Advisory Panel To Finance Commission For ‘Nuanced’ Tax Devolution To States
NK Singh. (Photographer: Nelson Ching/Bloomberg)

Advisory Panel To Finance Commission For ‘Nuanced’ Tax Devolution To States

The Economic Advisory Council to the 15th Finance Commission has urged the commission to take a “nuanced” approach while suggesting tax devolution to states, other transfers and financing expenditure amid stress in revenues.

The council, at a meeting with the commission—headed by NK Singh—said it will have to think “unconventionally” in suggesting recommendations for the five-year period starting 2021-22.

Among the suggestions given by the council comprising Chief Economic Adviser Krishnamurthy Subramanian, Pronab Sen, Indira Rajaraman, among others, includes viewing the base year 2020-21 and the next year differently from the others as revenues would improve gradually, according to a statement.

The Finance Commission recommends the tax devolution—or share of central taxes that all states are entitled for. The Covid-19 outbreak has weighed on government receipts with gross tax revenue dropping nearly 30% year-on-year in the quarter ended July.

The advisory council also suggested efforts must be made to bring down the general government debt-to-GDP ratio in subsequent years as the ratio is likely to increase steeply due to the disruptions caused by the pandemic.

Singh, while later briefing reporters, said the general government debt-to-GDP target needs to be revisited. Studies suggest it will be a daunting challenge to bring the ratio to 60% by fiscal 2023 as projected by the Fiscal Responsibility and Budget Management Committee, he said.

Singh said he sees merit in having a range as the fiscal deficit target instead of a number. “Having a range will be in congruity with what you have in monetary policy...and that we could, while giving fiscal number, say that the central number is this, and it will be more realistic and it will lead to less accounting engineering,” he said, adding that he is yet to take a decision now.

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