The Constitution (122nd Amendment) Bill, 2014 seeking to create a constitutional framework for the Goods and Services Tax (GST), as it stands, is a recipe for disaster, and if not corrected, will doom the GST in years to come.
To understand the constitutional framework that is being put in place for the GST, it is necessary to understand how India’s federalism works.
The Union Government and the states have each been given exclusive powers to impose taxes on a wide variety of subjects in order to be able to run a government.
While the Union has been given taxing power over more subjects than the states, this has been balanced in the Constitution by the need to share some of its revenue with the states in the manner determined by the Finance Commission.
Therefore, as it stands, the Union taxes income, manufacture, imports, and services, and states tax sale of goods, excise on alcohol, entertainments, et al. Nonetheless, in the subjects earmarked to them under the “State List”, states are completely free to frame their own laws, and levy taxes, subject only to the limits in the Constitution.
Under the Constitution therefore, there is no subject over which both the Union and the state can impose a tax.
Even though the Constitution provides for many subjects over which the Union and the state may make laws (ie, all the subjects mentioned in the Concurrent List), none of these subjects relate to a tax.
The Constitution framers clearly did not want the Union and the state to be fighting over the same tax base or the Union controlling the state in matters of taxation.
The GST is a radical departure from this Constitutional vision.
By allowing both the state and Union Governments to tax both goods and services, in the interests of creating an easier tax system, and creating a unified market, the proposed constitutional amendment presents a dramatic change in the Constitutional scheme of the federal government.
But does the GST address some of the concerns with overlapping taxation powers that our Constitution framers aimed to avoid?
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