Centre, states okay major tax-sharing formula

In a landmark decision, the Inter-State Council on Thursday decided that the Centre and the states will pool together all the taxes and devolve 29 per cent of these to the states.

Talking to the media after the meeting in New Delhi, Union Finance Minister Palaniappan Chidambaram said he would introduce a constitutional amendment bill in the coming session of Parliament to give effect to the council's decision. He said the decision would take retrospective effect from April 1, 1996.

''This is a major step in the United Front's policy of cooperative federalism,'' the minister said.

Earlier, the central income tax and the central excise duty were shared by the Centre and the states.

As for Article 356, no consensus was reached at the meeting. However, Prime Minister I K Gujral assured the chief ministers that the Article would not be used to dismiss any state government.

The prime minister's intervention at the end of the day-long meeting on Thursday clearly indicates that the Centre has no immediate plan to dismiss the Maharashtra or Bihar state governments.

The meeting, the third in the series after four meetings of the standing committee of Parliament, was convened with the sole aim of reaching a consensus on Article 356 and devolution of financial powers including share of taxes from the central poll to the states.

The meeting broadly reached an agreement on transfer of 29 per cent of tax from the central pool to the states.

Most of the 20-odd chief ministers agreed that Article 356 should be retained with adequate safeguards to prevent its misuse.

The safeguards suggested include issuing of a show-cause notice to the state government by the Centre with a seven-day time-frame for reply, a report from the state governor concerned and approval of the action of the Centre (in case the state government is dismissed) by two-third majority in Parliament.

However, Punjab Chief Minister Parkash Singh Badal, who was the most outspoken, said his state was the one that suffered the most because of the misuse of the Article. He said the Centre had some prejudices against the Akalis.

The prime minister intervened and said, ''We should leave it for the time being.''

Briefing the media on the deliberations, Home Minister Indrajit Gupta said the prime minister was not in ''favour of a forcible decision at the moment as there was no immediate danger''.

Defence Minister Mulayam Singh Yadav felt that Article 356 should be retained. In the present political scenario he said a situation may arise when the Centre cannot be a silent spectator.

UNI