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

The question “Explain the significance of the 101^st Constitutional Amendment Act. To what extent does it reflect the accommodative spirit of federalism?" was asked in the Mains 2023 GS Paper 2.  Let us look at the model answer to this question.

Answer: The 101st Constitutional Amendment Act introduced the Goods and Services Tax (GST), establishing a uniform taxation framework across India. It has altered the financial relationship between the central government and the states, leading to a more cooperative and collaborative framework.

Significance of 101^st CAA:

• Boost to economic integration and reduced Taxation Barriers: GST fosters barrier-free movement of goods and helps in realising “One nation, one market” and “one taxbase and one tax”.
• Improved Tax Collections: The unified tax structure and increased compliance have led to better tax collections, benefiting both the Central and State governments.
• Enhanced Transparency: GST, a technology-driven tax system, increases transparency, reduces tax evasion, and ensures a more robust revenue collection mechanism.
• Equitable State Revenue: The implementation of GST also affected how revenue was distributed among States. Rules factoring in population and other criteria resulted in a fairer distribution of revenue among them.

Reflects the accommodative spirit of federalism:

• The 101st CAA was unanimously passed by the states, which reflects the spirit of cooperative federalism.
• GST Council, as a Federal Institution: The GST Council established under Article 279 A consists of representatives from both the Central and State governments.
  • For example, It includes the Union Finance Minister, who acts as the Chairperson, and the Ministers of Finance or Taxation from each state.
• Constitutional support for Cooperative Federalism: It fosters cooperation and effectively addresses fiscal federal disputes, serving as a forum for dialogue, negotiation, and mutual agreement, thus strengthening intergovernmental relations.
  • For example, the GST Council has allowed the Kerala government to impose additional cess to deal with the Kerala floods of 2018.
• Consensus-based decision-making: All decisions, including those related to tax rates, exemptions, thresholds, and administrative issues, require the approval of at least three-fourths of the GST Council members.
  • For example, the GST Council took all decisions by consensus in the first 37 meetings.
• Addressing Regional Imbalances: The GST Council acknowledges regional disparities and concerns.
  • For example, it has established mechanisms like the Compensation Cess and the GST Compensation Fund to address revenue shortfalls faced by certain states during the initial implementation phase.

Challenges in Fiscal federalism:

• States' Demand for Compensation: Some states expressed discontent over the delay in receiving their full compensation, leading to increased federal tensions.
• Vertical inequity & Fiscal Asymmetry: The central government maintains the power to levy additional excise duty on tobacco and non-shareable cess and surcharge even after GST implementation, while states lack this authority.

The implementation of GST has contributed to a more unified and harmonized tax regime in India while maintaining the spirit of cooperative collaboration between the central and state governments.