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

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

228 words1 paragraphs

Conclusion

Finance is key for efficient governance; thus collective strategy (top down, bottom up) must be incorporated for 'Amrit Kaal'.

19 words

Diagram

A map showing coordinates indicators with notations for high income, better utilities, low obsolution (low)

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Topper

SURAMYA SHARMA

AIR 3592025

Subject & Paper

GS2GS2

Topic

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

Centre-State Financial Relations

Devolution of Taxes

Writing Stats

247

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