{"id":114194,"date":"2021-06-23T12:26:47","date_gmt":"2021-06-23T06:56:47","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=114194"},"modified":"2021-06-23T12:26:47","modified_gmt":"2021-06-23T06:56:47","slug":"towards-a-more-federal-structure","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/towards-a-more-federal-structure\/","title":{"rendered":"Towards a more federal structure"},"content":{"rendered":"\n<p><b><span data-contrast=\"auto\">Why India\u00a0needs\u00a0better tax sharing mechanism between Center and States?<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"auto\">Context:<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The current policy of tax sharing between center and states will increase\u00a0the regional differences.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<h5><b><span data-contrast=\"auto\">Current policy of Tax sharing mechanism in India:<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"auto\">In\u00a0India,<\/span><b><span data-contrast=\"auto\">\u00a0direct taxes go entirely to the Central government.<\/span><\/b><span data-contrast=\"auto\">\u00a0State governments get funds from the Central government according to the Finance Commission\u2019s recommendations.\u00a0Though this is based on\u00a0a\u00a0formula, often politics\u00a0intervenes,\u00a0and some States get less and some more.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"7\" aria-setsize=\"-1\" data-aria-posinset=\"26\" data-aria-level=\"1\"><span data-contrast=\"auto\">After the\u00a0<\/span><a href=\"https:\/\/forumias.com\/blog\/issues-in-15th-finance-commission-recommendation\/\"><span data-contrast=\"none\">Fifteenth Finance Commision<\/span><\/a><span data-contrast=\"auto\">\u00a0recommendation,\u00a0the Central government is supposed to distribute 41% of its gross tax revenues (reduced from 42% after the formation of new Union Territories in\u00a0Jammu and Kashmir) to the State governments.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">Challenges with the present tax sharing mechanism:<\/span><\/b><span data-contrast=\"none\">\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:257}\">\u00a0<\/span><\/h5>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"17\" aria-setsize=\"-1\" data-aria-posinset=\"27\" data-aria-level=\"1\"><span data-contrast=\"none\">Usually, the\u00a0<\/span><b><span data-contrast=\"none\">Central government does not meet the 41% target<\/span><\/b><span data-contrast=\"none\">. Various States governments either\u00a0file petitions or come\u00a0into conflict with the Central government on this issue.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:257}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"17\" aria-setsize=\"-1\" data-aria-posinset=\"28\" data-aria-level=\"1\"><b><span data-contrast=\"none\">The issue of\u00a0Cesses:\u00a0<\/span><\/b><span data-contrast=\"none\">Central government has added\u00a0cess\u00a0on\u00a0various items\u00a0which adds up to over \u20b93.5 lakh crore. This is not shared with the State governments.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:6,&quot;335551620&quot;:6,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"17\" aria-setsize=\"-1\" data-aria-posinset=\"29\" data-aria-level=\"1\"><b><span data-contrast=\"auto\">More economic power to the Central government:<\/span><\/b><span data-contrast=\"auto\">\u00a0At an all-India level, the States get\u00a026% of their total revenue from the Central government. Some of the so-called poorer States get up to 50% of their total revenue from the Central government. This allows ruling parties at the Centre to use these funds to their advantage.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:257}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"17\" aria-setsize=\"-1\" data-aria-posinset=\"30\" data-aria-level=\"1\"><b><span data-contrast=\"auto\">Regional disparity:\u00a0<\/span><\/b><span data-contrast=\"auto\">Maharashtra, Delhi and Karnataka, Tamil Nadu and Gujarat contribute 72% of the tax revenue. But they receive only miniscule share. On the other hand, Uttar Pradesh, which has the largest population in India, contributes only 3.12% but gets over 17% of the revenue distributed by the Central government.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"17\" aria-setsize=\"-1\" data-aria-posinset=\"31\" data-aria-level=\"1\"><b><span data-contrast=\"auto\">Revenue distribution formula:\u00a0<\/span><\/b><span data-contrast=\"auto\">The formula\u00a0gives\u00a0more weightage to population and poverty levels.<\/span><b><span data-contrast=\"auto\">\u00a0<\/span><\/b><span data-contrast=\"auto\">The population growth rates in the southern states have come down to near zero. On the other hand, population in central and north India continues to grow. This make ever\u00a0<\/span><b><span data-contrast=\"auto\">growing of cross subsidy<\/span><\/b><span data-contrast=\"auto\">\u00a0from the south to the north.<\/span><b><span data-contrast=\"auto\">\u00a0<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"auto\">Suggestions:<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:257}\">\u00a0<\/span><\/h5>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"18\" aria-setsize=\"-1\" data-aria-posinset=\"32\" data-aria-level=\"1\"><b><span data-contrast=\"auto\">Provide\u00a0greater economic power to\u00a0states:\u00a0<\/span><\/b><span data-contrast=\"auto\">This will make states to directly collect more taxes and be less dependent on the Central government. This is in line with the international practices.\u00a0<\/span><span data-contrast=\"none\">In the U.S., both the federal and State governments collect di<\/span><span data-contrast=\"auto\">rect\u00a0taxes from individuals and corporations. This is true in Switzerland and some other countries as well.\u00a0<\/span><span data-contrast=\"none\">\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">A transition to a more federal structure will allow the Centre to focus on external threats instead of internal dissensions.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:257}\">\u00a0<\/span><\/p>\n<p><strong>Read Also :-<a class=\"seoquake-params-link\" href=\"https:\/\/forumias.com\/blog\/present-state-of-economy\/\" rel=\"bbd7e0f1 x_url\">What is state of the economy?<\/a><\/strong><\/p>\n<p><b><span data-contrast=\"auto\">Source:\u00a0<\/span><\/b><a href=\"https:\/\/epaper.thehindu.com\/Home\/ShareArticle?OrgId=GE58MN0AA.1&amp;imageview=0\"><span data-contrast=\"none\">The Hindu<\/span><\/a><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Why India\u00a0needs\u00a0better tax sharing mechanism between Center and States?\u00a0 Context:\u00a0 The current policy of tax sharing between center and states will increase\u00a0the regional differences.\u00a0\u00a0 Current policy of Tax sharing mechanism in India:\u00a0 In\u00a0India,\u00a0direct taxes go entirely to the Central government.\u00a0State governments get funds from the Central government according to the Finance Commission\u2019s recommendations.\u00a0Though this is&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/towards-a-more-federal-structure\/\">Continue reading <span class=\"screen-reader-text\">Towards a more federal structure<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,8043,9],"tags":[8111,8113,8112,8114],"class_list":["post-114194","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-current-affairs-cat","category-public","tag-15th-fc","tag-cess","tag-devolution-of-taxes","tag-financial-federalism","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114194","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=114194"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114194\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=114194"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=114194"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=114194"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}