Tax and Economic reforms in Jammu and Kashmir
Economic reforms in India were introduced in the year 1991. The reforms necessarily laid there influence on every state of the country and its every economic sector. The effect of India’s economic reforms on economic performance has been the subject of much academic study and public debate in India, but the focus has been largely on the performance of the economy as a whole or of individual sectors. The accomplishment of individual states in the post-reform period has not received comparable attention so there are very good reasons why such an analysis should be of special interest. Further balanced regional development has always continued to exist on top of the agenda in the national policy of India and it is relevant to ask whether economic reforms have fostered this objective or not. Jammu & Kashmir economy has not accomplished the same rate of economic development as was accomplished by the whole Indian economy and other states. Therefore a legitimate question emerges why J&K economy could not develop at a rate that has experienced by the Indian economy in the post-reform period.
In India, there are two types of Taxes viz.; (1) Direct Tax like Income Tax which is directly charged from the person upon whom tax is levied; and (2) indirect taxes which are charged from a third person but ultimately its impactsets out on to the consumers who have to pay it. There are eleven such taxes presently existing which are Central Sales Tax, General Sales Tax, Value Added Tax, Entry Tax, Toll Tax, Excise Duty, Central Excise Duty etc. Whereas the direct taxation system continue to exist as it was with the powers vested with the Union Government, it is indirect taxation which is subject matter of debate and discussion particularly in the State of Jammu and Kashmir.
In the new GST Regime, a single tax system instead of existing multiple indirect taxation system is being introduced. While in other States, there is uniformity and clarity with regard to enforcement of indirect taxation and jurisdictional position and taxing position between States and Union is well defined.
Central Taxes as also the Service Tax are chargeable by the Union whereas States are left to charge State taxes under Entry 54 of List 1 of Schedule VII appended to the Constitution of India For the State of Jammu and Kashmir the aforesaid Entry has not been extended under Article 370 of the Constitution of India. Because of the Union Government does not levy and charge Service Tax in the State of Jammu and Kashmir. The State of Jammu and Kashmir has levied Service tax by including the “Services” within the definition of “Goods” of J&K General Sales Tax Act, 1962, which is a mocking issue and number of litigations have been filed in the High Court and in vast majority of cases the imposition of service tax by the State has been stayed and as a result neither the State Government nor the Central Government are in a position to effectively levy Service Tax in the State of Jammu and Kashmir. The area as such is left open on this subject.
Under the new GST regime, the transactions will be halved into two i.e. Inter-State and Intra-State. While in inter-state transactions the legislative competence will be of Parliament under newly inserted Article 246-A (2), the legislative competence so far as Intra-State taxation both for goods and services will be vested with the State Legislature.The power to legislate on the service tax is entrusted with the State Legislature and because of that situation the J&K State will have undoubted power to levy service tax which it was not in a position as on today. Because of State’s incompetence to levy Service Tax of various services, presently loss of the State is running into Crores of rupees and furthermore the State was not in a position to take its share from the Central Pool of the taxation as well.
So far as inter-State transaction is concerned, the jurisdiction is entrusted with the Parliament to maintain uniformity through the country and there can be no conflict upon it. The Service Tax will be charged by the State Government on behalf of the Central Government and share of it will be retained as per the norms fixed. It is this issue on which controversy is sought to be raised that by capitulating the powers to levy service tax to the Central Government will affect the fiscal autonomy of the State. As is evident from the above, the same is not the situation as the legislative competence will still be vested with the State and fiscal part of it can be easily taken care of.
There is absolutely no reason for the State to suffer losses which is about Rs.1000 Crore per year in case of non-imposition of GST Regime in the State. The 101th Constitutional Amendment Act, 2016 can be endorsed by the State Government (not by the State Legislature) by simply discussing and passing the same in the State Cabinet as is provided under Article 370 of the Constitution of India because Article 246-A will be a new provision to be adopted by the State.
The GST Council will create special terms for some States including for the State of Jammu and Kashmir so that fears the people of J&K are well taken care of.
Benefits of new GST Regime:-
(a) To Manufacturers: Under the new GST Regime, input tax credit will be available to the manufacturers and there will be no cascading impact i.e. there will be no tax on tax. This leads to massive industrialization boost in the State and with the proper incentives being put in place the industry will look for a boom both in Kashmir and Jammu.
(b) To consumer: The consumers will be the gainers in many ways as because of rationalization of taxes and minimizing of tax burden, the prices of commodities will fall and which will directly go to the consumers and the majority of items have been kept in the tax slabs which are minimal tax category and luxurious items have been kept in the higher tax bracket.
(c) To State Government: The major fiscal advantages will come to the State which is a consuming State with lesser industrial activity and more consumption and more consumers. The items which are being produced outside the State are being imported into the State and taxes mainly are taken by the States where the manufacturing of these goods take place. In the new system the taxation will be consumption destination based and the major profits will come to the destination State. State of J&K as such will get vast flow of funds through the taxation by way of having huge consumption base both static as well as floating in the nature of tourism and pilgrimage like Vaishno Devi and Amar NathYatra and leisure like tourism in Kashmir and other parts of the State.
In case of non-implementation of new taxation system in the State or its delayed implementation beyond 1st July, 2017 when the new regime will come into place in rest of the country, the whole system of trade and trade in the State will crumble down because in view of new taxation system in rest of the country and it will not be possible for the traders of the State to send items including dry fruits handicraft and handloom items, fruits outside the State. Similarly it will be hard for the traders outside the State to send their items to State of J&K. It will be practically impossible to retain the present taxation system in the State when whole tax structure will be replaced in whole of the country and old existing structure will be non-existant. The new GST regime has opened new aspects of progress and economic stability and going with it will usher in economic stability in the State
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