[Model Answer QP2023 GS2]Explain the significance of the 101st Constitutional amendment act. To what extent does it reflect accommodative, Spirit of federalism?
The 101st Constitutional Amendment Act, passed in 2016, paved the way for the introduction of the Goods and Services Tax (GST) in India. GST is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services throughout India. It replaced multiple cascading taxes levied by both the Central and State governments.
Significance:
Unified Market: By eliminating a multitude of state and central taxes, GST has transformed India into a single unified market, ensuring the seamless movement of goods across state borders.
Removal of Cascading Effect: GST eliminated the cascading effect of taxes, i.e., the tax on tax. Prior to GST, the system was plagued by the problem where taxes paid on inputs were not set off against output liabilities.
Increase in Compliance: With its uniform approach and online procedures, GST increased tax compliance, simplifying business processes.
Broadening of the Tax Base: As the system became more streamlined and transparent, more entities became part of the formal system, broadening the tax base. Boost to Manufacturing and Exports: The uniformity in tax structures reduced the cost of production, making Indian goods more competitive in domestic and international markets.
State Compensation: A significant aspect of the amendment was the assurance given to states about compensation for any revenue losses they might incur due to the implementation of GST for the first five years.
Accommodative Spirit of Federalism:
GST Council: The 101st Amendment led to the creation of the GST Council, a federal body where both the Centre and States jointly make decisions on GST. The Council consists of the Union Finance Minister (as its Chair), the Union Minister of State for Revenue, and the State Finance/Taxation Ministers.
Decision Making: The structure and processes of the GST Council embody the spirit of cooperative federalism. Decisions in the Council are made by a 75% majority, ensuring that both the Centre (with a 1/3rd voting share) and the States (collectively having a 2/3rd voting share) have to reach a consensus on major decisions.
Recognition of State Autonomy: Though GST standardized many rates and processes, it still retained the flexibility for states in some areas. For example, states have the autonomy to determine their GST thresholds.
Protection of States’ Revenue: Recognizing that some states might lose out on revenues due to GST, the Centre promised to compensate them for any revenue loss for the initial five years.
Conclusion:
The 101st Constitutional Amendment Act represents a landmark in India’s journey of economic reforms. It not only streamlined the country’s indirect taxation system but also exemplified the accommodative spirit of federalism, where both the Centre and States worked collaboratively to make the reform a success. The manner in which both entities coordinated and compromised to make GST a reality showcases the strength and flexibility of India’s federal structure.
