The Constitution (One Hundred and Thirtieth Amendment) Bill: A Looming Threat to India's Federal Fiscal Structure?

India’s intricate federal structure, a delicate balance of power between the Union and its states, faces a critical test with the re-emergence of discussions surrounding the Constitution (One Hundred and Thirtieth Amendment) Bill, 2022. This proposed legislative change, though previously withdrawn, continues to cast a long shadow over the nation’s fiscal future, sparking intense debate about states' autonomy and the very spirit of cooperative federalism.

At the heart of the controversy lies the Bill's intention to amend Article 246, specifically by altering Entry 82 of List I (Union List) in the Seventh Schedule.

Currently, Entry 82 empowers the Union to levy "taxes on income other than agricultural income." The 130th Amendment Bill aims to expand this power by replacing 'goods' with 'goods and services,' effectively allowing the Union government to impose new taxes on goods and services – a domain largely covered by the Goods and Services Tax (GST) regime, which itself was a monumental shift towards shared taxation powers.

Legal experts and state representatives have voiced significant concerns, seeing this move as a direct encroachment on the fiscal independence of states.

The introduction of GST in 2017 was hailed as a landmark reform, designed to streamline indirect taxation and foster a more collaborative Centre-State financial relationship. States, in exchange for their individual taxing powers, became partners in a unified tax system. This new Bill, however, threatens to unravel that carefully constructed framework, potentially shifting the balance of financial power decisively towards the Union.

Advocate R.

Rajaraman highlights the critical point: if the Union government gains the power to levy an additional tax on goods and services, it could create an undesirable 'tax on tax' situation. This would not only burden consumers and businesses with additional levies but also complicate the existing tax structure, potentially leading to cascading effects and economic inefficiencies.

Such a move runs counter to the very principles of simplicity and efficiency that GST aimed to achieve.

Professor Faizan Mustafa, a renowned legal scholar, underscores the constitutional ramifications. He points out that India, often described as 'quasi-federal,' has seen a gradual centralisation of power over the decades.

Fiscal autonomy is not merely an economic concern; it is fundamental to the political autonomy and operational capacity of states. Any attempt to dilute states' control over their revenue sources directly impacts their ability to fund essential services and pursue developmental agendas tailored to their specific needs.

The Bill's implications extend to the basic structure of the Constitution, particularly the federal distribution of powers.

The history of taxation in India shows a continuous evolution. Before GST, states had significant independent powers, particularly through Value Added Tax (VAT). The GST regime necessitated a pooled sovereignty, requiring states to surrender some autonomy for a larger, national economic benefit.

The 130th Amendment Bill, therefore, raises questions about the long-term vision for India’s federalism. Is it a step towards greater centralisation, or a necessary clarification of tax powers in a dynamic economy?

While the Bill was withdrawn after being referred to a standing committee, the discussion around its principles remains pertinent.

Its potential reintroduction or similar legislative efforts could trigger significant legal challenges and further strain Centre-State relations. The debate over the 130th Amendment Bill is more than just about taxation; it’s about preserving the delicate equilibrium of India’s federal democracy and ensuring that states retain the financial muscle necessary to serve their populations effectively.