IMPACT OF GST ON INDIAN FEDERALISM

GST ushered in a new tax regime in India which introduced one single tax for all
indirect tax transactions across the country. It has aided the country in achieving free
trade and commerce throughout the country which is enshrined in Article 301 of the
Constitution. However, it has come with many downsides, one of which is its impact
on Indian federalism. India follows a quasi-federal structure wherein each individual
state has autonomy in administration. It follows that each state has the right to make
laws in the respective state legislatures which best suit their respective societies. With
the advent of this new tax regime, all states in India are expected to follow the same
system of taxation. This does not allow states any fiscal space. The GST Bill takes
away their ability to raise additional revenue. That just leaves elected state
governments with a job that’s best left to the bureaucracy – implementation. The GST
bill looks a lot like the usurpation of the state’s rights and the undermining of the
federal structure in India. The federal structure, being a basic structure of the
Constitution needs to be protected.During the drafting of the Constitution, it was
contented by Dr. Ambedkar that states must have the right to tax their residents. The
state government is the elected representative of that state; they must have the right to
exercise this power for the growth and development of the people of that state. With
the centre controlling an important field like taxation, it is difficult for the States to
exercise their mandate. For instance, post the floods in Kerala, the State Finance
Minister Isaac Thomas could only suggest the idea of levying cess to fund flood relief
work. It had to be heard before the GST Panel and the Finance Minister of India Arun
Jaitley was the one with the authority under the GST laws to allow it per se.

Another issue that the usurpation of state rights causes is that it may adversely affect
local industries and indigenous people. States will not be able to protect their own
local industries run by tribal, minorities and other groups with traditional products
from manufactured products in other states. This could destroy their small scale
industries. Moreover, the GST Council itself does not hold much promise for the
benefit of the state governments. The GST Council is a constitutional body impinges
on the legislative sovereignty of both Parliament and the State Legislatures. It also
completely jeopardizes the autonomy of the States in fiscal matters. The decision
making and voting procedure is also completely unreasonable. The Centre has veto
power which essentially means that the Centre can emphatically prohibit all of the
contentions of the State governments making the whole aim of the Council itself
meaningless. It is also absurd that all states have exactly one vote. India, being a
mixture of manufacturing and consuming states, must have the option of unequal
voting weightage as the manufacturing itself is distributed unequally in the country. It
is unfair and arbitrary to give both manufacturing and non-manufacturing states the
same weightage for making decisions on manufacturing and achieving excellence.
This gives the consumer states to vote in their interest which is not the intended result
of the GST law. Many critics of GST are apprehensive of this power of Central
Government and foresee that in future the Central Government might have an upper
hand in many deliberation of the GST Council.

Federal polities have tried to strike a balance between a uniform tax system and
the federal structure of government. In a country such as Australia where this power
was concurrent, the GST was introduced on the basis of a binding agreement between
the federal and state governments which would govern all aspects of the GST. The
concern is that while uniformity and simplicity is good, it cannot come at the cost of
damaging the fiscal independence of states. Indirect taxes must be a concurrent issue
in a country like India. In the post-GST regime, local self-governments would be
losers as they would have to forego revenue from local taxes like octroi, entertainment
tax, entry tax, etc. That is why an institutional mechanism to safeguard their financial
interests must be put in place. GST is a great step in forwarding constitutional
objectives but it must not be done in the expense of the basic structure of the Indian
polity. There must be a change in the GST Council and it must also be modified to
make it a dual tax regime so that it accommodates the needs of the States and protects
the fiscal freedom of the state governments.
SUBMITTED BY,

ANASUYA NAIR

BA0170008