Question Q.14GS2GS2

How is the 'vertical' and 'horizontal' devolution of taxes to the states decided? Highlighting the concerns raised by some states regarding the devolution of taxes, suggest corrective measures.

Main Body

The 101st Constitutional Amendment & inserted article 279A - GST council along with the Finance Commission (Art 324) have ensured the financial viability of our governance structure. [Deciding on the Vertical Devolution of Taxes] (1) Finance Commission determines [with diagram showing Centre → State → ULB hierarchy] - Based on Centre's Revenue - Based on States need [Tagged: 15th FC provided for Devolution Vertically (41 devolution)(3.1 for new UT of J&K & Ladakh)] → Also decide grants to local Self govt. [State Finance Commission] - State → LSG.

2GST council determine share of [NST] = [CGST] + [SGST]. It is decided by voting 1/2 rd centre & 2/3rd state. [Deciding the Horizontal Devolution of Taxes] b ITA also determined [with table showing UP, Bihar, Punjab by others, TN, Kerala] by the Finance Commission [with diagram showing factors into consideration] [Factors into Consideration] → Income Divide Distance IGST → Area → Population → Demographic progress [Taxes (15/1)] → forest & Ecology [Concerns raised by some State government] (1.) Vertical Imbalance : State feel after GST assumed low growth; loss of Revenue. (2.) Less & Surcharge - not part of Devolution (3.) Population as criteria [Tagged Kerala punished for investment in demography.] (4.) Nature of tied grants - limit flexibility

[Ways to Address] (1.) 16th Finance Commission → Consultation needed (2.) Less & Surcharge - part of Division pool (3.) GST council for better negotiation. (4.) Increase % age of Demographic Progress

— SURABHI YADAV · AIR 14

241 words1 paragraphs

Conclusion

These measures can ensure better federalism and address state grievances regarding tax devolution, maintaining balance between centre and state fiscal autonomy.

21 words

Diagram

Hierarchical triangle diagram showing devolution structure: Centre at top, State in middle, ULB at bottom

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Topper

SURABHI YADAV

AIR 142025

Subject & Paper

GS2GS2

Topic

Federal Structure - Functions, Responsibilities, Devolution of Powers and Finances

Centre-State Financial Relations

Vertical and horizontal devolution of taxes

Writing Stats

262

Total words

Paragraphs

analytical

Tone

Linked PYQ

You are heading a district administration in a particular department. Your senior officer calls you from the State Headquarters and tells you that a plot in Rampur village is to have a building constructed on it for a school. A visit is scheduled during which he will visit the site along with the chief engineer and the senior architect. You examine the file which relates to the period before you joined the department. The land was acquired from the local Panchayat at a nominal cost; clearance certificates are available from two of the three authorities, with no architect certification. On visiting Rampur, you find the plot is part of Thakurgarh Fort with walls and ramparts running across it, far from the village (serious inconvenience for children), high development charges, unaddressed heritage concerns, and the Sarpanch at acquisition time was your predecessor's relative — the transaction appears vested. (a) List the likely vested interests of the concerned parties. (b) Discuss the merits and demerits of each options: (i) await the visit of the superior officer and let him take a decision; (ii) seek his advice in writing or on phone; (iii) consult your predecessor/colleagues and then decide; (iv) find out if any alternate plot can be got in exchange and then send a comprehensive written report. Can you suggest any other option with proper justification?

25M2015