INCREASE DIVISIBLE TAX POOL: POLITY

INCREASE DIVISIBLE TAX POOL: POLITY

NEWS: Odisha joins States’ pitch for 50% share of divisible tax pool

WHAT’S IN THE NEWS?

Odisha has joined the demand to increase States' share in the divisible tax pool from 41% to 50%, citing the need for greater fiscal autonomy and disaster relief. The State has also suggested changes in the tax devolution formula, opposing population-based criteria and area-based calculations.

Odisha’s Demand for Increased Tax Devolution

1. Odisha’s Key Demands

• Increase the State’s share in the divisible tax pool from 4.528% to 4.964%.
• Raise the Centre’s contribution in the State Disaster Relief Fund (SDRF) from 75% to 100% due to frequent natural disasters.
• Requested ₹12,59,148 crore for the period 2026-27 to 2030-31 for its development vision of a "Samruddha Odisha by 2036".

2. Concerns Over Population-Based Criteria in Tax Devolution

• Odisha opposes using total population as a factor, arguing that it treats the entire population as a liability.
• Proposed a modified population variable considering:

• Scheduled Caste (SC) and Scheduled Tribe (ST) share.
• People above 80 years of age.
• Widows without any support.

• Suggested assigning 15% weight to this modified metric in the devolution formula.

3. Criticism of Area-Based Calculation

• Odisha argues that using area as a proxy for population density is flawed.
• Key points raised:

• Smaller States can also be sparsely populated.
• Larger States are not necessarily sparsely populated.

Finance Commission and Tax Devolution

1. About the Finance Commission (FC)

• Established under Article 280 of the Indian Constitution.
• Appointed every five years by the President of India.
• Recommends:

• Distribution of tax revenues between Centre and States.
• Inter-state tax devolution formula.
• Measures to improve the financial health of States.

2. 15th Finance Commission (2021-26)

• Chairman: N.K. Singh.
• Term: April 1, 2021 – March 31, 2026.
• Recommended a 41% share for States in the divisible tax pool (reduced from 42% after J&K’s reorganization).

3. Formula for State-wise Devolution (15th FC)

Source: https://www.thehindu.com/news/national/odisha/odisha-joins-states-pitch-for-50-share-of-divisible-tax-pool/article69188411.ece