Haryana seeks GST revenue loss as new devolution parameter

In a meeting with the 16th Finance Commission (FC) today, Haryana pushed for introducing a new criterion for tax devolution — compensation for revenue loss due to the introduction of the Goods and Services Tax (GST).

State’s recommendations

Parameter Weightage

Population 7.5%

Area 15%

Forest and ecology 5%

Income distance 15%

Tax effort 35%

Demographic performance 7.5%

Revenue loss due to GST 15%

Dr Arvind Panagariya, chairman of the 16th Finance Commission, said, “Haryana has proposed that revenue loss due to GST be included as a parameter with a weightage of 15 per cent during horizontal devolution.” He said the Commission has asked for more details on how this could be implemented.

“There are other states such as Maharashtra and Gujarat that have raised similar issues. Tamil Nadu also wants contribution to GDP to be considered,” Dr Panagariya said, replying to a query.

Haryana, along with several other states, also demanded that the states’ share in the overall divisible pool of taxes be increased from the current 41 per cent to 50 per cent.

Proposing adjustments to existing parameters, Haryana suggested significant changes:

Tax effort: Haryana wants the weightage for tax effort — which rewards states for better tax collection — to be raised from 2.5 per cent (as per FC-XV) to 35 per cent. “It is an efficiency-based parameter — how much taxes can you earn?" Dr Panagariya explained.

Demographic performance: Haryana requested that the weightage for demographic performance, which currently stands at 12.5 per cent, be cut to 7.5 per cent.

Income distance: This parameter, which favours poorer states by devolving more funds to them, was given a 45 per cent weightage in FC-XV, with Haryana used as the benchmark state. Haryana wants it sharply reduced to 15 per cent. “This parameter goes against Haryana and favours states such as Bihar and Uttar Pradesh,” said Dr Panagariya.

Population and area: Haryana suggested the weightage for 2011 Census-based population data be reduced from 15 per cent to 7.5 per cent, while maintaining the 15 per cent weightage for area, in line with FC-XV recommendations.

Forest and ecology: Given Haryana’s low forest cover, the state wants the weightage for this parameter brought down from 10 per cent to just 5 per cent.

Additionally, Chief Minister Nayab Singh Saini proposed that Haryana’s contribution to the National Capital Region (NCR) and the high participation of its citizens in the armed forces should also be considered as fresh parameters for tax devolution.

Haryana Tribune