Prelims 2023

Q69. Consider the following:

1. Demographic performance
2. Forest and ecology
3. Governance reforms
4. Stable government
5. Tax and fiscal efforts

For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

a. Only two
b. Only three
c. Only four
d. All five

Question from UPSC Prelims 2023 GS Paper

Explanation : 

b. Only three

Criteria for Horizontal Tax Devolution

The Fifteenth Finance Commission used several criteria other than population, area, and income distance for horizontal tax devolution. These criteria are:

1. Demographic Performance

This criterion rewards states with lower fertility rates with a higher share of tax revenue, considering their efforts to control population growth.

2. Forest and Ecology

States with a larger forest cover receive a higher share of tax revenue to compensate for the environmental services they provide.

3. Tax and Fiscal Efforts

Efficiency in tax collection and efforts to improve revenue-generating capacity are considered in this criterion. States with better tax collection performance receive a higher share of tax revenue.

The other two factors, governance reforms and stable government, were not used as criteria by the Fifteenth Finance Commission for horizontal tax devolution.

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