No government based on federal set-up can
run effectively unless the Union and the
states have at their disposal adequate financial resources to enable them to
discharge their responsibilities enshrined under the Constitution. India Union and the states.
Constitutional
provisions
The Constitution
has elaborate provisions as to the manner of generating tax and non-tax
revenues by the Union and the states. Similarly,
it contains provisions and procedures that will govern the distribution of
proceeds of revenue between the Union and the states.
The constitutional scheme envisages a distribution of financial resources in
line with the development needs of various regions of Indian
territory .
Such a
distribution becomes necessary, also, because the powers of the states to levy
taxes on subject matters assigned to them do not translate into revenues that
are large enough to serve their purposes. Constitution of India Union and State Legislative Lists in
Schedule VII. In Schedule VII there are specific entries covering various taxes
that can be levied by Union and States. The residuary
power to levy taxes vests in Union government.
Prominent taxes that
can be levied by state government include professional tax, sale tax other than
newspaper, tax on consumption and sale of electricity, land revenue, stamp duty
and income-tax on agriculture. Important taxes that can be levied by the Union include income tax, corporate tax, excise duty and
taxes on capital value of assets of individuals and companies.
The following is the system of levying,
collection and appropriation of taxes.
(a) Taxes
levied by the Union as well as collected and appropriated exclusively by the Union
Some
of such taxes are the following.
1. Customs
2.
Corporate tax
3. Taxes on capital value of assets of
individuals and companies
4. Surcharge on income tax
5. Fees in matters of items enumerated in
the Union List in Schedule VII
(b) Taxes
levied by the states as well as collected and appropriated exclusively by the
states
1. Land Revenue
2. Stamp duty except in documents included
in the Union List
3. Succession duty, Estate duty, and
income-tax on agricultural land
4. Taxes on passengers and goods carried on
inland waterways
5. Taxes on land and Buildings, mineral
rights.
6. Taxes
on animals and boats, on road vehicles, on advertisements, on consumption of
electricity, on luxury and amusements etc.
7. Taxes on entry of goods into local
areas.
8. Sales tax
9. Tolls
10. Fees in respect of matters in the state
list
11. Taxes on professions, trades not
exceeding Rs 2,500 p.m
(c) Taxes
levied as well as collected by the Union , but
assigned to the states within which they are leviable:
(a) Duties on succession to property other
than agricultural land.
(b) Estate duty in respect of property
other than agricultural land.
(c) Terminal taxes on goods or passengers
carried by railway, air or sea.
(d) Taxes on railway fares and freights.
(e) Taxes on stock exchanges other than
stamp duties.
(f) Taxes on sales of and advertisements in
newspaper where such sales and purchase takes place in course of inter- state
trade or commerce
(h) Taxes on inter-state consignment of
goods
(d) Duties
levied by the Union but collected and
appropriated by the states
As per Article 268 of the Constitution, stamp
duties on bills of exchange and excise duties on medicinal and toilet
preparations containing alcohol, though they are included in the Union list and
hence levied by the Union, shall be collected by the states within their
respective territories and shall form part of the states by whom they are
collected.
(e) Taxes
levied and collected by the Union and distributed between Union
and States:
There are some taxes which shall be levied
as well as collected by the Union, but their proceeds shall be divided between Union and states in a certain proportion to effect an
equitable division of the financial resources. They are the following.
(a) Taxes on income other than agricultural
income
(b) Duties of excise other than on
medicinal and toilet preparations
Non-tax
revenue, borrowings
Other than tax
revenues there are non-tax revenues which Union
and State governments can raise to supplement their resources. For Union
government the main source of such revenues are railways, post and telegraphs broadcasting,
Currency and mint, industrial and commercial undertakings of the central
government relating to the subjects over whom the Union
has jurisdiction. Similarly state governments may have their receipts from
forests, irrigation, industrial and commercial undertakings.
Borrowing powers of both governments have
also been provided in the Constitution. The Union
shall have the power to borrow on the security of revenues put into Consolidated
Fund of India subject only to the limitations imposed by the Parliament (Article
292). The borrowing power of a state, on the other hand, is subject to many limitations.
Unlike the Union, the states cannot raise money from outside India Indian
territory upon the security of revenue of the state and with
certain restrictions. The limitations on power of state government can come
from conditions imposed by state legislature. No fresh loan can be raised by
state government without the consent of the Union
if the latter has guaranteed an outstanding loan of the state.
Finance
Commission
Since the states needs vary because of
varying levels of development, the Union government has been empowered by
Article 275 to make grants-in-aid to the needy states, such as in the matter of
tribal development.
Article 280 of the Constitution provides for
the formation of a Finance Commission which will determine the quantum of
proceeds to be shared by the Union with states
and lay down principles that will govern grants-in aid to states. The Finance Commission
will have a term of five years. It shall be the duty of the Finance Commission
to make recommendation to the President as to the following.
(a) The distribution between the Union and the States of the net proceeds of taxes which
are to be, or may be, divided between them and the allocation between the
States of the respective shares of such proceeds;
(b) The principles which should govern the
grants- in-aid of the revenues of the States out of the Consolidated Fund of
India;
(c) The measures needed to augment the
Consolidated Fund of a state to supplement the resources of the Panchayats in
the state;
(d) The measures needed to augment the
Consolidated Fund of a state to supplement the resources of the
Municipalities in the state;
(e) Any other matter referred to the
Commission by the President in the interests of sound finance.
The
role of the plan panel
Apart from the Constitutional
provisions discussed above, the Planning Commission also plays a crucial role
in distribution of resources between the Union
and the States. It should be understood that Planning Commission is a
non-constitutional and non-statutory body which has been set up through an executive
order. The Planning Commission's primary function is to draw up five-year plans
in line with the socio-economic needs of the country.
It has become clear over several decades
that the Planning Commission has taken over a part of the role that the
Constitution has envisaged for the Finance Commission. A Five year plan is
implemented through annual allocation from the Union budget, which is called
‘plan expenditure’. The fact that the Planning Commission finalizes the plan
expenditure makes the allocation of resources between the Union
and the states by the Finance Commission a mere formality. The union executive,
who controls the Planning Commission, thus came to acquire powers that the
Constitution does not envisage. This has been highlighted by some of the Finance
Commissions in their reports. Some states in India
This anomaly needs to be addressed by
going back to the principles of federalism. With the experience of the working
of the Constitution over six decades now with us, the Parliament may look into
how the federal, cooperative character of the India India
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