Context:

• The state government of Punjab has accepted the tax devolution formula, apportionment of share and most of the other recommendations made by the Sixth Punjab Finance Commission.

Key Points:

• The state government has accepted the key recommendations of the Sixth Punjab Finance Commission regarding the devolution of tax revenues and their apportionment between the panchayati raj institutions (PRIs) and municipal bodies in the state.
• The commission headed by former Chief Secretary KR Lakhanpal, in its report submitted to the governor, recommended that 3.5% of state’s net own tax revenues, which were estimated at Rs 7,704 crore for the period from 2021-22 to 2025-26, to be devolved to the panchayats and urban local bodies (ULBs) be distributed between them in the 55:45 ratio. Of this tax devolution, the share of the panchayats and municipalities, was worked out at Rs 4,237 crore and Rs 3,467 crore, respectively.
• According to the concerned officials, the state government has accepted the tax devolution formula, apportionment of share and most of the other recommendations made by the commission. The decision has been taken at the level of the Chief Minister. The government will present an explanatory memorandum on the action taken on the commission’s report in the next session of the state assembly.
• The commission, which as per its terms of reference was required to determine the taxes, duties, tolls and fees to be assigned to the panchayats and municipalities, also recommended devolution of another Rs 4,212 crore accruing from stamp duty and registration fee, value added tax (VAT) and professional tax from 2021-22 to 2025-26 to the local bodies.
•  It suggested that the entire proceeds of tax on professions, trades and calling may be assigned to the local bodies, to be shared between the panchayats and municipalities in the ratio of 80:20, respectively. Also, 10% of proceeds of stamp duty and registration fee may be appropriated by the local bodies on the basis of actual realisation and 2% share of VAT on petroleum products on the basis of its realisation in the rural areas be allocated to gram panchayats only.
• It is worth mentioning here that the 15th Central Finance Commission had recommended to the state governments to process the reports of the State Finance Commissions (SFCs) expeditiously and present them to the state legislature with an action-taken report and accept the recommendations made with regard to devolution of funds.