State Finances And Local Finances
State finances
The constitution (73rd and 74th) Amendment Acts, 1992 and ARTICLE 280 (3) (c) have altered the erstwhile fiscal devolution system and framework between the states and local governments. Under the new fiscal devolution system every State Government is required to constitute, once in five years, a Finance Commission under articles 243 (I) and entrust it with the task of reviewing the financial position of Local Government and making recommendations as to the principles that should govern.
- The distribution between the state and the local governments of the net proceeds of the taxes, duties, tolls and fees leviable by the state.
- The determination of the taxes, duties, tolls and fees that may be assigned to or appropriated by the local government.
- The grant-in-aid to local government from the consolidate fund of the state.
A State Legislature has a provide by law, for the composition of the SFC, the qualification which shall be requisite for appointment as members thereof, and the manners in which they shall be selected. The existing constitutional provisions also provide that the Commission shall determine their procedure and shall have such powers in the performance of their functions as the legislature of the state. The Governor shall cause every recommendation made by the commission with the explanatory memorandum as to the action taken to be laid before the legislature of the state. In regard to the maintenance of the accounts by the panchayats and their Auditing, Article 243-J provides that “the legislature of a state may, be law, make provisions with respect to the maintenance of accounts by Panchyats and the auditing of such account.”
The 74th amendment of the constitution which is addressed to the municipal institutions had added one more mandatory provision. In the form of district planning committees to the domain of Pachayats. However, the crucial is a devolution of functional responsibilities, authority, power and financial Resources on the panchayats which have been made discretionary for the state. Therefore, each state usually practice its own scheme of devolution, and in the process, the pattern and degree of devolution on panchayats significantly vary across the states, depending upon the functional canvas of the panchayats. Central Finance Commissions and State Finance Commission in context of local finance issues. Under Article, 280 of the Constitution, Central Finance Commission is constituted to make recommendations on sharing of union tax revenues, Revenue Deficit grant, grant-in-aid to local bodies, calamity relief and for up-gradation of standards of administration and special problems. Whereas the State Fiancé Commission is to mediate between the state and the local governments under Article 243 1 and 243 Y.
Local finances
Revenues and Taxation
The dissimilar nature of rural and urban governments is apparent from their differing revenue structures: in the former about 89 per cent of revenues are derived from the states, while in the latter about 81 per cent of revenues are internally generated, with local taxation claiming about 55 per cent and nontax revenues about 27 per cent in 1976-77. By 1986-87 the dependence of urban local govern ments on external assistance had increased from 19 per cent to 23 per cent. This was related to the declining share of nontax revenues trend which is likely to continue. On the other hand, substantial reduction of external dependence in the revenue structure of rural governments must await radical restructuring of their tax compe tence, mainly through the assignment of land revenues. Until this happens, rural local government will not develop its own Personality, while urban local governments will continue to be marginalised in generally unified Soviet-type fiscal arrangement.
state-wise breakdown of local government revenues indicates that three states (Maharashtra, Gujarat, and West Bengal) account for about two-thirds of rural government revenue, while among urban authorities the situation is more variegated, with only one state (Maharashtra) claiming disproportionate share of 39 per cent . This is mainly due to the importance of octroi in internal revenue (Maharashtra and Uttar Pradesh) and larger external assistance (Maharashtra, Madhya Pradesh, and West Bengal). In Madhya Pradesh the urban authorities claim more external assistance (43 percent) due to their share of compensation for the state entry tax. Maharashtra’s dominant reliance on internal revenue for both tax and nontax sources (86 per cent both rural and urban) also is striking. The internal revenue mobilization picture of local authorities is diverse: among rural governments the best performers are Kerala and Uttar Pradesh (61 percent each), followed by Himachal Pradesh (53 percent), while among urban governments the highest ratings belong to Haiyana (99 per cent), Karnataka (95 percent), and Punjab (92 %) The worst states in terms of rural government revenue mobilization are West Bengal and Orissa (3 per cent each), followed by Bihar (8 percent); in urban government the worst state is again Bihar (less than 40 per cent), while others are way above.
Per-capita revenues of the various tiers of rural government and types of urban government show their relative fiscal resilience: the village and area authorities are more effective in rural government, while the municipal corporations and councils are effective in urban government. The town and notified authorities are shade better than the village councils in terms of revenue performance. On an overall basis, there seems to be need to enhance minimum revenues of rural authorities substantially (at least five-fold), while the urban authorities need minimum of half of this level of reve nues. This would imply increased tax devolution to the rural authori ties and increased assistance for the urban authorities. detailed look at the revenue competence of rural authorities shows the need for strengthening their compulsory taxation capabilities through assignment of land revenue and devolution of land cess.
Expenditures
Local functions are usually divided into obligatory and discretionaiy categories, but such distinction is only notional in the absence of any quantitative specifications. Urban authorities are reported to be equally dividing their expenditures on these two categories. Available data on local government expenditures show similar functional coverage by urban and rural authorities, despite their differences in functional competence. Such similarities also appear in expenditures on civic and social Services, although their relative importance varies. Rural authorities spend relatively more on social services due to the greater availability of function-specific grants for Education, Health, and welfare. Urban authorities, being finan cially self-reliant, spend more on community semces like public health and sanitation. With increased financial strain resulting from rising staff salaries, urban authorities are cutting down their expendi ture on social services and concentrating more on community services and on their core or obligatory services to cope with financial strain. Among rural authorities, the village and area-level authorities are more effective in providing local services than those at the district level.
The search for economy and effectiveness in local government expenditures seems to lie in the direction of obtaining “value for Money” through (1) cheaper technology, (2) greater productivity, (3) increased competition, and (4) promotion of joint services. In such effoits, local government manpower issues have critical significance which sometimes takes on political overtones. Yet there are isolated success stories from various local e.-.J.horities in this regard, which need to be collected and widely disseminated for replication elsewhere.
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State finances are the financial affairs of a state or province. They include the revenue that the state raises, the expenditure that it incurs, and the assets and liabilities that it holds.
Revenue
The main sources of revenue for a state are taxes, non-tax revenue, and grants from the central government.
Taxes are compulsory payments that are levied by the state on individuals and businesses. The most common Types of Taxes are Income tax, Corporate tax, sales tax, and property tax.
Non-tax revenue includes fees, charges, and fines. Fees are payments that are made for services that are provided by the state, such as driver’s licenses and vehicle registration. Charges are payments that are made for the use of state-owned assets, such as water and electricity. Fines are payments that are made for breaking the law.
Grants from the central government are payments that are made by the central government to the states to help them meet their financial obligations.
Expenditure
The main types of expenditure for a state are current expenditure and Capital Expenditure.
Current expenditure is expenditure that is incurred on the day-to-day running of the state, such as salaries, pensions, and interest payments.
Capital expenditure is expenditure that is incurred on Investment projects, such as roads, schools, and hospitals.
Local finances
Local finances are the financial affairs of a local government. They include the revenue that the local government raises, the expenditure that it incurs, and the assets and liabilities that it holds.
Revenue
The main sources of revenue for a local government are taxes, non-tax revenue, and grants from the state government.
Taxes are compulsory payments that are levied by the local government on individuals and businesses. The most common types of taxes are property tax, sales tax, and business tax.
Non-tax revenue includes fees, charges, and fines. Fees are payments that are made for services that are provided by the local government, such as garbage collection and street cleaning. Charges are payments that are made for the use of local government-owned assets, such as parks and libraries. Fines are payments that are made for breaking the law.
Grants from the state government are payments that are made by the state government to the local governments to help them meet their financial obligations.
Expenditure
The main types of expenditure for a local government are current expenditure and capital expenditure.
Current expenditure is expenditure that is incurred on the day-to-day running of the local government, such as salaries, pensions, and interest payments.
Capital expenditure is expenditure that is incurred on investment projects, such as roads, schools, and hospitals.
State finance commission
A state finance commission is a body that is appointed by the state government to recommend the distribution of financial resources between the state government and the local governments.
The composition of the state finance commission varies from state to state. However, it typically consists of a chairman, who is a retired judge, and a few members who are experts in finance and economics.
The functions of the state finance commission are to:
- Review the financial position of the state and the local governments;
- Recommend the principles that should be followed in the distribution of financial resources between the state government and the local governments;
- Recommend the formula that should be used to distribute financial resources between the state government and the local governments;
- Review the performance of the local governments in managing their finances; and
- Make any other recommendations that it considers necessary.
The recommendations of the state finance commission are not binding on the state government. However, the state government is expected to give due consideration to the recommendations of the state finance commission while making decisions on the distribution of financial resources between the state government and the local governments.
State finances
What are state finances?
State finances are the financial resources of a state government. They include revenue from taxes, fees, and other sources, as well as expenditures on programs and services.How are state finances managed?
State finances are managed by the state government’s executive branch, which is responsible for setting budgets, collecting taxes, and spending money. The state legislature also plays a role in state finances, as it approves the state budget and sets tax rates.What are the challenges facing state finances?
State finances are facing a number of challenges, including the rising cost of healthcare, education, and pensions. States are also facing a decline in revenue from sources such as income taxes and sales taxes.What are some of the ways that states are addressing the challenges facing their finances?
States are taking a number of steps to address the challenges facing their finances, including raising taxes, cutting spending, and borrowing money. States are also looking for new sources of revenue, such as online sales taxes and legalized gambling.
Local finances
What are local finances?
Local finances are the financial resources of a local government. They include revenue from taxes, fees, and other sources, as well as expenditures on programs and services.How are local finances managed?
Local finances are managed by the local government’s executive branch, which is responsible for setting budgets, collecting taxes, and spending money. The local legislature also plays a role in local finances, as it approves the local budget and sets tax rates.What are the challenges facing local finances?
Local finances are facing a number of challenges, including the rising cost of healthcare, education, and Infrastructure-2/”>INFRASTRUCTURE. Local governments are also facing a decline in revenue from sources such as property taxes and sales taxes.What are some of the ways that local governments are addressing the challenges facing their finances?
Local governments are taking a number of steps to address the challenges facing their finances, including raising taxes, cutting spending, and borrowing money. Local governments are also looking for new sources of revenue, such as user fees and development fees.
State finance commission
A state finance commission is a body that is responsible for overseeing the finances of a state government. The commission typically consists of members who are appointed by the governor and confirmed by the state legislature. The commission’s duties may include setting budget guidelines, reviewing the state’s financial condition, and making recommendations for improving the state’s finances.
Which of the following is not a source of revenue for the state government?
(A) Income tax
(B) Sales tax
(C) Property tax
(D) Excise taxWhich of the following is not a function of the state government?
(A) Education
(B) Health care
(C) Transportation
(D) DefenseThe state finance commission is responsible for which of the following?
(A) Allocating funds to local governments
(B) Setting tax rates
(C) Overseeing the state budget
(D) All of the aboveThe state budget is a document that outlines the state’s revenues and expenditures for a given fiscal year.
(A) True
(B) FalseThe state government’s primary source of revenue is income tax.
(A) True
(B) FalseThe state government’s primary expenditure is education.
(A) True
(B) FalseThe state finance commission is made up of members appointed by the governor, the state legislature, and the state supreme court.
(A) True
(B) FalseThe state finance commission’s recommendations are not binding on the state government.
(A) True
(B) FalseThe state government’s budget is subject to approval by the state legislature.
(A) True
(B) FalseThe state government’s budget is typically balanced by using a combination of revenues and expenditures.
(A) True
(B) False