Punjab Chief Minister Bhagwant Mann on Monday called upon the 16th Finance Commission to increase the state’s share of central taxes to 50 percent from the current 41 percent during the Commission's visit to Punjab, where extensive discussions were held to assess the state's economic and financial health.
Confirming the state's request at a media briefing, the Commission’s chairman Dr Arvind Panagariya said: “The Punjab government has demanded that the states should receive 50 percent of the taxes collected by the Centre, instead of the current 41 percent.”
During the visit, the 16th Finance Commission, comprising Dr Panagariya and members Soumyakanti Ghosh, Annie George Mathew, Ajay Narayan Jha, and Dr Manoj Panda, engaged in comprehensive discussions with Chief Minister Bhagwant Mann and senior officials of the Punjab government. The delegation sought to understand the state's socio-economic landscape, fiscal challenges, and the impact of Goods and Services Tax (GST) on its revenues.
Addressing the media, Dr Panagariya highlighted the key points of the meeting. He stated that CM Mann provided a general overview of Punjab's economic and financial fronts, while the state's Finance Minister elaborated on the same themes. The finance secretary delivered a detailed presentation, covering crucial aspects such as Punjab's socio-economic profile, demographic trends, fiscal health, and the significant impact of GST on state revenues.
“The finance secretary discussed at length the challenges facing Punjab, including issues related to growth and revenue generation,” said Dr Panagariya. “The state's demand for an increased share of central taxes stems from these pressing challenges and the need for greater financial resources to drive development,” he said.
Explaining the Finance Commission's role, Dr Panagariya said, "The Finance Commission is appointed every five years to make recommendations on the distribution of central taxes. Our mandate includes determining how taxes should be divided between the Centre and the 28 states, and then among the states themselves."
He elaborated on the process of tax distribution, known as vertical and horizontal devolution. "The first division between the Centre and 28 states is called vertical division, while the distribution among the states is referred to as horizontal devolution," he explained. “Punjab's recommendation is that vertical devolution should be adjusted to favor the states more, increasing their share from 41 to 50 percent, which means half of the shareable central taxes should go to the states, enhancing their fiscal capacity,” he added.
During the discussions, the Finance Commission also considered the broader implications of GST on state revenues. Punjab has experienced a significant impact due to the subsumption of various state taxes into GST, which has altered its revenue landscape. The state officials highlighted the need for a revised tax structure to compensate for these changes and ensure sustainable revenue streams.
