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.
Introduction
Article 280 - empowers President to constitute a Finance Commission every 5 years to determine
15 words
Main Body
Article 280 - empowers President to constitute a Finance Commission every 5 years to determine
Vertical devolution of taxes/duties between Centre/States
Horizontal devolution among States
Vertical Devolution - decided based on the expenditure needs of Centre (Defence, CS, CSS, Railways) & States (Education, health, LGD) - 41/69
Horizontal Devolution - decided based on a formula with multiple compowds
4 different weights :
Income distance
Population < 1931 Demographic Performance
Tax effort
Forest & ecology
Concerns Raised by States
rising share of CESS & surcharge in Centre's GTR → reduced divisible pool - increased from 7½ in 2000 to 21½ in 2020
Higher weight to Equity Citisiona (a ESCs) than to Efficiency Citisiona (-15%) < Tax Effort Demographic Performance
Income distance criterion punishing states with higher PCI
some States like Bihar get more than key contribute while southern states get less
Corrective Measures
Representation to states in constitution of FC - in ToR
reduction in CESS/Surcharge
50:50 share of Efficiency & Equity criterions
making FC a permanent body
improving tax base of states → to reduce reliance on Centre
Utilize ISC (C263) to sort-out differences
200 words4 paragraphs15 bullet points
- Clear framework with Article reference
- Distinguishes vertical and horizontal devolution
- Specific data provided on CESS changes
- Clear identification of state concerns
- Practical solutions provided
- Specific institutional mechanisms suggested
Topper
ADITYA PATHAK
AIR 1892025
Subject & Paper
GS2GS2
Topic
Federal Structure
Centre-State Financial Relations
Finance Commission and Tax Devolution
Writing Stats
215
Total words
4
Paragraphs
15
Bullets
critical and analytical
Tone