12th Finance Commission Recommendations

MAJOR RECOMMENDATIONS OF THE TWELFTH FINANCE COMMISSION

- RESTRUCTURING PUBLIC FINANCES

• centre & states to improve teh combined tax-GDP ratio to 17.6% of 2009-10
• fiscal deficit to GDP targets for centre & state to be fixed at 3%
• revenue difict of the centre & states to be brought down to zero by 2008-09
• interest payments relative to revenue receipts to be brought down to 28% & 15% incase of centre & states, respectively.

- SHARING OF UNION TAX REVENUES

• the share of states in the net proceeds of sharable central taxes fixed at 30.5%, treating additional excise duties in lieu of sales tax as part of general pool of central taxes.
• share of states to come down to 29.5%, when states are allowed to levy sales tax on sugar, textiles & tobacco.
• in case of any legislation enacted in respect of service tax, after the notification of the 88 amendment to the constitution, revenue accruing to a state should not be less than the share that would accrue to it, had the entire service tax proceedes been part of the sharable pool.

- LOCAL BODIES

• a grant of Rs.20,000 crore for panchayati raj institutions & Rs.5000 crore for urban local bodies to be given to state for a period of 2005-10.
• priority to be given to expenditure on opeartion & maintenance costs of water supply & sanitation, while utilising the grants for the panchayats.

- CALAMITY RELIEF

• The scheme of calamity relief fund (CRF) to continue in its present form with contributions from center & states in ratio of 75:25, the size of the fund owrked out at Rs.21,333 crore for the period of 2005-10.
• the outgo from the fund to be replenished by way of collection of national calamity contingent duty & levy of special surcharges.

- GRANT-IN-AID TO STATES

• Non-plan revenue deficit grant of Rs.56.856 crore recommended to 15 states for the period 2005-10.
• grants amounting to Rs.10,172 crore recommended for the education sector to 8 states.
• grants to education & health sectors & additonalities over & above the normal expenditure to be incurred by states.
• a grant of Rs.15,000 crore recommended for roads & bridges, which is in addition to the normal expenditure of states.
• grants recommended for maintenance of public buildings, forests, heritage conservation & specific needs of states are Rs.500 crore, Rs.1000 crore, Rs.625 crore, & Rs.7100 crore, respectively.

- FISCAL REFORM FACILITY
* with the recommended scheme of debt relief in place, fiscal reform not to continue over the period of 2005-10.