The 101st Constitutional Amendment Act holds significant importance as it facilitates the extension of the Goods and Services Tax (GST) to the entire nation, reflecting India's commitment to cooperative federalism. By addressing the financial concerns of states and promoting uniformity in tax structures, it underscores the necessity for collaborative governance.

Q.15 Explain the significance of the 101st constitutional amendment act. To what extent does it reflect the accommodative spirit of federalism?

Model Answer:

Introduction

The 101st Constitutional Amendment Act of 2016 paved the way for the introduction of the Goods and Services Tax in India.

Body

Significance of 101st CAA 

  • This created a unified indirect tax regime and fostered a "One Nation One Tax" approach. 
  • Removed cascading effect of taxes (tax on tax) on goods moving across state borders, promoting seamless movement of goods and a national market.
  • Input Tax Credit (ITC) mechanism, leading to better tax compliance and reduced tax evasion. 
  • Reduced the tax burden on exports, potentially making Indian exports more competitive in the global market. 
  • Simplified tax compliance procedures, potentially making it easier for businesses to operate and invest in India. 
  • By bringing same rates in all states, rate arbitrage has declined 
  • GST has promoted Ancillarisation/ Sub-contracting, which has further pushed the manufacturing sector. 

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To what extent does it reflect the accommodative spirit of federalism 

  • The act established the GST Council, a federal body with representatives from both the central and state governments. This council works together to decide on tax rates, exemptions, and dispute resolution mechanisms, fostering dialogue and consensus-building. 
  • The GST replaced a multitude of indirect taxes levied by both the centre and states. This created a single, unified tax base, reducing inter-state tax barriers and promoting a common market. 
  • The Act provides a mechanism for resolving disputes related to GST implementation through the GST Council itself, encouraging dialogue and compromise over litigation. 
  • Despite central GST on inter-state trade, states retain significant autonomy over intra-state GST, allowing them to tailor the tax to their specific needs. 

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The Goods and Services Tax (GST) has been touted as a success for cooperative federalism, but there are also arguments that it has had negative impacts – 

  • For Example, if a state might want to lower taxes on a specific industry to promote growth, but this would require approval from the GST Council, which may not be in the centre’s interest. Kerala’s case of opposition to tax on betting and gambling. 
  • The GST rollout included a 5-year guaranteed compensation for revenue loss to states. However, there have been delays and concerns about extension after June 2022, creating financial uncertainty for states. 
  • The origin-based system for determining tax credit can lead to disputes between states on revenue sharing, especially for inter-state transactions. 

Conclusion

But overall, GST has been a positive step towards a more efficient and transparent tax system in India. While challenges remain, the long-term impact on the economy is expected to be significant. 

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