Abstract

The 73rd Amendment established a three-tier local government system in rural areas under the Panchayat Raj Institutions (PRIs), providing the legal basis for their independent functioning as envisaged in the Constitution. Article 243G directs states to devolve powers and functions to the PRIs, enabling them to function as local self-governments. While the Constitution lists functions that may be devolved, it does not specify the taxes, making it discretionary for states. The State Finance Commissions are expected to assess revenue requirements of local governments and recommend revenue sharing with PRIs.

This report sets out to comprehensively catalogue the tax laws, taxes, and non-tax revenues collected by Panchayat Raj Institutions (PRIs) across all Indian states. It also examines the recommendations of Union and State Finance Commissions regarding local taxation, as well as the role of the Ministry of Panchayat Raj and state training institutes in this domain. The analysis draws upon the Panchayat Raj Acts of various states, in addition to a review of previous studies on panchayat taxation and own-source revenues.

The report highlights the limited availability of key information, such as acts, rules, State Finance Commission reports, and financial data, in the public domain. It discusses the potential role of the Ministry of Panchayat Raj in systematically making this information publicly accessible with regular updates. The report identifies challenges in comparing tax and non-tax revenues of PRIs across states due to inconsistencies in terminology. It emphasizes the need to equip PRIs with appropriate capacities and resources to realize their full potential for revenue generation, complementing their taxation powers.

Centre for Budget and Policy Studies. (2014). Study of Own Source Revenues of Panchayats with a Focus on Property Tax. The World Bank. New Delhi, India