Question . GST is not a unitary taxation system that foils the federal body politic of Indian Constitution but upholds the principle of quasifederalism as argued by our Constitutional framers. Discuss
Answer : In a two trillion dollar economy of India, indeed any bold measure will initially have challenges. However, GST doubtlessly is a major milestone in the Indirect Tax reforms
Issues and challenges pertaining to the federal structure; Devolution of finances and challenges.. The introduction of GST into the Indian fiscal regime is a departure from the age old indirect taxation process. It is a bold move undertaken to transform the cumbersome procedure of taxation that prevailed from the colonial times in the country. GST to put in simple terms is a destination based indirect tax on consumption. It absorbs most of the indirect taxes that eliminates cascading effect and creates a national market for goods and services. The antagonists of GST criticize it to be anti-federalist and it is operated completely under the aegis of Union Government
This is due to the following reasons –
1. The only heavy revenue generating component of the federal units is the indirect tax such as sales tax, entertainment tax (except the ones levied by the local governments), octroi, etc. All these have been subsumed into the ‘unitary’ GST regime.
2. The levy procedures dependent on IGST (Integrated) framework which is a heavy loss to the States.
3. The distribution procedure of the taxes collected under GST is decided by the GST Council that is constituted by the President of India (Article 279A) and headed by the ‘Union’ Finance Minister.
4. Net settlement in the destination based taxation will make the manufacturing States unhappy.
5. Tapering Effect i.e., year by year lessening of compensation aid given to the States for five years is not in the interest of any State as it is a definite revenue loss.
6. Reduces the SGDP and results in the inflation of commodities due to the varied tax slabs on different items.
7. Article 1 of Indian Constitution states that India is a Union of States, but GST has forgotten the fact of ‘States’ but took care of satisfying only the ‘Union’. The above points are used to justify that the new GST regime is violating
a. The principle of internal sovereignty.
b. The basic structure doctrine of federal feature of India.
On the other hand, the reality of GST as argued by its proponents is that
1. The absorption of indirect taxation is done in order to bring down the Rate Arbitrage which means the inequality in the taxation system wherein in the earlier regime, only the manufacturing States had advantage of more tax generation.
2. The IGST levy is a ‘procedure’ to bring the uniform taxation, but it is not a tax in itself. It is just a system of levy which is redistributed among the States by dividing among CGST and SGST.
3. The distribution procedure of IGST is given in the hands of GST Council, of which the CGST distribution is decided by the independent Constitutional body, Finance Commission.
4. The GST Council, although headed by the Union Finance Minister, the three-fourths voting majority of the members i.e., the State Finance Ministers who covers about two-thirds of the States i.e., 20 States is an absolute democratic procedure to decide on any matter within the Council. A quorum of 50% majority is required to conduct any meeting of the Council.
5. Terming GST as unified can be ruthlessly ruled out as it is done in a manner of Constitutional Amendment with the ratification of more than half of the States. It is a concurrent taxation system which simplifies the costs in collection and distribution.
6. Inflation in the States is a short run phenomenon for a long run benefit. Abolition of Rate Arbitrage system will improve the welfare option for the States such that the residents can flourish in a wealthy tax distribution regime. This will help in higher ancillarisation and outsourcing activities that directly impact the job production in the States.
7. The most revenue generating commodities have been set under the higher tax slabs by the SGST legislations under the GST that usually bring up the SGDP.
Thus the current argument concludes that GST establishes..
a. Cooperative Federalism.
b. A pooled sovereignty, not a threat to internal sovereignty
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