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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