State Finance Commission (Kerala) - The Second SFC Report

The Second SFC Report

The Second State Finance Commission moved away from sharing specific State taxes and suggested global sharing of State's Own Tax Revenue, fixing 3.5% as General Purpose Grant and 5.5% as Maintenance Grant

The recommendations of the Second SFC were as follows:-.

(1) 51⁄₂ % of the Own Tax revenue of the State may be devolved as Maintenance Grant and 31⁄₂ % as General Purpose Grant.

(2) Plinth area based Property Tax may be operationalised without a gap on increase or limit on decrease.

(3) Presumptive Profession Tax may be introduced to bring certain self-employed occupational groups into the tax limit.

(4) Entertainment Tax may be introduced for Cable TV.

(5) Conversion tax may be realized at the rate of 5% of the capital value in the case of conversion of paddy lands.

(6) Service Tax may be made compulsory and be linked to the cost of performing obligatory functions and calculated as a percentage of Property Tax.

(7) Ceiling on surcharges may be removed.

(8) Only the minimum may be fixed for non-tax revenue sources.

(9) Local Governments should get automatic allocations at the beginning of every month.

(10) A legislative provision may be introduced for indexing non-tax revenue items and taxes like Property Tax, Advertisement Tax and Service Tax linked to Consumer Price Index for non-manual workers for Urban Local Governments and Consumer Price Index for agricultural labourers for Village Panchayats.

(11) All Local Governments should prepare annual maintenance plans.

(12) 10% of the Development Grant may be set apart for an incentive system.

(13) For grants-in-aid a bill system may be introduced for drawing from the Treasuries instead of the cheque system.

(14) A Cell under the general control of Finance and Local Self Government Departments may be set up for monitoring financial matters of Local Governments.