Were you aware that in addition to being a radical indirect taxation reform initiative, GST (Goods and Services Tax) is also a shining example of co-operative federalism? Let us see how.
It all began with the Centre and States agreeing to have concurrent power to tax goods and services. The Centre let go of its exclusive power to tax manufacture of goods (i.e. Excise) and provision of services (i.e. Service Tax), and the States gave up their exclusive power to tax sale of goods (sales tax / VAT). Both the Center and the States agreed to share their powers to achieve uniformity and remove compartmentalization in indirect taxation.
Different rates of VAT in States coupled with non-vatttable CST (Central Sales Tax) and broken input tax credit chain in inter-state transactions resulted in tax on tax (cascading of taxes) leading to multiple tax zones within India. Now under GST, the same tax rates will be levied on a particular item on its supply concurrently both by the Center and State, thereby bringing uniformity in tax. GST will subsume a number of existing indirect taxes being levied independently by the Centre and State Governments. These include Central Excise duty, Service Tax, VAT, Purchase Tax, Central Sales Tax, Entry Tax, Local Body Taxes, Luxury Tax, etc. Such a long list of taxes with requirements of filing returns and carrying out tedious multiple calculations, all replaced by one tax with a nationwide common rate on particular items, isn’t it wonderful the way Center and States came together to evolve and adopt the new system?
The spirit of co-operative federalism has thus helped remove compartmentalization of powers to tax. The Constitution of India has also been amended accordingly. This fundamental reordering of federal fiscal relations for the cause of common good shows the strength and resolve of the federal structure.
This convergence for the cause of larger public good has been made possible, initially due to the mechanism of the Empowered Committee of Ministers (EC) and later the GST Council. Under the GST regime, the Centre & States will act on the recommendations of the GST Council. GST Council comprises of the Union Finance Minister, Union Minister of State for Finance and all Finance Ministers of the States. 2/3rd of Voting power is with the States and 1/3rd with the Centre which reflects the accommodative spirit of federalism. Consensus among st members has been the guiding principle for taking decisions in GST Council in all its decisions leading up to GST’s launch on 1st July 2017, though the Constitution provides for decisions being taken by a 3/4th majority of members present and voting. The very fact that there has been no need to resort to voting to take any decisions taken till now in 18 meetings held so far reflects the spirit of “One Nation, One Aspiration, One Determination”.
The participation of all States and Center in the framing of GST laws has led to the following features in the GST Laws:
1. Harmonization of GST laws across the country:Even though Centre and each State legislature (except Jammu & Kashmir, where it is under process) have passed their own GST Acts, they are all based on the Model GST law drafted jointly by the Cent re & the States. Consequently, all the laws have virtually identical provisions.
2. Common Definitions:There are common definitions in the GST Act.
3. Common Procedures/Formats :There are common procedures, common formats in all laws, even the sections and subsections in CGST Act and SGST Act are same. UTGST Act provides that most of the provisions in CGST Act, as stated in Section 21 shall apply to UTGST Act also.
4. Common Compliance Mechanism :GSTN, a not-for-profit, non-government company promoted jointly by the Central and State Governments, is the common compliance portal and the taxpayers shall interface with all states as well as Center through this portal.
Other significant areas, where such co-operation has been displayed by the Center and States are as under:
Joint Capacity Building Efforts:
Joint Capacity Building efforts by Center as well as all the States are being organized wherein for the first time the training of officers of Center and State is being conducted under the auspices of National Academy of Customs, Indirect Taxes and Narcotics (NACIN). NACIN has formed a Joint Coordination Committee in each State comprising of Center, State and NACIN Officers for overseeing Capacity Building efforts.
Joint Trade Awareness & Outreach Efforts:
Center along with the State Government Officials has been organizing Joint Trade Awareness & Outreach programs wherein for the first time the Officers came together to create GST awareness among st Trade and other stakeholders.
Cross Empowerment of Officers of Center as well as States:
Though GST will be jointly administered by Center and State, for ensuring ease of doing business, but the individual taxpayer will have a single interface with only one Tax Authority either Center or State. In order to encourage cooperation and harmonize the decisions under both the Acts, the officers appointed under the SGST Act or the UGST Act shall be authorized to be the proper officer for the purposes of CGST Act and vice versa.
Joint Implementation Committees
In order to ensure smooth roll out of GST, the GST Council has formed a three tier structure consisting of : the Office of the Revenue Secretary, a GST Implementation Committee and eight (8) Standing Committees. In addition, eighteen (18) Sectoral Groups representing various sectors of the economy have been set up. All these Committees viz. GST Implementation Committee (GIC), Standing Committees and Sectoral Groups have representation of Center and State Officers in the spirit of cooperative federalism to ensure quick administrative decisions required before and after the roll out and ensure effective coordination for smooth implementation of GST.
GST intends to transform India into a true economic union, with the aim of ‘One Nation, One Tax, One Market’. The free movement of goods and services will give fillip to employment opportunities and give consumers a wider choice and better prices. This economic integration will not only boost economic growth, but also bind the nation better. It is an idea whose time has come and would not have materialized but for the spirit of co-operation displayed by the Center and the States. Indeed, GST in India in its conception, enactment and implementation is an example of real ‘co-operative federalism’ at work, in tune with the unique character of India – ‘Unity in Diversity’.
Do you think CBDT should extend Tax Audit Report and relevant ITR Due Date? Please Comment, Vote, Retweet and Like.— Tax Guru (@taxguru_in) September 18, 2018