PUBLIC FINANCE
Finance Commission
·
Under Article 280 of the Constitution of India,
President of India appoints a finance Commission at the end of every five
years, which consist of a chairman and four other members.
·
The prime function of the Finance
Commission of India is to make recommendations tp the president in respect of:
(i) The distribution of net
proceeds of taxes to be shared between the Union and the States and the allocation of share of
such proceeds among the states.
(ii) The principle which should
govern the payment of grants in aid by the Centre to the States.
(iii) Any other matter
concerning financial relation between the centre and the States.
·
13th Finance Commission was
appointed by the President on Nov.13, 2007. It is headed by Dr. Vijay l.Kelkar.
·
The 13th Finance Commission
submitted its report on February 25, 2010. Its recommendations covered a period
from 1, 2010 to March 31, 2015
|
Sl
|
Year of Appointment
|
Chairman
|
Operational Period
|
|
1
|
1951
|
K.C
Niyogi
|
1952-57
|
|
2
|
1952
|
K.Santhanam
|
1957-62
|
|
3
|
1960
|
A.K.
Chanda
|
1962-66
|
|
4
|
1964
|
P.V
Rajamannar
|
1966-69
|
|
5
|
1968
|
Mahavir
Tyagi
|
1969-74
|
|
6
|
1972
|
K.B.N.
Reddy
|
1974-79
|
|
7
|
1977
|
J.M.Shellat
|
1979-84
|
|
8
|
1983
|
Y.B.Chawan
|
1984-89
|
|
9
|
1987
|
N.K.P.
Slave
|
1989-95
|
|
10
|
1992
|
K.C.Pant
|
1995-00
|
|
11
|
1998
|
A.M.Khusro
|
2000-05
|
|
12
|
2002
|
C.rangarajan
|
2005-10
|
|
13
|
2007
|
Vijay.L.Kelkar
|
2010-15
|
Important
Recommendation:
13th
Finance Commission raised the share of states in the shareholder pool of
central taxes from 30.5% to 32% along with Rs. 3.19 lakh crore as grant for the
next five fiscal years (2010-15)
State % of
Shareable Pool
1. Uttar Pradesh 19.68
2. Bihar 10.92
3. West Bengal 7.26
4. Madhya Pradesh 7.12
5. Andhra Pradesh 6.94
·
As per the 13th Finance
Commission recommendations, Sikkim received the lowest share from the shareable
pool of taxes, followed by Goa and Mizoram respectively.
·
Apart from laying down the tax devolution
formula, the commission asked the government to extend specific grants such as
Rs. 24,000 crore for strengthening local bodies, it suggested that the
government earmark Rs. 87,000 crore exclusively for them
·
Over 2010-2015, states will get Rs. 14.5
lakh crore as share of Central taxes and duties and Rs. 3.1 lakh crore as
grants- in- aid
·
Rs. 50,000 crore as compensation for
states accepting ‘grand bargain’ on GST, including veto rights of Centre on any
change in rates.
·
Rs. 5,000 crore each for reducing infant
mortality rates and introducing renewable energy programmers’.
·
Rs. 5,000 crore for improved
administration of justice.
·
Rs. 3,000 crore for implementing universal
identification (UID) systems.
Grants of the States
Central
Government can provide grants to the states as per the Article 275 and Article
282 of the Constitution. The grants under Article 275 are made as per the
recommendations of the Finance Commission, whereas under Article 282, the
Government enjoys the discretion to provide grants to the States.
Ø
Note: -
Jammu & Kashmir is the largest receiver of grants under article 275 (1) of
the Constitution, followed by Himachal Pradesh.
Source of Revenue of
Central Government
A. Source of Tax
Revenue: it includes taxes on certain items
mentioned in the union List of the seventh Scheduled and other.
B. Non Tax Revenue:
It includes
(i) Borrowings
(ii) Income of government undertakings
(iii) Income from government properties
(iv) Interest earning on loans and advances
(v) Gifts, donation, grants and aid, etc.
(vi) Fees (excluding court fees other than the Supreme Court)
Source of Revenue for State Governments
A. Tax Revenue:
Taxes on the items contained in the state list of the seventh schedule of the
constitution which includes land revenue, taxes on agriculture income, sales
tax, etc.
B. Non tax Revenue:
All includes
(i) Fee taken in all courts except Supreme Court
(ii) Income of government undertakings
(iii) Income from State owned property
(iv) Borrowings
(v) Royalty from mines, forests, etc.
(vi) Grants in Aid
Ø Note: (i) Art.292 and Art.293 of the
Constitution deals with the borrowings of Central and state governments
respectively. (ii) Art.293 of the Constitution mandates the States to obtain
the consent of the centre for borrowing if they are already indebted to the
Centre
Taxes
· Article
265 of the constitution of India says that
no tax shall be levied or collected except by the authority of law. In India,
the parliament is the only authority to enact the law in the country.
·
Direct
Tax: this is tax whose impact and incidence is
on the same person and shifting of tax burden is not possible. It means that
the one who pays the direct tax, also bears the burden of the tax. Example of
direct taxes are personal income tax, corporate tax, wealth tax, gift tax,
interest tax, securities transaction tax, fringe benefits tax, banking cash
transaction tax, etc.
·
Indirect
Tax: these are the taxes which are paid by
some person and he shifts the burden of the tax on to some other person i.e tax
impact and tax incidence is on two different persons. Examples are customs,
central excise, sales tax (VAT), service tax, etc.
·
Ad
Valorem Tax: it is a kind of indirect tax in which
the goods or commodities are taxed as per its value. VAT is an example of Ad
Valorem Tax.
·
Specific
Tax: it is the tax which is imposed on the
basis of special attributes of the commodity. For example, the length, the
breadth, the weight is used in the international trade or in case of import and
exports.
·
Minimum
Alternative Tax (MAT): it is the minimum tax which a company
has to pay even if it is not having any income or zero income. It came into
force to curb the problem of tax aversion by the companies showing zero income,
hence paying no taxes. With effect from April, 2000 MAT was imposed at a flat
rate of 7.5% on book profit as computed under the companies Act without
allowing for any deductions or adjustment. Union Budget 2006-07 has increased
the rate of MAT to 10% of book profit.
Value Added Tax (VAT)
·
VAT is the levied on the value added at
various stages of the output of commodity.
·
The value added is measured as the
difference between the gross value of output and that of the intermediate goods
purchased for the purpose of final disposal.
·
For the computation of VAT, the tax
credit method is used under which a firm is allowed to deduct the VAT paid by
it on its purchase from other units from the VAT which the firm has to pay.
Sale invoice has to be shown for the same.
·
The decision to introduce VAT arrived at
during the conference of Chief Minister of States/UTs held in 1999, and
afterwards in 2000 & 2001.
·
An empowered committee of States Finance
Minister was constituted in July 2000 to monitor the progress of introduction
of VAT.
·
VAT came into effect from 1st
April 2005, except in BJP ruled States and Uttar Pradesh, Tamil Nadu &
Puducherry. In all, 25States/UTs implemented VAT in 2005-06.
·
Chhattisgarh, Madhya Pradesh, Jharkhand,
Gujarat and Rajasthan implemented VAT with effect from April 1, 2006.
·
As per the preconditions to
implementation of VAT, if any loss is suffered by any state due to implementation
of VAT, it will be compensated by the centre in the following manner:
(i) 100%compensation in 1st
year
(ii) 75% Compensation in 2nd
year
(iii) 50% compensation in 3rd
year
·
In 2005-06, maximum loss was suffered by Kerala
followed by Andhra Pradesh and Bihar. Only eight States out of 25 States who
implemented VAT in 2005-06 suffered losses due to it.
·
The design of VAT as recommended by the
empowered committee and adopted by states from April 1, 2005 is uniform across
the States. It broadly put forward a three rate structure:
(i) 4 per cent for 250
commodities (mainly agro- based products and industrial inputs).
(ii) 12.5 per cent for 217
other items.
(iii) 1 per cent for gold and
precious metals.
Service Tax
·
it was introduced for the first time in
984-85 Budget at a 5 percent Union Service Tax on three specified services,
namely telephone, general insurance and stock brokage. At present nearly 100
services are under its ambit. The Union Budget 2006-07, has increased service
tax rate to 12 per cent plus surcharge applicable thereon.
·
Service Tax is in the Union List of the
seventh Scheduled of the Constitution.
Important Committees
for Tax Reforms
Year
Committee
1956………………………………….. Nicholas Kaldor
Committee
1971………………………………….. K.N. Wanchoo
Committee
1981………………………………….. L.K Jha Committee
1991………………………………….. Raja J. Chelliah
Committee
2001………………………………….. Parthasarthy Scheme
Committee
2002………………………………….. Vijay Kelkar
Committee
2003……………………………………M.Govinda Rao
Committee
Biggest Retailers
of the World
|
Rank
|
Company
|
Country of Origin
|
|
1
|
Wal –Mart Stores, Inc.
|
US
|
|
2
|
Carrefour S.A.
|
France
|
|
3
|
Tesco PLC
|
UK
|
|
4
|
Metro AG
|
Germany
|
|
5
|
The Kroger Co.
|
US
|
Important
Ranks
|
Rank
|
Country
|
|
13
|
Germany
|
|
17
|
Japan
|
|
17
|
UK
|
|
19
|
US
|
|
22
|
France
|
|
33
|
Bhutan
|
|
39
|
Israel
|
|
69
|
Brazil
|
|
69
|
South Africa
|
|
72
|
Italy
|
|
79
|
Sri Lanka
|
|
80
|
China
|
|
88
|
Thailand
|
|
118
|
Egypt
|
|
118
|
Indonesia
|
|
133
|
Iran
|
|
133
|
Russia
|
|
139
|
Nepal
|
|
139
|
Pakistan
|
|
144
|
Bangladesh
|
|
144
|
Syria
|
|
160
|
Libya
|
|
172
|
Myanmar
|
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