Dr. Sanjiv Agarwal, FCA, FCS
Indian federal structure and constitutional powers of states allow both, the Union and States to levy taxes on the subjects in terms of Constitution of India. While there are powers to levy taxes by the Union alone and also States alone, there is also a concurrent list whereby both, states and centre can levy tax simultaneously.
Schedule VII of the constitution divides this subject into three categories –
(a) Union list (only Central Government has power)
(b) State list (only State Government has power)
(c) Concurrent list (both Central and State Governments have power).
It is also an acceptable reality that sooner or later we (India) is going to have the biggest ever indirect tax reform since Independence when all major indirect taxes get subsumed into a common tax called ‘Goods and Services Tax’ (GST), which as per present proposition will be levied by both the Governments, i.e. Central as well as States concurrently. It is proposed that Central Government will levy a GST called Central Goods and Service Tax (CGST) and State Governments will levy a GST called State Goods and Service Tax (SGST). Further, for inter-state transfer of goods, there will be a GST called Integrated Goods and Service Tax (IGST). Thus, though the major indirect taxes get subsumed, still we will have to live with three formats of GST.
Recently, one of the State Governments, Kerala, tossed and idea of imposing a new type of tax called ‘fat tax’ whereby it is proposed to impose a fat tax @ 14.5 percent on junk food to discourage consumption of junk food items such as burgers, pizzas, pastas, processed food etc served in organised fast food outlets (like Mc Donald’s, Burger King, Domino’s, Pizza Hut and the like). The reason being cited is to discourage obesity in the state. It may be noted that there are other states in the country where obesity can be observed and if that be the objective, other states may follow suit.
While there can be number of arguments advanced for and against such move, the issue which is of prime relevance at this juncture is that whether such new tax is desirable at this point in time when GST is likely to be implemented soon.
On one hand, we are on the road to consolidate various taxes, big and small, into one common tax, i.e. GST, on the other hand, State Governments may try to create new generation of taxes which is undesirable, economically as well as ethically. If someone consumes burger or pizza or any other junk food as perceived (Indian junk food like samosas, kachori etc is not considered junk through it also adds to obesity), he will already be paying VAT or Service Tax or GST in future. So where is the question of a new tax. It will only add to a situation of multiple taxation. If consumption of some item is to be discouraged, the duty or tax can be charged at a higher rate as in case of liquor or tobacco products. Further, since states fear loss of revenue, they are not inclined to merge tax on these products into GST. Likewise, if it is inclined to levy a new tax, it should be kept out of GST net. Charging a tax like GST and new tax (e.g. fat tax) simultaneously can not be allowed on the whims and fancies of State Government.
In the interest of country, Union Government/ Empowered Committee of State Finance Ministers should ensure that no State levies any new tax concurrently with the GST and this should be ensured by way of statutory provisions in the State GST legislation. We as citizens of the country need this much of assurance. It this is not done, besides inflation, we will end up with something like tax extortion and tax terrorism wherein citizens are taken for granted in the garb of Constitutional powers and federal system.
Also, time is not far when we may have all sorts of ridiculous taxes which are unhealthy and regressive for the country. After all, taxes also should not lead to a situation of obesity of taxes.