Balancing Power: How GST Promotes Fiscal Federalism In India
- IJLLR Journal
- Jan 9, 2025
- 2 min read
Shlok Bhogila, National Law University, Odisha
Shreya Pandey, National Law University, Odisha
Introduction
Federalism is a political philosophy that combines the governing structures of a central or federal government and the governments of different states into one streamlined C hierarchical arrangement for better governance of a nation. Montesquieu's "The Spirit of Laws" is a foundational text that explores the complexities of governance and provides insights into the concept of federalism.
In a federal structure, power is divided between the central government and regional governments. Each level of government has its own jurisdiction, both geographically and in terms of specific policy areas. Fiscal federalism specifically refers to the financial relationship between these two levels of government in a federal structure.
The term "Fiscal Federalism" was coined by economist Richard Musgrave. This addresses the critical issues such as distribution of income, resource allocation, reducing financial disparities, and promoting economic stability. These challenges are particularly relevant in the current global economic scenario and fiscal federalism offers a potential solution. In the Indian context, there are certain constitutional provisions that support a federal structure, the prime indicator being the Seventh Schedule of the Indian constitution that assigns specific tax bases to the state and centre in the State and Union lists. Recent years have witnessed increased collaborations between the state and central governments on certain matters of national importance.
Introduction of GST or the Goods and Services Tax through the 122nd amendment bill back in 2014 is one of the most significant tax reforms made in the last decade in the taxation structure of the entire nation. The primary objective behind the introduction of GST was the extremely cluttered and outdated system of taxation which was followed earlier.. The newly elected NDA government saw it as an opportunity to set a precedent and also take the first few steps towards a more formal economical structure in India.
