The Goods And Services Tax which is ,GST in its abbreviated form, is on the anvil and the roadmap for its introduction was this year but it seems unlikely to adhere to its original deadline. The proposed Tax regime is nothing but an attempt to provide a uniform regime replacing sales tax which is also known as VAT and Service Tax. Like any other subject the talk of introduction of such a regime, which is widely prevalent in the Western and developed countries, has sparked off a lively debate on the issue. Article 246 of our Constitution provides for a balanced arrangement of sharing fiscal powers between the Centre and the states and in terms of the Seventh Schedule. The critics argue that introduction of such a tax regime would lead to further erosion of the financial powers of the states as the sales tax revenue formed a significant source of revenue. But the proponents would advance the argument of tremendous boost such a tax regime would give to trade and commerce at the national level in the form of smoothness and seamlessness.

 

If you look at the events surrounding the introduction of Value Added Tax which ultimately replaced the state sales tax, such noises were also made at that time. The trade and industry welcomed it mainly because it provided for a schedule of standard rates which they felt would stimulate growth and production.

 

Now the question which is central to this debate, is whether such dispensation would not weaken our federal structure once again. In India, the financial health of the states is characterized by gross inequality. While there are some financially well developed states , though numbering not more than a handful, most of the states are in awful economic mess.

Under the existing dispensation the states are in a position to offer fiscal incentives in the form of tax holidays to attract investments in the state which would be done away with if GST is introduced.

 

In the name of providing for a harmonized system of tax administration what the latest move on the part of Centre means is nothing but a direct attempt to encroach upon an legislative field which is exclusively reserved for the states.


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