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
In India's system of asymmetric federalism, devolution of taxes is a key aspect considering the spatial needs and requirements of federal units. Vertical Devolution of Taxes: 1) Recommendation of Finance Commission constituted for the purpose (Art 280). 2) Constitutional grants – general and statutory (Article 275, 274). 3) Formula of GST Councils for IGST. Horizontal Devolution: 1) Based on Finance Commission formula eg. 15th FC: → Income Distance → Population → Demographic indicator → Government parameters, etc.
Concerns raised by states: 1) No dearth of taking population control misuse eg: Tamil Nadu, Kerala. 2) Reduced vertical devolution (42% → 41%) is 15th FC. 3) Nature of funds is tied and conditional → funds financial autonomy over centralization eg: Some states form norms. 4) Delay in release of funds eg: GST compensation case delays. 5) Inadequate funds devolved eg: Uttar Pradesh (high population) Thus a need for corrective measures:
Corrective Measures: 1) Empowerment of local bodies in taxation and finances eg: Municipal bonds, dues, increase. 2) Re-calculation of formula of Finance Commission → account for population misuse. 3) Untied unified funds in devolution (IInd ARC). 4) Decide on exempted products in GST → GST to raise taxable pool eg: elect diesel, petrol, etc. 5) Collaboration discussion → more state involvement. Finance is key for efficient governance; thus collective strategy (top down, bottom up) must be incorporated for 'Amrit Kaal'.
— SURAMYA SHARMA · AIR 359
Conclusion
19 words
Diagram
A map showing coordinates indicators with notations for high income, better utilities, low obsolution (low)
SURAMYA SHARMA
Federal Structure - Functions, Responsibilities, Devolution of Powers and Finances
Centre-State Financial Relations
Devolution of Taxes
247
Total words
1
Paragraphs
analytical
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