The Finance Commission’s important job is to recommend a distribution formula specifying each State’s share in the part of the Union tax revenue assigned to States. Such distribution formulas have a few weighted determinants. Since the 1st Finance Commission, some States have been arguing that their contributions to the Union tax revenue have been higher than others and, therefore, they rightfully have higher shares in the Union tax revenue. In the first eight Finance Commissions, tax contribution with very little weight was a determinant in the distribution formula. Since the 10th Finance Commission, this tax contribution was dropped from the distribution formula. Here, we argue that tax contribution by each State is a good measure of efficiency, and the Goods and Services Tax (GST) regime creates an opportunity for its inclusion in the distribution formula.
Data | How States’ share in Centre’s taxes declined due to cesses, explained in 5 charts
