UP Demands 50% Share in Central Taxes
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UP Demands 50% Share in Central Taxes

Context:

Uttar Pradesh (UP) has formally requested an increase in its share of central taxes from 41% to 50%.

More On News:

  • UP Chief Minister submitted a detailed memorandum to the 16th Finance Commission, calling for a higher allocation to the state in line with its growing developmental needs.
  • The Finance Commission, led by Chairman Arvind Panagariya, visited Lucknow as part of its nationwide consultation with states,UP government put forth several key proposals aimed at reshaping the existing tax devolution framework.
  • It emphasized the need for a more equitable distribution formula, urging the Centre to consider revisions in the weightage assigned to critical criteria.
  • Most of the 28 states have urged the Finance Commission to raise the share of tax revenue allocated to states from the Centre to 50%.
  • Currently, states receive 41% of the total tax revenue, with the remaining portion retained by the Centre.
  • The UP has additionally requested a special DDA fund to support targeted development schemes.
  • Alongside this, the UP government showcased its reform initiatives which were well received by the Commission and put forward proposals to adjust the weightage of key devolution criteria.
  • About Uttar Pradesh’s key demands:
    • The state has recommended modifications to the devolution formula, including a proposal to reduce the weightage for income distance from 45% to 30%.
    • Geographical area (15% to 10%)
    • Demographic performance (12.5% to 7.5%)
    • Forest cover (10% to 5%)
    • While seeking increases in the weightage for population (15% to 22.5%)
    • Tax collection effort (2.5% to 10%).
  • The previous Commission assigned the highest weightage of 45% to the income distance criterion.

About Finance Commision:

  • The Finance Commission is constituted by the President under article 280 of the Constitution.
    • As per the clause (1) of article 280 of the Constitution, the Finance Commission is to be constituted every fifth year or earlier.
    • Since the recommendations of the 15th Finance Commission extend through the six-year period ending on March 31, 2026, the formation of the 16th Finance Commission is now scheduled.
    • The primary responsibility of the Commission is to formulate a proposal for the distribution of taxes between the Centre and the states, which is subsequently submitted to the President of India.
    • The 15th Finance Commission recommended the following weightages for horizontal devolution: population – 15%, area – 15%, forest cover – 10%, tax effort – 2.5%, and demographic performance – 12.5%.
  • Terms of Reference for the 16th Finance Commission:
    • The Commission shall recommend:
      • The distribution of net tax proceeds between the Union and States under Chapter I, Part XII of the Constitution, and the allocation of States’ shares.
      • The principles governing grants-in-aid to States from the Consolidated Fund of India, including amounts payable under Article 275 for purposes other than those specified in clause (1) provisos.
      • Measures to enhance the Consolidated Fund of States to support Panchayats and Municipalities, based on the State Finance Commission’s recommendations.
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