It discuss how GST will affect the states autonomy in a federal system. It discus thetopic GST and Co-operative federalism

1. GST and Fiscal Federalism / How
GST affect India’s Federal Set-up/
GST and Co-operative Federalism
ABDUL SAMEER PM

2. • Federalism is a system of government in which
states or provinces share power with a national
government.
• Fiscal federalism deals with the division of
governmental functions and financial relations
among levels of government.
• Fiscal federalism or Federal finance means
divisions and coordination of different items of
income and expenditure between central, state,
local governments
GST in federal Set-up/ GST and Fiscal
Federalism

3. • So in a federal setup there will be a central
government as well as various state
governments. There will be a list of activities
assigned to central government and state
governments. Accordingly the taxes as well as
revenue collections has been divided between
the central and state governments it's called as
fiscal federalism
• The division of such taxation powers is given in
Union and State List under 7th Schedule.
• With the spirit of cooperative federalism, under
GST, both Centre and States have given up
taxation powers

4. Whether GST affect the Federal set up of
India?
• there are arguments both for and against GST in
a federal setup
• Arguments against GST( GST will adversely affect
our federal set up or co-operative federalism):
• 1. States will Loose Autonomy in Fixing taxes
and tax rates: The rates for both, the CGST and
the SGST, will be fixed by the GST Council, whose
members will be State finance/revenue ministers
and chairman will be the Union finance minister.
Once the rates are set by the GST Council,
individual States will lose their right to tax
whichever commodities they want at the rates
they want

5. Arguments against GST
• The economist Prabhat Patnaik points out, “According
to the Constitution, the States have complete
autonomy over levy of sales taxes, which, on average,
accounted for 80 per cent of their revenue. An attempt
was made to curtail this autonomy with the
introduction of VAT. But it did not totally succeed
because the VAT still had four different rates that states
could play with. But with the GST, which mandates a
uniform rate, even this limited autonomy would be
gone.”
• 2. Economic conditions are different in different
states: Some states wants to curtail the undesirable
economic activities in their states by imposing higher
taxes on them. But for some states such things may not
be an undesired activity. The problem is that States
cannot increase tax on luxuries and undesirable items

6. • 3. More revenue sources of States are included in GST
than Central government: The major issue in the fiscal
federalism in India is the fiscal imbalance between
states and Centre. 60 % of the revenue in GST has been
comes from the states tax revenue (Before GST) and for
central government it accounts only 40 %. So State
government will be the big looser as the GST is divided
between centre and state as 50;50 ratio
• 4. GST will adversely affect the Welfare oriented
policies of State governments: Another concern is that
the restrictions imposed by a uniform tax regime could
adversely impact States that may be more committed
to welfare expenditures.

7. Arguments for/ Opposite Version
• Some others has the view that GST will not affect our
Federal setup. Their arguments are:
• 1. All the decisions are taken by the GST Council in which
states have the majority: GST Council is the governing
body of GST having 33 members, out of which 2 members
are of centre and 31 members are from 28 state and 3
Union territories with legislation. Decisions can be taken
only by 3/4 majority. Thus, it emphasizing the fact that
states’ say and opinions will be created to and federal
essence of the country has been duly preserved. So it will
not affect cooperative federalism
• 2. States Will Not Loose Their Autonomy as GST is dual,
levied and managed by different administration. Centre
would levy and collect Central Goods and Services
Tax(CGST), and States would levy and collect the State
Goods and Services Tax(SGST) on all transactions within a
state.

8. Arguments for
• 3. GST will ensure economic integration: Under
GST regime the entire country will become one
market and it will be an economic integration of
India. India would become one uniform market with
seamless transfer of goods and services.
• GST intends to transform India into a true economic
union, with the aim of ‘One Nation, One
Tax, One Market’. The free movement of goods and
services will give fillip to employment opportunities
and give consumers a wider choice and better
prices. This economic integration will not only boost
economic growth, but also bind the nation better

9. 4. States can Put Tariff and Non tariff barriers to
restrict Undesirable activities
• Constitution still provides room for states to put tariff
and non-tariff barriers.
• Article 302 gives Parliament the power to restrict free
trade between and within states on grounds of public
interest.
• Similarly, Article 304 (b) allows state legislatures to
restrict trade and commerce on grounds of public
interest.
• Of course, states can only impose restrictions in areas
that are either on the state or concurrent list.
• The gist of these provisions is that both the Centre and
the States have considerable freedom to restrict trade
and commerce that hinder the creation of one India.
• Such Strong power is not found in other International
experiences.

10. Thank You