonomy,” he added.

Dr. Rangarajan pointed out that the Indian Constitution had laid down the functions as well as taxation powers of the Centre and States. 

He said that the introduction of GST is an important step towards the reform of the indirect tax structure. 

“Some States bemoan the loss of sovereignty. This is not true. The GST Council comprising all State Finance Ministers and the Union Finance Minister take the decisions on rates and several associated features. The Centre is also bound by it.”

N. Ravi, former Editor-in-Chief of The Hindu, V. Anantha Nageswaran, dean, IFMR Business School, and State Finance Secretary K. Shanmugam took part in the panel discussion and narrated in detail the salient features of ‘Fiscal Federalism’ as described by the authors.

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