Nod to key recommendations, govt to table ATR in assembly

The commission, in its report, has also charted out a fiscal consolidation plan for the debt-laden state, suggesting a fivepercentage point reduction in the debt to gross state domestic product (debt-gsdp) ratio

6TH PUNJAB FINANCE COMMISSION

CHANDIGARH : The Bhagwant Mann-led Aam Aadmi Party (AAP) government has accepted the key recommendations of the Sixth Punjab Finance Commission regarding the devolution of tax revenues and their apportionment between the panchayati raj institutions (PRIS) and municipal bodies in the state.

The commission headed by former chief secretary KR Lakhanpal, in its report submitted to governor Banwarilal Purohit in March 2022, recommended that 3.5% of state’s net own tax revenues, which were estimated at ₹7,704 crore for the period from 2021-22 to 2025-26, to be devolved to the panchayats and urban local bodies (ULBS) be distributed between them in the 55:45 ratio.

Of this tax devolution, the share of the panchayats and municipalities, was worked out at ₹4,237 crore and ₹3,467 crore, respectively.

The state government has accepted the tax devolution formula, apportionment of share and most of the other recommendations made by the commission, said two senior officers privy to the government decision, who did not want to be named. “The decision has been taken at the level of the chief minister. The government will present an explanatory memorandum on the action taken on the commission’s report in the next session of the state assembly,” one of them said, refusing to discuss specific details.

The commission, which as per its terms of reference was required to determine the taxes, duties, tolls and fees to be assigned to the panchayats and municipalities, also recommended devolution of another ₹4,212 crore accruing from stamp duty and registration fee, value added tax (VAT) and professional tax from 2021-22 to 2025-26 to the local bodies. It suggested that the entire proceeds of tax on professions, trades and calling may be assigned to the local bodies, to be shared between the panchayats and municipalities in the ratio of 80:20, respectively.

Also, 10% of proceeds of stamp duty and registration fee may be appropriated by the local

bodies on the basis of actual realisation and 2% share of VAT on petroleum products on the basis of its realisation in the rural areas be allocated to gram panchayats only, according to the report.

The 15th Central Finance Commission had recommended to the state governments to process the reports of the State Finance Commissions (SFCS) expeditiously and present them to the state legislature with an action-taken report and accept the recommendations made with regard to devolution of funds.

Poor implementation track record

Though the state government has decided to accept the commission’s recommendations on devolution of tax revenues, the real challenge will lie in their implementation, given the fiscal constraints being faced by the state government. The track record of the state in implementation of recommendations of the State Finance Commissions even after accepting them and presenting the explanatory memorandum has been poor hitherto. The recommendations of the 4th SFC (2011-12 to 2015-16) were accepted by the then SADBJP government but nothing much was done for its implementation.

As for the 5th SFC (2016-17 to 2020-21), the action-taken report only summarised the recommendations with nothing to indicate the action taken. “The performance of the state in terms of financial devolution recommended by the previous SFCS, relative to the SFCS of other states, as also their comparative per capita devolution put Punjab at the bottom of the pyramid. The position is much worse, when viewed in terms of implementation of the recommendations of SFCS and actual release of funds,” the panel wrote in its report.

As a result, the local bodies have continued to depend on central transfers and funds disbursed by successive state governments which have not been keen on effecting constitutionally mandated transfers. “Government disbursals are neither assured or predictable nor free from an element of subjectivity,” it pointed out.

Fiscal consolidation plan The commission has also charted out a fiscal consolidation plan for the state, suggesting a five-percentage point reduction in the debt to gross state domestic product (debt-gsdp) ratio, from 48.34% at the end of 2021-22 to 43.71% of GSDP by 2025-26. Another suggestion is to fix yearly targets for zero-revenue deficit by 2025-26 and derive its fiscal deficit from the borrowing limit set by the Centre.

It recommended the use of large public assets owned by the state and its entities to garner revenues by enabling urban development authorities, municipalities and improvement trusts to capture the appreciation in land value by framing uniform policies for change of land use charges, development charges and increase in FAR.

The commission set up in July 2018 had submitted an interim report in January 2021 to the then Congress government which set up a group of ministers to examine its recommendation for continuation of devolution of 4% of own net tax revenue to local bodies during the year 2021-22.