By Anand Sahasranaman, IFMR Finance Foundation
The revenue share between state governments and ULBs is determined by the State Finance Commissions (SFCs) which are set up by state governments every 5 years. In essence, the mandate of the SFC is to determine:
- The principles of distribution to rural and urban local governments the net proceeds of the taxes, duties, tolls and fees levied by the state
- Taxes, tolls and fees which may be assigned to rural and urban local governments
- Grants-in-aid to rural and urban local governments from the consolidated funds of the state
In Karnataka, the third SFC was instituted to provide recommendations for the period 2008-09 to 2012-13. The report assessed the current state of ULBs in the state and developed the formula for determining the devolution of funds over this five year period.