ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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State Finances : Unhealthy Precedent

Unhealthy Precedent Anumber of important decisions are reported to have been taken at the conference of chief ministers on domestic tax reforms on June 22. The conference was convened principally to review compliance by the states in implementing a uniform floor rate for sales tax and value added tax (VAT). Prominent among the states which have not yet conformed to the uniform rate of sales tax is Bihar. These states are now expected to submit a report on compliance by July 10. It was decided at the conference to withhold central Plan assistance to the extent of 25 per cent with immediate effect from states and union territories which do not adopt the uniform floor rate.

A number of important decisions are reported to have been taken at the conference of chief ministers on domestic tax reforms on June 22. The conference was convened principally to review compliance by the states in implementing a uniform floor rate for sales tax and value added tax (VAT). Prominent among the states which have not yet conformed to the uniform rate of sales tax is Bihar. These states are now expected to submit a report on compliance by July 10. It was decided at the conference to withhold central Plan assistance to the extent of 25 per cent with immediate effect from states and union territories which do not adopt the uniform floor rate.

While a number of important decisions were taken at the conference, there was also the questionable decision to convert the existing nine-member standing committee of state finance ministers into an empowered committee whose decisions “will be binding on all states”. The same nine states, it appears, had called on the prime minister to demand devolution of additional funds. Specifically, they asked for the devolution under the award of the Tenth Finance Commission to be not only implemented immediately, but also for the share of the states to be raised from 29 to 33 per cent of the gross proceeds of all central taxes. The nine-member standing committee has been thus representing the case of all the states. Still the decision to convert the nine-member committee appointed by the inter-state council into an empowered committee with powers to take mandatory decisions should not have been pushed through without making provision that states at present not represented on the committee would have a chance to be included in the committee at some point or the other. The composition of the empowered committee should have been left open to periodical review by the inter-state council.

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