REFORMS IN TAX DEVOLUTION AND EVOLVING A COORDINATED TAX SYSTEM

The finance minister in his budget speech has stated that a Constituti on amendment bill will soon be brought forward in the parliament to gi ve effect to the tenth Finance Commission's recommendations on an alte rnative tax devolution scheme. In this paper it is argued that althoug h the initiative is in the right direction, it does not go far enough. A well thought out reform should address reforms in tax devolution al ong with the issue of reassignment to evolve a co-ordinated system of domestic trade taxes. In particular, to design and implement a destina tion based consumption type value added tax (VAT), the states should b e enabled to extend their sales taxes to services in addition to goods . Further, an efficient and equitable tax system should prevent the le vy of sales taxes on inter-state sale. Reforms in tax devolution shoul d be addressed in conjunction with evolving rational, co-ordinated dom estic trade taxes to bring about a structured reform of the fiscal sys tem in Indian federalism.