The Lok Sabha yesterday approved the devolution formula which accords states 29 per cent of the central tax revenue pool.
The Constitution Amendment Bill, based on the 10th Finance Commission's recommendations, effecting these changes was approved by more than two-thirds majority in the Lok Sabha yesterday.
The new formula will come into effect from April 1, 1996. Hence, the finance ministry will have to set aside additional funds to meet the enhanced outgo to the states, and the move could have an adverse impact on the fiscal deficit.
Finance ministry officials however, could not give the amount that would accrue to the states.
Finance minister Yashwant Sinha said in the floor of the House the government was committed to cooperative federalism, and "on every occasion the government would go out of its way to help state governments", and allayed apprehension of members of Parliament saying that any shortfall in state finances would be met by the Centre.
He said the amendment was long overdue since the 10th Finance Commission submitted its report on November 26, 1994, and until 1998 he was not aware of much action on the issue.
The last BJP-led government came forward with the necessary amendment in March, 1998 but it was referred to a standing committee of Parliament and before it could give its report, the Lok Sabha was dissolved.
The Constitution Amendment Bill, passed by 378 votes for the motion, and none against, would enable the central government to pursue tax reforms.
