Cabinet approves new tax-share with States

The difference between the “gross” and “net” share method, as Mahajan pointed out, is Rs 2,000 crore. Mahajan added that “there is a provision to enhance the total devolution of net proceeds to compensate for thepotential loss.”

Today’s decision will be final only after Parliament passes the 85th Constitutional Amendment Bill. While Mahajan said States would now be able to share the aggregate buoyancy of Central taxes, the decision is likely to create a big storm, and the States are likely to insist that safety clause be written in.

According to the scheme approved by the Cabinet, 29 per cent of proceeds of almost all Central taxes, excluding stamp duty, excise duty on medicinal and toilet items, Central sales tax, consignment tax and surcharge, would be assigned to the States in lieu of the existing share in Income-Tax and basic/special excise duties in lieu of sales tax on tobacco, cotton and sugar and grants in lieu of tax on railway passenger fares. Among other decisions, the Cabinet also decided to raise the import duty on sugar from the present 40 to 60 per cent.

Mahajan said it has been taken in view of the record domestic production of 160 lakh tonnes. The import duty had earlier been raised from 25 to40 per cent in December 1999 but the increase did not yield the desired results and imports continued as imported sugar was cheaper than the domestic product even after the increased duty.

Mahajan also informed that the Cabinet had decided to allow an additional one lakh tonne of onion export in the wake of good production in Maharashtra, Andhra Pradesh and Karnataka. The Government had permitted exports of one lakh tonne of onion in December to be carried out over a two-month period and fresh allocation would be in addition to the earlier permission and would be carried out by April. The tax-share scheme will be effective from April 1, 1996 to March 31, 2000.