Sovereign Right to Taxation

Context: While scrapping the retrospective levy, Finance Minister Nirmala Sitharaman said in Rajya Sabha that "We are keeping the sovereign right of India to tax absolutely intact".

• The government has stressed the need to establish its “Sovereign Right to Taxation” by scrapping the retrospective levy.

Implication of Retrospective Tax ban on Sovereign Right to Taxation

• The government has assured that the amendment to retrospective income-tax law will not dilute India’s sovereign right to tax.
• The amendment was made after the apex court in 2012 gave a verdict that gains arising from indirect transfer of Indian assets were not taxable under the extant provisions of the Income Tax Act.
• The idea behind the banning Retrospective Tax, a sovereign government has right to tax, but to apply it in retrospect has created a lot of discontentment.

About Sovereign Right to Taxation

• The Constitution of India gives the government the right to levy taxes on individuals and organisations.
• It also makes it clear that no one has the right to levy or charge taxes except by the authority of law.
• Any tax being charged has to be backed by a law passed by the legislature or Parliament.
• The Ministry of Statistics and Programme Implementation defines tax as a pecuniary burden laid upon individuals or property owners to support the government.
• It provides that tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority.
• Taxes in India come under a three-tier system based on the Central, State and local governments, and the Seventh Schedule of the Constitution puts separate heads of taxation under the Union and State list.
• There is no separate head under the Concurrent list, meaning Union and the States have no concurrent power of taxation, as per the document.