1. The passing of the GST Bill by the parliament is a sign of cooperative federalism. Do you agree? Critically examine.
GST will be a game changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services. It will impact the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization and reporting, leading to a complete overhaul of the current indirect tax system. This is probably the biggest economic reform after the reforms of 1991.
Here the question is directly asking you to connect GST with cooperative Federalism. Since the question requires you to critically examine, you will have to mention the points of contention between center and states.
Many of the points are present there in the best answer. Some of the important point are covered in the synopsis for your knowledge.
The key to the successful implementation of the GST will be cooperation — between the Centre and the States, among the States, and between the governments and the businesses.
The current taxation system in India provides truncated taxation powers to the central government (the Centre) and the States and is not in tune with the modern businesses and the complex supply chains. The patchwork of taxes has led to balkanization of the common market and fragmentation of the supply chains.
The differential taxes in different States give rise to arbitrage opportunities. Taxes such as central sales tax (an origin-based tax) and entry tax being non-creditable further add to the costs of businesses.
To add to the woes, India has approximately 600 check posts. Goods carriage vehicles in India barely travel 280 km per day against a world average of 400 km per day. The World Bank has observed that 60% of truck drivers’ time is spent off-road, negotiating at check posts and at toll plazas.
The GST overcomes these gaps. While the States will get the power to tax both goods and services, the Centre will be able to levy taxes beyond the manufacturing point, across the full supply chain. At the same time, the tax provisions that restricted inter-State movement of goods within the country will now be dispensed with.
GST will be supply chain neutral and will obviate the need for bundling or unbundling of goods and services for taxation purposes.
The task of designing the GST is assigned to the GST Council, a collective forum of the States and the Union governments. The GST Council’s decisions will require three-quarter majority and the Union government will have weightage of one-third of the votes.
Basic framework for GST design
The Constitution envisages certain key guiding principles for the GST design to be recommended by the GST Council:
The tax will be levied concurrently by both the national and subnational governments (States).
It will apply to both goods and services and any mixture of the two.
The tax will apply to the full supply chain, i.e., to all transactions in the economy whether local or inter-State, manufacturing level or other points in distribution, and by way of sale or lease or any other arrangement.
The tax will apply only on a destination basis and not at the place of origin.
No tax can apply to impede the free flow of goods and services in the common market of India.
Some concerns that should be addressed by the center in order to get the state’s support are:
The compensation to the states for the net loss of revenue due to change in tax rates and removal of state specific taxes.
GST will take away states leverage to impose a different tax rate to attract more investment and business.
Spurred by the fear of letting go of their exclusive powers, the States have insisted on the exclusion of large chunks of the economy (such as petroleum, alcohol, electricity and real estate) from the GST base. This is unfortunate because ideally there should have been no exclusions from the GST base, and the States would have continued to have the autonomy to levy supplementary taxes on these sectors.
(More points can be added in Criticism. You need to remember that only those points should be mentioned which are relevant in context of cooperative Federalism.)
Best Answer 1 : Valar Dohaeris
GST bill is one of most crucial and big-ticket economic reform by the present govt being pushed for a streamlined tax-structure and uniform taxing mechanism for the nation. The time it took for the crucial bill to get passed is for the reason that many stakeholders needs to come aboard. The final passing is a sign of ‘cooperative federalism’ as-
Central and state govts mutually deciding on giving up tax space
Mutual decisions of receipts distribution
Also, the states losing out on critical revenue will be compensated by the central govt from it coffers
The states were involved in the whole exercise and crucial support will be necessary till final rollout
However the delay also brings out following contentious issues to the forefront-
Over-powering centre- wider resources at its disposal- states had to fight for their lost revenue share
Talks broke down many times for the states were left out of imp decisions
Without tax support govt will have little meaning and central govt must realise that to keep extending the supporting hand else the economic reform can easily translate into a political fight for a better share of the deal.
Best Answer 2 : Black Swan
GST is a destination based indirect system which subsumes all the other indirect taxes under CGST, IGST and SGST thus negating the complexity of cascading effect. It is probably the biggest reform in taxation sector and one of the most important after 1991 LPG reforms.
But apart from the revival in taxation system, it represents cooperative federalism.
The “one nation, one tax” idea mooted 11 years back came into life after the centre passed the CAA and more than half of the states ratified in the favour, even those states having ideological differences e.g., Nagaland.
Few more instances which depicts this cooperative federalism are:
GST council has been formed with center and states having voting power 1/3 and 2/3 respectively.
90% of all assesses with a turnover of Rs 1.5 crore or less will be assessed for scrutiny and audit by state authorities, the remaining 10% by the Centre. Above that limit, Centre and states will assess in a 50:50 ratio.
The entire taxation base will be shared between the assessment machinery of the Centre and the states. Both will have intelligence based assessment powers.
The Centre has also given leeway to states on integrated GST (I-GST), which deals with inter-state sales. Any IGST disputes among states will be resolved by the Centre.
The Centre has also ceded ground on taxation rights over the sea. Territorial waters extending to 12 nautical miles fall under control of the union government but as per convention, states will be empowered to collect tax on any economic activity in this zone.
The only drawback is GST takes away the freedom from a state to attract business with a lower tax rate than other states. Thus, it obstructs the much required competitive federalism.
It will not be an exaggeration to say that introduction of GST will change the shape of taxation system making it simpler, eliminating red-tapism, promoting entrepreneurship and attracting FDI.
2. Do local governing bodies have adequate funds to function effectively? What can be some of the ways to mobilise resources for local governments? Discuss.
The relationship between the Local bodies, the state governments and the Centre are founded on the 3Fs- Funds, Functions, and Functionaries. The Functions part is dealt in the Constitution through the 73rd and the 74th constitutional amendment acts of 1993 and 1994 respectively.
Despite the important role that local bodies play in the democratic process and in meeting the basic requirements of the people, the financial resources generated by these bodies fall far short of their requirements.
More than 93 per cent of the total revenues of rural bodies were derived from external sources as opposed to 59.69 of urban local bodies.
The percentage of revenue expenditure covered by their own resources for rural and urban local bodies is 9.26 per cent and 68.97 percent, respectively, which indicates lacks of capacity to sustain themselves in absence of external funding.
The local bodies are heavily dependent on State Governments for financial inflows, even for routine functions because the major tax sources are a part of Consolidated Fund of the State.
The major sources of income for local governments like property tax etc. are woefully inadequate to meet their obligations both due to their inherent nature and inefficiency in collecting them. This asymmetry between the taxation power and the responsibility to provide civic amenities necessitates transfer of funds from the State to the local governments either through untied grants or through a share in other State Taxes or as part of various development schemes.
Steps to mobilize resources:
Constitution must be amended to make the appointment of the State Finance Commission mandatory after every 5 years.
Indices must be developed to objectively measure the backwardness of the local bodies to ascertain the need of general and specific grants.
Devolution of some of the tax collection functions from states to the local bodies by suitable amendments to the state legislations.
Periodic and regular conduct of elections to the local bodies along with the required support staff and officers to carry-out the tax-assessment and tax collection functions regularly
3. What is competitive federalism? Is it good for a developing country like India? Substantiate by taking suitable examples
Competitive federalism is a concept where centre competes with states and vice-versa, and states compete with each other in their joint efforts to develop India.
States would compete with each other over a broad range issues to provide citizens various services in a hassle-free manner.
The policy of one-size-fit-all is replaced with different policies of various states based on the own priorities with in the state.
Each state will design their own policies for development of the state with self-fund. The concept also promotes discipline among the states.
Is it good for India?
The union government has replaced the sixty-four year old Planning Commission by establishing NITI Aayog. It is more suitable to the countries like US, where it is in-built in their constitution.
The one way flow of policy is replaced with participation of the states in policy formulation. The state governments will not have to look towards centre for policy guidance and fiscal resources because now the share of fiscal resources for each state will be transferred to be spent by the state governments autonomously based on their own priorities and the priorities will also be decided by the state on their own. However states should work within the context of shared national objective.
The union government in pursuit of competitive federalism has tabled in parliament the recommendation of the Fourteenth Finance Commission of India. The centre has increased the share of states in central tax revenue from the earlier 32% to 42%.
The government also declared that the states will have freedom to plan their expenditure based on their own priorities and the states are free to change centrally sponsored schemes. This is a long-time demand from the states.
Competitive federalism follows the concept bottom-up approach as it will bring the change from the states.
The concept of competitive federalism is driving the Indian states to rush in for reforms to make processes easy for doing business in their state and expediting the pending project clearances. States are also encouraged to streamline the procedures to attract more investment and establishment of single window registration for obtaining licences.
Judiciary even though supposed to act as a neutral body to protect the constitutional sanctity and basic rights of the people, at some point it has gone that extra mile needed to prevent or provide some important services which may exclusively fall under the domain of Executive or Legislative.
According to the theory of separation of powers, the 3 domain should maintain compartmentisation, thus avoiding the power concentration with any single domain. But this separation of power cannot be watertight, as domain cannot be regulated by the other, thus lacking accountability. So the Constitution of India, according to the SC also incorporates doctrine of checks and balances, which creates relation between each domain, so they can be regulated and made accountable to each other. Thus all the domain remains vigilant while treading their path and at the same time being observers of other domains. The SC have exercised this checks and balances in many cases.
However, in its recent verdicts/directions(provide examples of judicial adventurism – for example, Mandatory of National Anthem in theaters, appointment of the Special Investigation Team to replace the High Level Committee established by the Centre for investigating black money deposits in Swiss Banks), the judiciary has acted in several instances in the grey areas separating its role from that of the executive and the legislature.
While justifying your opinion one needs to provide that – Courts cannot create rights where none exist nor can they go on making orders which are incapable of enforcement or violative of other laws or settled legal principles. With a view to see that judicial activism does not become judicial adventurism the courts must act with caution and proper restraint. It needs to be remembered that courts cannot run the government. The judiciary should act only as an alarm bell; it should ensure that the executive has become alive to perform its duties.”
Best answer 1: Badhan
The recent verdicts of SC have once again brought the question of judicial adventurism into the limelight.The SC has been performing its role of interpreter of the constitution very proactively especially after the late 1980s. Whether this interpretation is activism or overreach(adventurism) is the question here.
The constitution makers very wisely did not deliberate upon certain provisions extensively because there could be certain conflicts regarding them. For example they did not define the extent of separation of powers doctrine. The recent conviction of political executives and not allowing them to contest for elections by judiciary can be argued by the executive to be excessive interference in their affairs, but the SC was wise enough to convict the executive because public money was misused.
The other judgement related to making the singing of national anthem mandatory in cinema halls can also be argued to be an example of SC adventurism because the constitution has nowhere mentioned it to be made compulsory for singing. It just needs to be given respect. The SC by relating it with Fundamental duty has clearly overstepped here because nobody should be forced to sing the national anthem. The respect can also be shown by not singing it.
Recently, SC also made jallikattu illegal to be conducted as a sport on the grounds that it hurts the rights of the animals which can be well justified but the supporters of jallikattu are saying that constitution allows them to protect the culture, and are therefore saying that SC is practising adventurism without interpreting constitution properly.
All these judgements of SC tell one thing very clearly that the interpretation of constitution will make certain sections happy and other unhappy. Therefore the SC, being an apex judicial body needs to interpret the provisions of constitution very carefully by keeping in mind the interests of all sections. The main aim should be effective governance so that ultimately benefit is provided to everyone.
5. With impetus on Digital India, various payment methods have been introduced recently to ease financial transactions. Identify some of these methods and discuss their pros and cons.
The Digital India programme is a flagship programme of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. “Faceless, Paperless, Cashless” is one of professed role of Digital India.
As part of promoting cashless transactions and converting India into less-cash society, various modes of digital payments are introduced recently.
Easy payments: No need to take out the cash from ATM again and again for doing your purchase. Simply, smartphones will work and ease out to do the payment across any merchants stores. Various variants of apps are already launched, which are – mobile wallets, UPI application from banks, Aadhaar merchant app, NUUP’s USSD code. With just a few clicks, these apps will help you necessary transfer payments against any of your purchase.
Job opportunities will increase: Technical advancement will boost jobs in the IT sector, as more of tech experts will be required to have proper control over the digital world. Not only IT, but various other sectors will also gain from it, as the access to use technology is needed everywhere in this competitive world.
E- Commerce: In today’s hectic world when there is no time for shopping, going to banks, people can easily do their banking transactions, online shopping, buying and selling 24×7 hand in hand. It will give room to people to do their shopping or transaction settlement in busy hours. Moreover, e-platform gives you a variety of product line in a single window which saves your time even more, while going for a shopping in a brick and mortar to find the best outfit from one outlet to another, we generally consume a lot of time.
Good for Industry: Going digital decreases the operational cost and increases the efficiency of the workforce which will help industries to grow at a faster pace. At times, it also takes a time to clear a cheque payment from a bank which eventually delays your work and various other activities you want to perform with the short time frame. But with the launch of digital cash payments work moves at a faster pace. Instant payment gateways give you the liberty of paying money on quick basis because of which your work moves at a faster pace.
Reduce money theft: We often hear people saying that somebody has looted their money. Such things will become a thing of the past because, with the emerging usage of digital cash, people have started going cashless. Nowadays, people hardly keep money in their pocket because of which theft of money has reduced a lot.
Internet Connectivity: Transactions or shopping cannot be held without internet facility. Therefore, the internet can become a constraint in facilitating e-commerce activity. However, payments can be done without using the internet, but then too, for buying a product online you need to have internet connectivity.
Security and threats: Before doing any online transaction make sure the gateway is highly secured. Beware of hacking, phishing emails which unknowingly can take your necessary details and make use of it. Although the transactions made are frequently initiated by the banks, but on a failure side, it can cost you high on your mental peace. It takes at least 3-7 business days for any revert of payment.
Costly: While companies and merchants are giving their customers so much of discounts on the purchase of goods through digital cash, there are several hidden costs like maintaining servers, data storage cost, the requirement of machines which are actually loading heavy cash burden on them knowingly.
Confidential data management: It is important to know that who will be held responsible for managing the data. Every time we do transaction our personal details and card details are being shared with the third party. What if the data gets leaked? Or it gets misused by the third party itself.
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