Re: state/center division of powers

[prabhu.guptara@ny.ubs.com]

     The organisation of taxation is a different matter from the division 
     of tasks/responsibilities/powers between the Centre and the States....
     
     The simplest way to organise the taxation system seems to me the 
     following: 
     
     1.  states/union territories impose and collect whatever taxes, 
     duties, etc.  they wish
     
     2.  an percentage (to be agreed, say 20%) of all the taxes (of 
     whatever sort) raised in the states/union territories are transmitted 
     to the Centre for its expenses (including defense).
     
     3.  the advantages of this systems are that it minimises the internal 
     transfer cost of getting the money to the centre and keeps the 
     initiative locally; combined with freedom of movement of goods and 
     services, it forces the taxes to be spent efficiently because if I 
     (being an individual or a company) am taxed but not provided services 
     I am free to move to an area which taxes less/spends more efficiently 
     (which of course reduces the amount of money available to the 
     inefficient or over-zealous taxer); also that the "richer" states/UTs 
     contribute more while the "poorer" states/UTs contribute less; and 
     that the Centre provides a more or less clear list of services 
     (defence, etc) to the country
     
     4  the disadvantage of the system is that a state which is generating 
     a lot of central revenue may begin to wonder why it needs the centre 
     for defence since it is so unlikely to be attacked (being so far away 
     from potential theatres of war): we really do need to think carefully 
     about any system which weakens the centre too much or puts it in a 
     position where it has to battle further against "fissiparious 
     tendencies" (we have had them in Punjab and Kashmir, mainly) and it 
     would not do to have them in the South as well!
     
     Actually, come to think of it, I am not persuaded that the Centre is 
     too strong anyway....what is the basis for this view?
     
     Please note that this is a separate question from how tax-collection 
     should be organised and also a separate question from what list of 
     tasks/responsibilities etc. the Centre and the States should have ....
     
        
     Professor Prabhu Guptara
     Director, Organisational and Executive Development
     Wolfsberg Executive Development Centre
     (a subsidiary of UBS AG)
     CH-8272 Ermatingen
     Switzerland
     Tel: + 41.71.663.5605
     Fax: +41.71.663.5590
     e-mail: prabhu.guptara@ubs.com
     


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