GS PAPER Polity, Governance and IR 2023 Question 15

15. Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism? 15

The 101st Constitutional Amendment Act is a landmark legislation that introduced the Goods and Services Tax (GST) in India from 1 July 2017. GST is a single indirect tax that subsumes various central and state taxes, such as excise duty, service tax, value added tax, entry tax, etc., that were levied on the manufacture, sale, and consumption of goods and services. The significance of the 101st Constitutional Amendment Act can be understood from the following points:

• • It simplifies the tax structure and reduces the multiplicity of taxes, thereby creating a common national market and enhancing the ease of doing business.
  • It eliminates the cascading effect of taxes, that is, the tax on tax, and ensures that the final consumer bears only the GST charged by the last dealer in the supply chain.
  • It increases the tax base and revenue collection by bringing more economic activities under the tax net and improving compliance.
  • It reduces the tax evasion and corruption by introducing a transparent and technology-driven system of online registration, payment, and filing of returns.
  • It promotes cooperative federalism by creating a dual GST system, where both the centre and states have concurrent powers to levy and collect GST on intra-state transactions, while the centre has exclusive power to levy and collect GST on inter-state transactions. The centre also transfers a part of its revenue to the states to compensate for any loss of revenue due to GST implementation.
  • It fosters consensus and coordination among the centre and states by establishing the GST Council, a constitutional body comprising representatives of both levels of government, to make recommendations on various aspects of GST, such as rates, exemptions, thresholds, etc.

The 101st Constitutional Amendment Act reflects the accommodative spirit of federalism to a large extent, as it involves a significant devolution of fiscal powers from the centre to the states, as well as a collaborative mechanism for decision-making on GST matters. The centre has given up its exclusive right to tax services and shared it with the states, while the states have given up their exclusive right to tax goods at the point of sale and agreed to adopt a destination-based principle for GST. The centre has also agreed to compensate the states for any revenue shortfall for five years after GST implementation. The GST Council provides a platform for dialogue and deliberation among the centre and states on various issues related to GST, such as rates, slabs, exemptions, etc., and ensures that decisions are taken by consensus or by voting with a three-fourths majority. Thus, the 101st Constitutional Amendment Act demonstrates a cooperative and collaborative approach to federalism in India.