FM follows Finance Commission formula.
The Union government has used the Thirteenth Finance Commission’s devolution formula to transfer 32 per cent of its budgeted gross tax receipts for 2010-11 to the states, as against 30.5 per cent at present.
The Commission, whose report was unveiled yesterday, adopted a revised formula to recommend the new devolution formula. While giving 35 per cent weight to area and population, fiscal discipline has 17.5 per cent weight with the remaining 47.5 per cent given to fiscal capacity distance.
In line with the revised formula, the net proceeds of union taxes and duties is budgeted at Rs 2,08,997 crore during 2010-11, with the Centre’s gross total revenue budgeted to rise by 17.94 per cent to Rs 7,46,651 crore during the next financial year, compared with Rs 6,33,095 crore in the revised estimates for this year. The receipts this year would, however, be 1.25 per cent lower than the budget estimates of Rs 6,41,079 crore with corporation tax, excise and service collections likely to be lower than what was expected in July.
Finance Minister Pranab Mukherjee has factored in tax buoyancy as economic activity is picking up. In addition, the budget proposals are likely to result in an additional resource mobilisation of Rs 20,500 crore. While Mukherjee has estimated a revenue loss of Rs 26,000 crore on account of income tax concessions, he is budgeting for a net revenue gain of Rs 46,500 crore from indirect taxes.
Within indirect taxes, the bulk of the gain will be on account of the proposals on customs duty, especially the levy of a basic duty of 5 per cent on crude petroleum, 7.5 per cent on diesel and petrol and 10 per cent on other refined products.
The remaining Rs 3,000 crore is expected to accrue from widening the ambit of service tax.
