India’s federalarchitecture is premised on a principle that promises the maintenance of aninternal sovereignty, where States function as separate political entitieswithin the domains allocated to them. But often the drive to maintainfederalism, where the Constitution demands it, goes beyond any obligation topreserve the rights of the States. It goes to the root of the constraintsagainst all arbitrary power, and, to that extent, this amendment is a graveonslaught on the Constitution’s basic structure.
Further, states withstrong fiscal capacity would have same representation and same vote in thecouncil in comparison to states with poor fiscal capacity and narrow economicbase. In this way state will lose their individual will and freedom and willhave to submit to the will of GST council which will be central body. Thecouncil’s decisions will require three-fourths majority and the Centre willhave weightage of one-third of the votes and states collective share will belimited to two-third. Thus, there are high chances of union centralization. Thearguments that all these problems on the levy of GST at the Central level andthe sharing of revenue with the states can be solved through the GST Council isalso absurd because the council will remain as a centrally run institution and themajor stake will be in the hands of the Centre. This reduces the voices ofconcerns of the states in the council, thus, leading to a situation where stategovernments would have to remain at the mercy of the central government forfunds.
Before GST was introduced, centre was collecting 62% of the total taxrevenue and with the introduction of GST, Centre will be now collectingapproximately 83% of the overall tax revenue, leaving the States with littleresources. GST takes away the rights of States to plan their revenues. FinanceMinistries in the States end up as mere distributing agencies having no powerto take policy decisions. Budgets will be mere papers and the GST council,controlled by the Centre, will be all-powerful.However, there is a senseof 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. Financialautonomy of states would be affected as states would no longer have theindependence to introduce or modify taxes as per their wishes as concurrency ofGST council would be required. The States would be deprived of their importantsource of revenue and their right to decide the tax structure.
Taking it viceversa, certain States would become more dependent on the Centre and this willlessen their responsibility and accountability towards fiscal consolidation.Also, this will make the States a mere spending unit and put a question mark ontheir fiscal accountability. The advantageous position enjoyed by certainproducing states like Gujarat, Maharashtra and Tamil Nadu would also be erodedand thus the elbow room enjoyed by them earlier in framing state specificpolicies and schemes would be compromised too. The rates for both Central Goods& Services Tax (CGST) and State Goods & Services Tax (SGST) are fixedby the GST Council.
Once the rates are set by GST Council, individual stateslose their right to tax commodities at the rates they want. Thus, there is asteady erosion in the States’ freedom to decide on taxes and tax rates. If aState wants to undertake a special spending programme to respond to a state-specificsituation, it cannot raise taxes on goods. So, innovative programmes andschemes such as Mid-day meal scheme by Tamil Nadu, National Rural EmploymentGuarantee scheme by Maharashtra, which were initiated by States by raisingtheir tax will not happen now as States do not have any fiscal autonomy. UniformTax regime could adversely impact States as they are more committed to welfareexpenditures and states can’t initiate their own development philosophies asthey lose control over tax revenue.The task of designing GSTis assigned to the GST Council. The council will be chaired by the Union financeminister with a state finance minister as deputy chairman.
All the statefinance ministers along with the minister of state for finance in charge ofrevenue at the centre will be part of this council. The council will have thelast say in finalizing the shape of the GST. It will not only finalize the taxrate under the GST but also make recommendations on the taxes, cesses andsurcharges that will be subsumed by the GST.
The council will also have thefinal say on the mechanism to resolve disputes that may arise between thecentre and the states or between states.GST, conceived 16 years agohas now become a reality. At the stroke of midnight of 30th June, India enteredthe GST era. It is said to untangle the complicated web of the indirect taxbase in India and to bring in transparency in the taxation system. Previously, India’stax system consisted of direct taxes, such as the income tax, and indirecttaxes, comprising numerous central and state levies such as value added tax,sales tax, octroi and luxury tax. The GST has now brought all these indirecttaxes under one umbrella. GST is a one indirect tax for the whole nation, whichwill make India one unified common market.
In the previous system, tax waslevied at each stage separately by the Union government and the Stategovernment at varying rates. But under the GST system, tax is levied only onthe value added at each stage. It is a single tax with a full set-off for taxespaid earlier in the value chain.
Thus, the final consumer bears only the GSTcharged by the last dealer in the supply chain with set-off benefits at all theprevious stages.