What decides states’ share of central taxes — and how the formula has changed
Finance Commissions have reshaped central tax sharing by shifting focus from population and poverty to fiscal capacity, demographic performance, forest cover, and GDP contribution. While income distance remains key, its weight has decreased, with population criteria evolving and new measures like GDP contribution being introduced, reflecting a balance between equity and efficiency in resource allocation.
Finance Commissions have reshaped central tax sharing by shifting focus from population and poverty to fiscal capacity, demographic performance, forest cover, and GDP contribution. While income distance remains key, its weight has decreased, with population criteria evolving and new measures like GDP contribution being introduced, reflecting a balance between equity and efficiency in resource allocation.
