The 13th Finance Commission has recommended a string of measures, including a Rs 50,000-crore compensation corpus as a “Grand Bargain” to incentivise states to migrate to a countrywide Goods and Services Tax (GST).
The system can alter tax administration by giving a one-shot solution to levies such as excise, value-added tax and octroi. However, its implementation faces political hurdles as it could rob state governments of discretionary fiscal power.
“The grant would be used to meet compensation claims of states for revenue losses on account of implementation of GST between 2010-11 and 2014-15,” the commission said.
Unspent balances in this pool would be distributed amongst states, as per the devolution formula, on January 1, 2015.
The compensation should be disbursed in quarterly installments and will be administered by a council of finance ministers. The council would be empowered to monitor GST implementation and penalise states that deviate from the plan.