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UPSC GS Paper – 2: Q15. Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism?

Gaurav Soni September 30, 2023 03:52 3941 0

DAILY UPSC ANSWER WRITTING 2023 General Studies-II

UPSC GS Paper – 2: Q15. Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism?

Q15. Explain the significance of the 101st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism?

How to approach the question

Introduction

●      Write about the 101st Constitutional Amendment Act briefly

Body

●      Write the significance of the 101st Constitutional Amendment Act

●      Write how it reflects the accommodative spirit of federalism

●      Write issues faced in this regard

●      Write suitable way forward

Conclusion

●      Give appropriate conclusion in this regard

Introduction

The 101st Constitutional Amendment Act paved the way for the introduction of the Goods and Services Tax (GST) in India, replacing a plethora of central and state taxes, thereby aiming to create a unified tax regime. It is instrumental in reflecting the accommodative spirit of Indian federalism, fostering cooperation and consensus between the central and state governments.

Body

Significance of the 101st Constitutional Amendment Act

  • Unified Tax Regime: It introduced a harmonized taxation system that aimed to avoid the cascading effect of taxes, a prevalent issue under the previous VAT system. This transformation led to the integration of several central and state taxes into a single tax regime.
  • Simplified Tax Compliance: The taxpayers now had to adhere to a standardized process across the country, a relief particularly for service providers like telecom companies and banks which operate across multiple states and earlier had to comply with different state laws.
  • Boost to the Economy: By streamlining the taxation process, the Act has fostered economic growth. For instance, the World Bank noted an improved business environment in India in its subsequent reports post the implementation of GST.
  • Enhanced Supply Chain Efficiencies: The unified market facilitated by GST has significantly enhanced efficiency by removing bottlenecks at state borders, saving time, and reducing transportation costs, giving a significant boost to sectors like logistics and e-commerce.
  • Promotion of Digital India: The amendment promoted digital governance through the introduction of the GST Network (GSTN), which digitized the entire tax administration system. The GSTN not only facilitated the easier filing of taxes but also promoted transparency and reduced human discretion, supporting the larger objective of a Digital India.

 

Reflecting the Accommodative Spirit of Federalism

  • Representation of All States: The GST Council (Article279A (1)) is emblematic of the accommodative spirit of federalism, involving representatives from all states in its composition. It ensures that the distinct and diverse interests of different regions are taken into account while framing policies.
  • Dispute Resolution Mechanism: This mechanism is designed to mediate conflicts between the central and state governments. Eg: the resolution of disputes pertaining to the compensation to states during the COVID-19 pandemic, highlighting the system’s functionality.
  • Revenue Sharing: The consensus-based revenue-sharing agreement under the GST law echoes federal cooperation. States like Tamil Nadu, which were initially apprehensive about potential revenue losses, received a GST compensation of about ₹40,000 crore during the transition period.
  • Consensus in Decision-making: The GST Council has promoted consensus in decision-making where states actively engage in collaborative policymaking. Eg: the council’s decision to reduce tax rates on several essential COVID-19 supplies.
  • Strengthening Cooperative Federalism: GST Council represents the cooperative federalism spirit, where both central and state governments come together to take key policy decisions. Eg: the rationalization of tax rates on several items over the years, taking suggestions of different states.

 

Issues in Highlighting the Accommodative Spirit of Indian Federalism

  • Complex Tax Structure: The introduction of GST brought about a multi-tiered tax slab system, criticized for its complexity and hindering the ease of business to a certain extent. Critics argue that a simpler tax structure would be more conducive to compliance.
  • Technological Challenges: The initial phase of GST implementation witnessed glitches and difficulties in the GST Network (GSTN), affecting the smooth transition to the new tax regime. Eg: Various businesses encountered challenges in filing returns.
  • Compliance Burden on SMEs: Small and medium enterprises faced increased compliance burdens due to complex return filing processes under GST. The frequent changes in tax rates and rules have also been a source of confusion for many businesses.
  • Center-State Discrepancies: Incidents where states raised concerns over the central government’s policies relating to GST pointed to potential discord in the federal structure. Eg: disputes over delayed compensation payments to the states creating a trust deficit and friction.
  • Inflationary Pressures: Its implementation initially led to inflationary pressures, with a noticeable increase in the prices of certain goods and services. While it was expected to be a transitory effect, it did raise concerns among the consumers and required nuanced handling to stabilize prices.

Way Forward

  • Simplification of Tax Slabs: Rationalizing the tax slabs could streamline the process and facilitate easier compliance. Experts often refer to the GST regimes of other countries like Malaysia, which has a simpler tax structure, suggesting India could take cues from these systems.
  • Technological Upgrades: Enhancements in the GSTN system over time, focusing on a glitch-free technological infrastructure, could facilitate smoother operations. Periodic system upgrades based on feedback from end-users should be a continuous process.
  • Strengthening Dispute Resolution Mechanism: Establishing a more robust dispute resolution mechanism, taking cues from past disputes, is essential. It would foster a harmonious centre-state relationship, paving the way for a more cohesive policy implementation process.
  • Capacity Building: Implement training and workshops for stakeholders to efficiently handle GST processes by taking inspiration from successful initiatives in various states. This would ensure a smoother adaptation process for the businesses to the changing tax environment.
  • Consumer Awareness and Protection: Lessons can be drawn from the early phase of GST implementation, where active communication and awareness campaigns helped in stabilizing prices and preventing undue price hikes.

Conclusion

Envisioning a future that leverages the principles of the 101st Constitutional Amendment Act can potentially nurture a cooperative federalism spirit. It is pivotal to address the existing concerns to truly harness the accommodative potential of this historical amendment in the legislative framework of India, forging a path of harmonious and constructive federal relationships.

 

For a Detailed explanation of the UPSC GS-01 Mains question 2023, click here.

For a Detailed explanation of the UPSC GS-02 Mains question 2023, click here.

For a Detailed explanation of the UPSC GS-03 Mains question 2023, click here.

For a Detailed explanation of the UPSC GS-04 Mains question 2023, click here.

 

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