Question

Consider the following statements in relation to criteria used in horizontal tax devolution by the Finance Commissions (FC) of India:

A. Tax efforts was introduced during the Tenth Finance Commission.

B. The overall weightage given to need-based parameters in the 15th Finance Commission was less than that of the 14th Finance Commission.

C. Forest cover comes under fiscal disability principle.

D. Over the years, there has been a shift from need-based parameters to equity and efficiency-based parameters.

Which of the above statements are correct?

1. A and B only
2. A, C and D only
3. B and C only
4. A, B and C only

Answer 1

Correct Answer: A and B only

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Explanation:

1. Statement A:

   • Tax efforts were introduced during the Tenth Finance Commission.
   • Correct:
     • The Tenth Finance Commission introduced the concept of "tax effort" as a criterion to incentivize states to improve their revenue mobilization.

2. Statement B:

   • The overall weightage given to need-based parameters in the 15th Finance Commission was less than that of the 14th Finance Commission.
   • Correct:
     • The 15th Finance Commission reduced the weightage of need-based parameters compared to the 14th Finance Commission, focusing more on equity and efficiency.

3. Statement C:

   • Forest cover comes under fiscal disability principle.
   • Incorrect:
     • Forest cover is not categorized under the fiscal disability principle; it is considered as an independent criterion for horizontal devolution to incentivize environmental conservation.

4. Statement D:

   • Over the years, there has been a shift from need-based parameters to equity and efficiency-based parameters.
   • Incorrect:
     • While efficiency-based parameters have gained prominence, the Finance Commissions continue to emphasize a balanced approach that includes need-based criteria, particularly for backward and special-category states.

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Conclusion:

The correct statements are A and B only.
Thus, the correct answer is A and B only.