ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Reforms in Tax Devolution and Evolving a Co-ordinated Tax System

The finance minister in his budget speech has stated that a Constitution amendment hilt will soon be brought forward in the parliament to give effect to the tenth Finance Commission's recommendations on an alternative tax devolution scheme. In this paper it is argued that although the initiative is in the right direction, it does not go far enough, A well thought out reform should address reforms in tax devolution along with the issue of reassignment to evolve a co-ordinated system of domestic trade taxes. In particular, to design and implement a destination based consumption type value added tax (VAT), the states should be enabled to extend their sales taxes to services in addition to goods. Further, an efficient and equitable tax system should prevent the levy of sates taxes on inter-state sale. Reforms in tax devolution should be addressed in conjunction with evolving rational, co-ordinated domestic trade taxes to bring about a structured reform of the fiscal system in Indian federalism.

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