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Economic Survey: Link tax sharing to resource mobilisation by state govts

Centre is merely collecting taxes in a divisible pool on behalf of the states, and sharing it with them
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Union budget 2018: Quoting Rabindranath Tagore on how a self-sustaining village can make a mark in democracy, the Economic Survey, tabled in Parliament on Monday, has expressed concern over increased dependence on revenue devolution instead of self-generation.

While previous government policy statements have focussed on a cooperative federalism, the underlying theme of goods and service tax (GST), the Survey this time talks about fiscal federalism. It acknowledges there is an important legal argument that resources received by the states as part of successive Finance Commission verdicts are not “devolved” resources, but shared.

In this view, the Centre is merely collecting taxes in a divisible pool on behalf of the states, and sharing it with them. But, this position, the Survey says, must be assessed against certain realities.

It is difficult to dispel the association (in the eyes of taxpayers) of the Centre with income taxes and customs duties that form a major part of the divisible pool. If the Centre were a mere collecting agency, the funds would be apportioned according to states’ tax bases. They would not have sizeable redistributive components.

Also, the new GST provides a sharp contrast — it is clearly more “shared” because decisions and tax administration are done by both.

Read More : Budget 2018

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