Federal fiscal relation:
Federal fiscal relation:
In financial field too the centre is more powerful than the states. In fact, for their development plans the states are purely dependent on the centre. No state can afford to work without active financial assistance of the central government. Undoubtedly in all federations, the units are financially not self-sufficient, but in India economic dependence of the states on the centre is rather too much.
Division of subjects, as provided in the constitution is of such a nature that the states have many more sources of expenditure than those of income.
Of course, there are taxes which are levied and collected either exclusively by the states or centre, but there are also taxes which are collected by the states on behalf of the centre, while some of the taxes are collected by the union government and handed over to the states. On the whole, however, the states are to depend on the grant-in-aid to be given by the central government to the states.
In India system of taxation is very much based on the Act of 1935, with the provision that after every five years President shall appoint a Finance Commission to find out the ways and methods of properly distributing sources of income. The states are empowered to collect taxes, such as stamp duties, excise duties, etc., but are not required to deposit the amount so realised with the Union Government.
The taxes on such items as succession to property, terminal taxes on goods carried by railways, air force or navy, tax on railway fares and freights, tax on transactions in stock exchanges, etc., are to be collected by the Union Government but to be appropriated to the state governments.
It is also provided that the taxes on such items as income other than agricultural income, duties on excise, etc., will be levied and collected by the Union Government and shared between the Union and the States. Since the states have comparatively less sources of income, the central government provides grant-in-aid to them to ran their administrative and development expenses.
The states receive grant-in-aid for the development of scheduled castes and scheduled tribes. Similarly the State of Assam receives special grant-in-aid for the administration of tribal areas. There is no denial that the states are financially dependent on the centre for their financial allocations, out the system of appointing Finance Commissions has brought much flexibility in it.
In the words of Pylee, “No other federal constitution makes such elaborate provision as the Constitution of India, with respect to the relationship between the Union and the States in the financial field. In fact, by providing for the establishment of Finance Commission for the purpose of allocating and adjusting the receipts from certain sources, the Constitution has made an original contribution in this extremely complicated aspect of federal relationship.” The states are financially dependent on the Centre.
The distribution of financial resources between the Centre and the States is as under:
- Taxes Exclusively Assigned to the Union:
- Customs and export duties
- Income tax
- Income from railways and postal departments.
- Excise duty on tobacco, Jute cotton
- Estate duty and succession duty in respect of property other than agricultural land.
- Corporation tax
- Taxes on Capital values of both individual and companies assets.
- Taxes Exclusively Assigned to the States:
- Succession and estate duty in respect of agricultural land.
- Taxes on Vehicles used on roads, animals, boats.
- Income from land revenue and Stamp duty except on documents included in the Union List.
- Taxes on consumption or sale of electricity.
- Taxes on goods and passengers carried by road or inland water.
- Toll tax.
- Taxes on lands and buildings. Taxes on Professions and traders.
- Duties on alcoholic liquors for human consumption. Taxes on opium and narcotic drugs.
- Taxes on entry of goods into local areas.
- Entertainment and amusement tax
- Taxes on gambling
- Taxes Leviable by the Union but to be Collected and Appropriated by the States:
- Taxes on luxuries and bettings.
- Taxes on bill of lading, letters of credit.
- Stamp duties on bills of exchange, cheques and promissory notes.
- Excise duty on medicinal toilet preparations.
- Taxes Levied and Collected by the Union but Assigned to the States:
- Duty in respect of succession to property other than agricultural land.
- Taxes on railway freights and fares.
- Taxes on transactions in stock exchanges.
- Terminal taxes on goods and passengers carried by railway, sea or air.
- Taxes on sale and purchase of newspapers and on advertisements published there in.
- Taxes levied and collected by the Union but shared with the States.
- The basis of distribution in this case is decided by the Parliament by law.
- Income other than agricultural income.
- Excise duties other than that leviable on medicinal and toilet preparations.
In the financial field a mention may also be made to the office of the Comptroller and Auditor General of India, who is appointed by the President of India. He can direct the state governments to keep their accounts in a particular manner and these are duty bound to obey his instructions. While doing so he need not consult any state government.
Financial Emergency: Its Impact:
But in times of financial emergencies control of the union government over the states is immense. As soon as financial emergency is declared the Union government becomes so powerful as to direct the state governments to observe certain norms of financial propriety and other necessary safeguards.
It can also direct the state governments to reduce salaries and allowances of its employees and even those of the judges of the High Courts. All money bills passed by the legislature, then are to be reserved for the consideration of the President.