In the Mains 2023 GS Paper 2, the significance of the 101st Constitutional Amendment Act and its reflection of the accommodative spirit of federalism were queried.
UPSC Mains General Studies Paper – 1 Mains 2023
UPSC Mains Civil Services IAS Exam Question Paper – 2023
Introduction
The 101st Constitutional Amendment act of 2016 paved the way for the introduction of a new tax regime called “Goods and Service Tax”. The amendment inserted a new article 279a in the constitution. This step was instrumental in reflecting the accommodative spirit of Indian federalism, fostering cooperation and consensus between the central and state governments.
Body
Significance of 101st constitutional amendment act :-
- Simplification of Tax Structure :- Complex tax structure of indirect taxes was replaced by a single tax called GST and creation of a unified national market as “One nation One tax”.
- Improved tax compliance :- Technology driven. Example – All returns to be filled online and the GSTIN network designed for GST related transactions.
- Reduced Tax evasion :- GST laws used the concept of automatic matching of invoices on the portal to prevent tax evasion. Example – In Feb 2023 GST audit led to detention of Rs 22000 cr tax evasion. Example – lowering the threshold of e-invoice for business to business transactions in order to curb tax evasion.
- Elimination of entry tax :- Before GST, states imposed entry taxes on goods entering their territory which acted as barriers for interstate trade. After GST it got abolished.
- Boost to economy :- helps in promoting ease of doing business by reducing expenditure cost.
GST reflecting accommodative spirit of federalism
- Covid compensation regime :- rebates given to states during covid crisis
- Dual structure :- GST shows a dual taxation structure consisting of CGST and SGST between Centre and state respectively which allows both the governments to independently levy and collect taxes on the same transaction. Example – On laptop purchase both state and Centre can collect taxes independently.
- GST Council :- GST council in itself reflects the essence of accommodative federalism as it holds participation of both Centre and state in decision making as well as equal representation of all the states.
- Consensus building :- The financial relationship in India between Centre and state is more skewed in favour of Centre, even after knowing this fact state still went ahead and ratified GST that shows the accommodative spirit of federalism
Challenges:
- Complex Tax Structure: GST in India’s multi-tier tax system complicates rates and compliance, posing hurdles for SMEs.
- Compliance Demands: GST mandates multiple returns and extensive record-keeping, especially challenging for small businesses.
- Tax Rate Changes: Frequent GST rate revisions by the Council disrupt business planning and decision-making.
- State Revenue Gaps: Post-GST, some states reported revenue shortfalls, raising autonomy and compensation concerns.
- Tech Hurdles: Technical issues, system downtime, and online filing problems hinder GST implementation.
- Transition Struggles: Businesses faced difficulties during the initial GST transition, adapting to new rules and processes.
- Input Tax Credit Complexity: Issues related to Input Tax Credit (ITC), especially for capital goods and services, remain intricate
Conclusion
Hence, The 101st Constitutional Amendment Act, through the introduction of GST, represents a significant step toward economic integration and cooperative federalism in India. A continued commitment to cooperative federalism and periodic refinements in the GST framework can lead to a more inclusive and effective tax regime in India.
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