Updated: November 13, 2021 6:01:21 am
Fifteenth Finance Commission Chairman N K Singh on Friday said there is a need to “substantially” increase India’s tax-to-GDP ratio for the Centre and the state governments to increase public expenditure. He also called for the review of the Constitutional framework defining the federal structure along with “deep rationalisation” of Central sponsored schemes.
“Our tax-to-GDP ratio (at 16-17 per cent) does not permit the latitude for increased public outlays … it has to go up substantially,” he said via a video link at a seminar, ‘Re-imagining Fiscal Federalism’, organised by the National Council of Applied Economic Research (NCAER).
To suggestions from other panelists that the Central government should bring cesses within the divisible pool of taxation, he said the issue was not in the domain of the Finance Commission. Parliament will have to amend Article 269, Article 270, among others, to make cesses and surcharges a part of the divisible pool.
During the discussion, former and present state Finance Ministers argued for the need for greater fiscal autonomy to states, which has somewhat eroded, according to them, after GST became operational.
Tamil Nadu Finance Minister Palanivel Thiagarajan argued for greater fiscal autonomy being given to states along with greater devolution of powers to enable states to play a developmental role. Devolution of powers in the US and China are much higher when compared to India, he said.
Former Finance Minister of Kerala Thomas Isaac said the trend over last 75 years is the increasing encroachment of the Centre in the states’ fiscal space. “As much fiscal space should be provided to state’s to pursue its development roles,” he said. He also stressed the need for bringing in federal flexibility in the GST regime, which would enable states to alter certain tax rates as per the requirements if need arises.
Former Deputy Chief Minister of Bihar Sushil Kumar Modi said after introduction of GST, the fiscal autonomy of Central government has also been compromised. “So, it’s a give and take” and the Centre has lost powers to amend excise duty and service tax rate on its own, as the matter now needs to be decided by the GST Council, he said.
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