Following its long legacy of “stability, continuity and predictability”, the 15th Finance Commission retained the share of tax devolution to states at 41% of the total pool, said chairman N K Singh. He was addressing a webinar organised by the Centre for Policy Research (CPR) on Saturday.
Each Finance Commission in the past has somewhat increased the total amount of devolution to states, but the 15th Finance Commission weighed all the options considering that the fiscal space of both states and the Centre has shrunk on account of the COVID-19 pandemic, chairman said.
The 15th Finance Commission recommended that states be given 41% of the divisible tax pool of the Centre during the period 2021-22 to 2025-26, which is at the same level as was recommended by the 14th Finance Commission.
“We had an option of continuing this trajectory, we had an option of enhancing this devolution to somewhat higher figure. We had the option of somewhat recalibrating downwards looking at the constraints on the fiscal space of the central government,” N K Singh said.
“Finance Commission is not an encounter with shock and awe, Finance Commission has a legacy which believes in stability, continuity and predictability. We opted for continuity and predictability,” he further added.
As per the Commission, the gross tax revenue (GTR) for the 5-year period is expected to be ₹135.2 lakh crore. Out of that, divisible pool (after deducting cesses and surcharges and cost of collection) is estimated to be ₹103 lakh crore.
States’ share at 41% of divisible pool comes to ₹42.2 lakh crore for 2021-26 period. The report of the 15th Finance Commission was tabled in Parliament on 2 February.
Rajya Sabha MP Sushil Kumar Modi highlighted that the share of divisible pool is slowly shrinking as the ‘cess and surcharge’ component in Gross Tax revenue is increasing.