India’s and, to that extent, this amendment is

 

India’s federal architecture is premised on a principle
that promises the maintenance of an internal sovereignty, where States function
as separate political entities within the domains allocated to them. But often
the drive to maintain federalism, where the Constitution demands it, goes
beyond any obligation to preserve the rights of the States. It goes to the root
of the constraints against all arbitrary power, and, to that extent, this
amendment is a grave onslaught on the Constitution’s basic structure.

Further, states with strong fiscal capacity would have same
representation and same vote in the council in comparison to states with poor
fiscal capacity and narrow economic base. In this way state will lose their
individual will and freedom and will have to submit to the will of GST council
which will be central body. The council’s decisions will require three-fourths
majority and the Centre will have weightage of one-third of the votes and
states collective share will be limited to two-third. Thus, there are high
chances of union centralization. The arguments that all these problems on the
levy of GST at the Central level and the sharing of revenue with the states can
be solved through the GST Council is also absurd because the council will
remain as a centrally run institution and the major stake will be in the hands
of the Centre. This reduces the voices of concerns of the states in the
council, thus, leading to a situation where state governments would have to
remain at the mercy of the central government for funds. Before GST was
introduced, centre was collecting 62% of the total tax revenue and with the
introduction of GST, Centre will be now collecting approximately 83% of the
overall tax revenue, leaving the States with little resources. GST takes away
the rights of States to plan their revenues. Finance Ministries in the States
end up as mere distributing agencies having no power to take policy decisions.
Budgets will be mere papers and the GST council, controlled by the Centre, will
be all-powerful.

However, there is a sense of fear among states as their autonomy
over levy of taxes has been compromised. The states would now not have any
power to make any unilateral changes. Financial autonomy of states would be
affected as states would no longer have the independence to introduce or modify
taxes as per their wishes as concurrency of GST council would be required. The
States would be deprived of their important source of revenue and their right
to decide the tax structure. Taking it vice versa, certain States would become
more dependent on the Centre and this will lessen their responsibility and
accountability towards fiscal consolidation. Also, this will make the States a
mere spending unit and put a question mark on their fiscal accountability. The
advantageous position enjoyed by certain producing states like Gujarat,
Maharashtra and Tamil Nadu would also be eroded and thus the elbow room enjoyed
by them earlier in framing state specific policies and schemes would be
compromised too. The rates for both Central Goods & Services Tax (CGST) and
State Goods & Services Tax (SGST) are fixed by the GST Council. Once the
rates are set by GST Council, individual states lose their right to tax commodities
at the rates they want. Thus, there is a steady erosion in the States’ freedom
to decide on taxes and tax rates. If a State wants to undertake a special
spending programme to respond to a state-specific situation, it cannot raise
taxes on goods. So, innovative programmes and schemes such as Mid-day meal
scheme by Tamil Nadu, National Rural Employment Guarantee scheme by Maharashtra,
which were initiated by States by raising their tax will not happen now as
States do not have any fiscal autonomy. Uniform Tax regime could adversely
impact States as they are more committed to welfare expenditures and states
can’t initiate their own development philosophies as they lose control over tax
revenue.

The task of designing GST is assigned to the GST Council.
The council will be chaired by the Union finance minister with a state finance
minister as deputy chairman. All the state finance ministers along with the
minister of state for finance in charge of revenue at the centre will be part
of this council. The council will have the last say in finalizing the shape of
the GST. It will not only finalize the tax rate under the GST but also make
recommendations on the taxes, cesses and surcharges that will be subsumed by
the GST. The council will also have the final say on the mechanism to resolve
disputes that may arise between the centre and the states or between states.

GST,
conceived 16 years ago has now become a reality. At the stroke of midnight of 30th
June, India entered the GST era. It is said to untangle the complicated web of
the indirect tax base in India and to bring in transparency in the taxation
system. Previously, India’s tax system consisted of direct taxes, such as the
income tax, and indirect taxes, comprising numerous central and state levies
such as value added tax, sales tax, octroi and luxury tax. The GST has now
brought all these indirect taxes under one umbrella. GST is a one indirect tax for
the whole nation, which will make India one unified common market. In the
previous system, tax was levied at each stage separately by the Union
government and the State government at varying rates. But under the GST system,
tax is levied only on the value added at each stage. It is a single tax with a
full set-off for taxes paid earlier in the value chain. Thus, the final
consumer bears only the GST charged by the last dealer in the supply chain with
set-off benefits at all the previous stages.

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