Telangana for 40% Tax Devolution to States

Chief Minister K. Chandrasekhar Rao Friday told the panel here that 40 percent devolution can easily be accommodated by a marginal reduction of five percent in the Centre's expenditure on state subjects.

He also sought waiver of outstanding central loans to the state, estimated to be Rs.6,000 crore.

The commission headed by Y. Venugopal Reddy held consultations with the state government.

"I request the Finance Commission to be a trailblazer ushering in an era of resource transfers based on constitutionally assigned responsibilities," he said.

KCR, as the chief minister is popularly called, pointed out that there has been considerable increase in the non-tax revenues of the Centre from off-shore royalties, sale of spectrum and disinvestment proceeds and there has been a reduction in the size of the divisible pool because of the levy of cesses and surcharges by the Centre.

Stating that the state favours the introduction of Goods and Service Tax (GST), Rao called for ensuring that there is no accentuation of vertical imbalances and compromise of autonomy of states.

He said an adequate compensatory mechanism should be put in place.

He suggested that petroleum and liquor be kept out of the purview of the GST.

"We also request immediate payment of CST (central sales tax) compensation dues to assure the states of the commitment of the Centre in fully compensating the states for the possible loss of revenue on the introduction of GST," the chief minister said.

Finance minister Etela Rajender earlier said that the undivided Andhra Pradesh had lost Rs.17,595 crore since the introduction of Value Added Tax (VAT) in 2005, but the Centre had compensated only Rs.5,000 crore.

According to him, the Centre still owes Rs.12,000 crore in VAT collections to undivided state, of which Telangana's share is Rs.5,126 crore.

Rao told the panel that the revenue potential of Telangana is limited as majority of the districts in the state are economically backward and added to this, there will be erosion of tax base in the short to medium term.

The chief minister said despite its backwardness, an erroneous impression has gained ground about the revenue potential of Hyderabad in particular and Telangana in general.

"The higher revenue collections in Hyderabad was entirely because of the practice of all major VAT dealers paying their tax in Hyderabad for sales taking place all over the state and not because of higher revenue potential," he said.

The chief minister pointed out that the growth of the economy slipped from 10.5 percent in the period 2005-06 to 2009-10 to 4.5 percent in 2012-13. The major challenge before the state government is not only to regain the growth momentum but also make it inclusive.

Stating that fulfilling the aspirations of the people in the new state is the major challenge, Rao listed out the initiatives taken by the government including for providing three acres of agricultural land to landless Scheduled Castes women by purchasing land.

He said the government was planning to provide Rs.50,000 crore for the development of SCs and Rs.25,000 crore for Backward Classes over the five-year period of 2014-19.