November 30, 2023
The Union Cabinet has recommended setting up of the 16th Finance Commission to decide on sharing of taxes between the Centre and the states, setting off speculation on the chairman and members of the Constitutionally mandated panel, whose award would be effective for five years, starting April 2026.
The panel, which will be constituted by the President over the next few days, is proposed to be given a simple mandate, instead of expanding it to include issues, such as, GST or ease of doing business, as was the case in the past.
The decision to set up the 16th Finance Commission comes at a time when the states are facing financial difficulties due to the COVID-19 pandemic and the subsequent economic slowdown. The Commission is expected to take into account the needs of the states and recommend a fair and equitable distribution of the divisible tax pool between the Centre and the states.
The 16th Finance Commission will be the first to be constituted under the new tax regime, with the Goods and Services Tax (GST) in place. The Commission will have to factor in the impact of GST on the revenue of the Centre and the states and recommend a suitable formula for the distribution of the GST revenue.
The appointment of the chairman and members of the 16th Finance Commission is expected to be announced soon. The Commission is expected to submit its report within two years of its constitution.
