The final report of the 15th Finance Commission for the five-year period will not be a “mechanical replication” of the report for 2020-21 that it submitted recently. The Commission may review its recommendations taking into account the structural reforms undertaken by the government, revenue and fiscal position of the Centre and implication of the goods and service tax (GST).
Speaking to reporters on Monday after the fifth meeting of the Economic Advisory Council of the 15th Finance Commission, its Chairman NK Singh said the report will be comprehensive and address wide ranging issues.
The meeting discussed likely macro assumptions for the Commission’s award period relating to real growth, inflation, tax revenues and expenditure patterns emerging both at the Union and states level.
The Council also discussed issues related to stabilisation of GST, relationship between GST Council and Finance Commission and GST compensation being paid to states. At the meeting, some members suggested to have a look at the need for a cyclically adjusted fiscal deficit.
Singh said the Commission has done modelling of 28 states with two new union territories of Jammu & Kashmir and Ladakh in the 2020-21 report. It is expected to adopt the same approach in its report for the five-year period. As J&K and Ladakh are being treated as Union Territories, they would likely get share in grants and not share in tax devolution. He said the Commission intends to have a robust chapter on direct and indirect revenue issues.
The 15th Finance Commission was constituted by the President under Article 280 of the Constitution on November 27, 2017 to make recommendations for a five-year period from April 1, 2020 to March 31, 2025.
The Centre last month mandated the Commission to submit the report for fiscal 2020-21 by November 30, 2019 and then the final report for the period April 1, 2021 to March 31, 2026 by October 30, 2020.
The Commission last week submitted its report for the fiscal 2020-21 on devolution formula, which details how the central government plans to share taxes with the states. The award has not been made public as the formula is to be used in next year’s Budget for deciding on sharing of taxes among the Centre and states.
As the government amended Article 370 of the Constitution, J&K was bifurcated into two Union Territories, Jammu & Kashmir and Ladakh.
There was a need to change Terms of Reference of the Finance Commission as J&K ceased to be a state.
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