UP among states seeking 50% hike in tax revenue share with Centre: Panagariya

The panel was in the Uttar Pradesh capital as part of its consultation visit to all states in the country.

The state has also sought a special DDA fund for targeted development schemes. The UP government presented its reform initiatives, which were appreciated by the Commission, along with proposals to revise the weightage of key devolution criteria, said Panagariya.

About Uttar Pradesh’s key demands, Panagariya said the state has proposed changes to the devolution formula—suggesting a reduction in the weightage for income distance (from 45% to 30%), geographical area (15% to 10%), demographic performance (12.5% to 7.5%) and forest cover (10% to 5%), while seeking increases in the weightage for population (15% to 22.5%) and tax collection effort (2.5% to 10%).

The Chairman also explained that the main job of the Commission is to prepare a proposal for dividing taxes between the Centre and the states, which is then presented to the President of India.

He mentioned the 15th Finance Commission’s recommendations for horizontal devolution as population 15%, area 15%, forest 10%, tax effort 2.5% and demographic performance 12.5%. He added that the previous Commission gave the highest weightage of 45% to the income distance criterion.

The Chairman praised Uttar Pradesh as a well-governed state and said that Uttar Pradesh’s tax collection is in proportion to the Gross State Domestic Product, which is the highest in the country. He also noted that Uttar Pradesh’s fiscal deficit is within normal limits and its debt-to-GDP ratio is also “within manageable levels.”