In a federal system, power is divided between a central authority and various constituent units (states/provinces). Both levels of government enjoy independent powers guaranteed by the Constitution, and neither can override the other.
In a unitary system, either there is only one level of government, or the sub-units are subordinate to the central government. The central government can pass orders to provincial or local governments and even withdraw their powers.
Key contrast: In federalism, the state government has powers of its own and is not answerable to the central government. In a unitary system, the central government has supreme authority. For example, Sri Lanka is unitary — the national government holds all powers — whereas Belgium shifted to a federal system in 1993, giving constitutional powers to regional governments independent of the centre.
Source: Federalism, Chapter 2, "What is Federalism?"
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