• UGI USER
  • Mar 01, 2024
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ON IRREGULARITIES IN VERTICAL DEVOLUTION

Why in the news?

  • Recent demonstrations by the Kerala and Karnataka administrations in New Delhi spotlight deficiencies in India’s fiscal federalism.
  • The 16th Finance Commission must address historical shortcomings in vertical devolution by providing compensations to states.
source:toi

Key Recommendations of 15th Finance Commission:

  • 15th Finance Commission recommends a 41% share of central taxes for states from 2021-26.
  • Horizontal devolution includes weightage for demographic performance, income, population, area, forest, ecology, tax, and fiscal efforts.
  • Post-devolution revenue deficit grants totaling around Rs. 3 trillion suggested.
  • Performance-based incentives focus on the social sector, rural economy, governance, and power sector.
What is Tax Devolution ?

  • Tax devolution entails the equitable distribution of tax revenues between the central and state governments.
  • Article 280(3)(a) of India’s Constitution:the Finance Commission (FC) recommends the division of net tax proceeds between the Union and states.
  • FC recommends fair division of net tax proceeds for fiscal autonomy.

About the 15th Finance Commission:

●   Constitutional body for distributing tax proceeds between Centre and states.

●   Constituted every five years under Article 280.

●   Chaired by NK Singh, formed in November 2017.

●   Recommendations span from 2021-22 to 2025-26.