Madhya Pradesh Advocates for Non-Tax Revenue in Tax Pool, Proposes Multidimensional Poverty as New Criterion
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Synopsis
On March 6, 2023, Aravind Panagariya, Chairman of the 16th Finance Commission, discussed Madhya Pradesh's request to increase its share from the central divisible pool from 41% to 48%. The state suggests including non-tax revenue and introducing multidimensional poverty as a new allocation criterion.
Key Takeaways
- Madhya Pradesh seeks to raise its share from 41% to 48%.
- Proposed inclusion of non-tax revenue in the divisible pool.
- Introduction of multidimensional poverty as a share allocation criterion.
- Demand for 10% additional allocation for SC/ST population.
- Weightages proposed for demographic performance and income distance.
Bhopal, March 6 (NationPress) Aravind Panagariya, the Chairman of the 16th Finance Commission, emphasized the passionate requests from Madhya Pradesh, which is striving for a larger share from the central divisible pool, aiming to boost its allocation from the existing 41 percent to a more significant 48 percent.
In terms of the vertical devolution of taxes, Madhya Pradesh has proposed a 10 percent share of cess and surcharge since the state currently receives no part of these funds.
The chairman further mentioned that the MP government has also advocated for the inclusion of non-tax revenue in the vertical divisible pool.
Panagariya stated: "The Madhya Pradesh government has suggested that if cesses, surcharges, and non-tax revenue are included in the divisible pool, then the current level of 41 percent is acceptable. If not, then 48 percent of the share should be allocated to the states."
Other states are also demanding a 50 percent share from the divisible pool, he mentioned while addressing the media in Bhopal. Regarding the horizontal divisible pool, Panagariya noted that Madhya Pradesh would benefit from the income distance criterion compared to wealthier states with higher per capita income.
The state has proposed the introduction of a new criterion—multidimensional poverty—to be factored into the share allocation.
Concerning the additional criteria for tax devolution, the MP government suggested that the Finance Commission should prioritize the Scheduled Caste and Scheduled Tribe (SC/ST) population.
Madhya Pradesh has also requested an extra 10 percent allocation for the SC/ST population.
The state stressed the significance of demographic performance, particularly the total fertility rate, as well as the state's contribution to the total GDP. Previous commissions have utilized the income distance criterion, which facilitates a more substantial devolution.
Madhya Pradesh proposed the following weightages: 10 percent for population, 10 percent for the state's share in the SC/ST population, 5 percent for demographic performance (total fertility rate), 40 percent for income distance, 5 percent for the multidimensional poverty index, 10 percent for area, 15 percent for forest cover, 2.5 percent for tax collection and fiscal efforts, and 2.5 percent for the state's contribution to the total GDP (excluding union territories) in tax devolution from the horizontal pool.
Furthermore, Panagariya indicated that other states have also expressed interest in receiving a share of the cess and surcharge currently imposed by the Central government.
Historically, cesses and surcharges collected by the Centre have not been mandated for distribution to the states, as the Constitution does not allow it, the Finance Commission chairman clarified.
The chairman skillfully sidestepped a barrage of questions regarding the freebies provided by both the state and Central government.
