New Delhi: The Union cabinet on Wednesday approved the setting up of the 15th Finance Commission, which will decide on the distribution of tax proceeds among centre, states and local bodies in the post-goods and services tax (GST) era.

A finance commission is set up every five years. The government had allocated Rs10 crore in the 2017-18 budget to the 15th Finance Commission.

Finance minister Arun Jaitley said the terms of reference of the 15th Finance Commission will be notified in due course. “The next step will be to finalize the members and chairperson of the finance commission after which it will start functioning," he added.

Jaitley said it was but natural that the exercise under the 15th Finance Commission will be slightly different compared to previous finance commissions after the implementation of GST on 1 July took away the taxing authority of state governments.

“Let’s not prejudge the situation. India is a union of states and the union also has to survive," Jaitley said when asked whether the 15th Finance Commission will continue the practice of higher devolution of taxes to states.

The recommendations of the 14th Finance Commission, chaired by former Reserve Bank of India (RBI) governor Y.V. Reddy, are valid from 2015 to 2020. The recommendations of the 15th Finance Commission will be implemented in the period 1 April 2020 to 31 March 2025.

The 14th Finance Commission is considered to have fundamentally reset the centre-state fiscal relationship by raising the untied share of states in net central taxes to 42% from 32% after ending discretionary resource transfers from the centre to the states.

Economist Indira Rajaraman, who was a member of the 13th Finance Commission, said the job of the 15th Finance Commission will change considerably after GST was implemented.

“The FFC has to submit its recommendations in consultation with the GST Council, especially about whether petroleum, which is a major revenue source for states, will be brought into the GST ambit or not. I don’t see scope for any increase in the revenue share of states after the quantum jump under the previous finance commission. The FFC will be more about issues such as efficiency in tax collection," she added.

In another decision, the cabinet approved a new scheme Mahila Shakti Kendra to empower rural women through community participation. The scheme will target an improvement in the declining child sex ratio and provide rural women an interface to approach the government for availing their entitlements, an official statement said. Under the umbrella scheme, 190 working-women’s hostels will be set up to accommodate an estimated 19,000 working women.

The cabinet also approved a wage policy for the eighth round of wage negotiations for workers in central public sector enterprises (CPSEs). According to an official statement the management of CPSEs will be free to negotiate wage revisions but no budgetary support for a wage increase will be provided by the government.

The cabinet also approved India’s membership of the European Bank for Reconstruction and Development. The membership will enhance India’s international profile and help India’s private sector leverage technical assistance and financial opportunities, said an official statement.

Ahead of home minister Rajnath Singh’s 27-29 November Russia visit, the cabinet on Wednesday gave the go-ahead to sign an agreement between the two countries for “combating all forms of terrorism and organized crime".

Shaswati Das contributed to this story.

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