GST Council and Fiscal Federalism

GST Council and Fiscal Federalism

Subject: Economy

Section: Fiscal Policy

Context: The recommendations of the Goods and Services Tax (GST) Council are not binding on either the Union government or the states, the Supreme Court ruled on Thursday. “To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the states are conferred equal power to legislate on GST,”

Details:

The recommendation of the GST Council has persuasive value for primary legislation, that is, framing of law, they are binding in so far as subordinate legislation is concerned, that is, issue of notification, framing of rules and prescribing rates and taxes.

If the GST Council were intended to be a constitutional body whose recommendations transform into legislation without any intervening act, there would have been an express provision in Article 246A, which stipulates that both the Parliament and the State legislatures have the power to legislate on GST the court noted.

GST Council:

As per Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A. The notification for bringing into force Article 279A with effect from 12th September, 2016 was issued on 10th September, 2016.

As per Article 279A of the amended Constitution, the GST Council which will be a joint forum of the Centre and the States, shall consist of the following members:

• Union Finance Minister – Chairperson
• The Union Minister of State, in-charge of Revenue of finance – Member
• The Minister In-charge of finance or taxation or any other Minister nominated by each State Government – Members

As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like

•  the goods and services that may be subjected or exempted from GST,
• model GST Laws,
• principles that govern Place of Supply,
• threshold limits,
• GST rates including the floor rates with bands,
• special rates for raising additional resources during natural calamities/disasters,
• special provisions for certain States, etc.

Every decision of the Goods and Services Tax Council shall be taken at a meeting by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:

• the vote of the Central Government shall have a weightage of one third of the total votes cast, and
• the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

Fiscal federalism:

Fiscal federalism refers to the financial relations between the Union Government and the state governments. It has within its ambit the imposition of taxes as well as the division of different taxes between the Centre and the constituent units. Similarly, in the case of joint collection of taxes, an objective criterion is determined for the fair division of funds between the entities. Usually, there is a constitutional authority (like Finance Commission in India) for the purpose to ensure fairness in the division.

Division of taxing powers

Taxes Exclusively Assigned to the Union

Income from certain subjects like customs and export duties, income tax, excise duty on tobacco, jute,’ cotton, etc., corporation tax, taxes on the capital value of assets of individuals and companies; Estate duty and succession duty in respect of the property and other than agricultural land; and income from the earning departments like the railways and postal departments have been exclusively assigned to the Union Government by the Constitution.

Taxes Exclusively Assigned to States

Income from land revenue, stamp duty except on documents included in the Union List; succession duty and Estate duty in respect of agricultural land; income tax on agricultural lands; taxes on goods and passengers carried by road or inland water; taxes on vehicles used on roads, animals, boats, taxes on the consumption or sale of electricity, tolls, taxes on lands and buildings; taxes on professions, traders, calling and employment; duties on alcoholic liquors for human consumption, opium, Indian hemp, and other narcotic drugs, taxes on the entry of goods into local areas, taxes on luxuries, entertainments, amusements, betting and gambling, etc. has been assigned to the States.

Taxes Levied by Union but Collected and Appropriated by the State

The taxes on the following items are levied by the Union Government but the actual revenue from them is collected and appropriated by the States; (i) stamp duties on bills of exchange, cheques, promissory notes, bills of landing, letters of credit, policies of insurance, transfer of shares, etc.; (ii) Excise duties on medicinal toilet preparation containing alcohol or opium or Indian hemp or other narcotic drugs.

Taxes Levied and Collected by the Union but assigned to States

The taxes in this category are levied and collected by the Union Government although they are subsequently handed over to the states from where they have been collected. Such taxes included duties in respect of succession to property other than agricultural land; state duty in respect of property other than agricultural land terminal taxes on goods or passengers carried by railways, sea or air, taxes on railway freights and fares; taxes other than stamp duties on transactions in stock exchanges and futures markets; taxes on the sale or purchase of newspapers and advertisements published therein; taxes on purchase or sale of goods other than newspapers where such sale or purchases take place in the course of interstate trade or commerce.

Taxes Levied and Collected by the Union but Shared

Taxes on income other than agricultural income and excise duties other than those on medicinal and toilet preparations are levied and collected by the Union Government but shared with the states on an equitable basis. The basis of distribution is determined by the Parliament through a law based on the recommendation of the finance commission .

Distribution of grants in aid:

There are two types of grants-in aid, viz, statutory grants and discretionary grants:

• Statutory Grants:

Article 275 empowers the Parliament to make grants to the states which are in need of financial assistance and not to every state. Also, different sums may be fixed for different states. These sums are charged on the Consolidated Fund of India every year.

Apart from this general provision, the Constitution also provides for specific grants for promoting the welfare of the scheduled tribes in a state or for raising the level of administration of the scheduled areas in a state including the State of Assam.

The statutory grants under Article 275 (both general and specific) are given to the states on the recommendation of the Finance Commission.

• Discretionary Grants:

Article 282 empowers both the Centre and the states to make any grants for any public purpose, even if it is not within their respective legislative competence. Under this provision, the Centre makes grants to the states. The Centre is under no obligation to give these grants and the matter lies within its discretion.

Notably, the discretionary grants form the larger part of the Central grants to the states (when compared with that of the statutory grants).

In a cave in Laos, a tooth that likely belonged to a Denisovan girl from 1,60,000 – 1,30,000 years ago shed new light on Denisovans’ habitat, adaptability and interbreeding with the ancestors of modern humans.

Denisovans

• Scientists have long assumed that Southeast Asia was once home to Denisovans, those ancient cousins of modern humans about whom much remains to be known.
• They lived lakhs of years ago, coexisting with Neanderthals in some regions, and interbreeding with early modern humans in some cases.
• They were first identified as a separate species in 2010, following the discovery of a fragment of a finger bone and two teeth, dating back to about 40,000 years ago, in the Denisovan Cave in Siberia.
• In 2019, another fossil — a mandible with a set of teeth — was found on the Tibetan plateau.
• One reason why Denisovan fossils are so rare is that their population was smaller than that of Neanderthals — plus the fact that they are certainly a number of fossils attributed to the ‘archaic humans’, a group we put fossils into when we don’t really know where to put them.
• Also, Denisovans originated from Far East Asia with certainly less favorable climate conditions to preserve the bones.

Importance of the recent findings

• So far, it was known that Denisovans were only found in cold and high-altitude regions such as in Siberia and the Himalayas.
• The new discovery proves that they were also adapted to a warm environment. Meaning that they had very large flexibility of adaptation.
• It also confirms recent genetic findings that some populations (Negrito from Philippines, Papuans and Australian Aborigines) have 3 to 5% of Denisovan genes compared to Caucasions with 0.001%. Meaning that at some point, their ancestors interbred with some Denisovans in Southeast Asia.