What is the sovereign right to taxation?
- The government recently decided to withdraw the retrospective taxation amendment in the I-T Act introduced in March 2012.
- While scrapping the retrospective levy is believed to provide clarity to investors by removing a major source of ambiguity on taxation laws, the government has stressed the need to establish its “sovereign right to taxation”.
What is the ‘sovereign right to taxation’ in India?
- In India, the Constitution gives the government the right to levy taxes on individuals and organisations, but 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.
- A document on the Ministry of Statistics and Programme Implementation website quotes the definition of tax as a “pecuniary burden laid upon individuals or property owners to support the government, a payment exacted by legislative authority”, and that a 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.
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