Sixteenth Finance Commission Poised to Scrutinize State GST Revenue Collections

The upcoming establishment of the Sixteenth Finance Commission is anticipated to involve a critical review of the revenue collections of states within the ambit of the Goods and Services Tax (GST), with a particular focus on the necessity for assessing the GST compensation cess, reported BT.

The government has already initiated the process of establishing the Sixteenth Finance Commission, having appointed Ritwik Pandey, a 1998-batch IAS officer of the Karnataka cadre, as Officer on Special Duty for the Advance Cell of the finance panel. The Finance Commission, as a Constitutionally mandated entity under Article 280 of the Constitution, holds the responsibility of determining the distribution of taxes between the Centre and the states over a five-year period.

The formation of this commission is expected to be finalized by the end of the month or early December, paving the way for its crucial role in recommending the revenue-sharing formula between the Centre and states for the fiscal years spanning 2026-27. According to reliable sources, the commission is likely to be bestowed with the task of scrutinizing the revenue collection under GST and evaluating whether there is any shortfall for states following the conclusion of the compensation cess.

In the October meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, discussions centred on how to allocate the revenue from the cess post-March 2026. The impending decision on the ‘GST compensation cess,’ including its nomenclature and distribution modalities among the states, is on the agenda of the Council, prompted by concerns raised by some states.

In this context, sources suggest that the Finance Commission is poised to offer a comprehensive perspective on the matter and is expected to provide recommendations once it gains a comprehensive understanding of the projected revenue from GST in the coming years.

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