Shared Tax
Local governments are usually dependent on transfer of resources, since own resources are almost insufficient. Despite the transfers, the resources are inadequate to provide even the most minimal level of services. Government of Kerala has decided to make a radical departure from the system of assigning and sharing specific taxes and stipulated that a fixed proportion of the tax revenue of the State Government has to be handed over to local governments as Maintenance Fund and General Purpose Fund.
A well-designed system of intergovernmental transfer is essential to any decentralisation strategy and the transfer should be transparent, predictable and not subject to negotiation. Kerala shows the right way in this regard also. This system of vertical sharing will ensure guaranteed and predictable revenue to local governments thereby insulating them from political impacts in the higher-level governments.
Read more about this topic: Local Government Finance In Kerala
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