The calculation of resources available for sharing between the Centre and the states would be difficult in view of the pending changes in commodity taxation at the state level, like the introduction of the value-added tax (VAT) and other related modifications, C Rangarajan, chairman of the Twelfth Finance Commission, said today.
In his address at a function to mark 50 years of Indian finance commissions, Rangarajan said states delivering services more efficiently or raising more revenue relative to their tax bases should not be penalised.
The challenge lay in devising a resource-sharing formula that addressed fiscal disadvantage but penalised imprudence, he said.
Rangarajan also argued for the imposition of user charges.