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- Created on 27 November 2019
Edited Image Courtesy: aces.gov.in
The Government should show political will to re-design & stabilize goods and service tax (GST) system. The Government has so far taken in stride both grave concern and suggestions pertaining to this issue. It didn’t appear shaken by valuable advice from diverse quarters including the World Bank (WB) and Comptroller and Auditor General (CAG)
It should at least now bite the reforms bullet in response to repeated calls from Fifteenth Finance Commission (15thFC) Chairman N.K. Singh for reinventing GST to achieve its original objectives.
On 18th November 2018, Mr. Singh pitched for undertaking GST and other tax reforms. While launching TIOL National Taxation Awards portal, he noted that GST needs to undergo for “fundamental changes” to achieve its intended objective.
Four days later, he articulated his vision for GST reforms while delivering L.K. Jha memorial lecture organized by Reserve Bank of India (RBI).
Mr. Singh is epitome of wisdom on GST by virtue of his long association with the revenue administration. He has had unique honour of being entrusted twice by the Modi Government to lay roadmap for fiscal reforms.
Mr. Singh is now pitching for GST reforms after getting detailed feedback from all stakeholders – the Centre, the States, economists, businessmen and academics.
And the decisive & exhaustive logic for reforms would, of course, be contained in eagerly awaited report of 15thFC.
Instead of waiting for 15thFC report, the Government should first make up its mind to turn GST from growth retardant to growth booster.
Delivering the Lecture titled ‘Fiscal Federalism: Ideology and Practice’ Mr, Singh observed: “GST Council is still in its nascent phase and needs to revisit its design and decision-making process in a more fundamental way. This is also necessary to enable it to fulfil its original purpose”.
PTI quoted him as telling SBI Chairman Rajnish Kumar at the Lecture: “If you do not simplify GST, you will be defeating the very purpose and intention of why we took this far reaching step”.
- Created on 06 October 2019
(Image Courtesy mea.gov.in)
“If a location lags for multiple reasons that reinforce one another, a simple tax incentive package is unlikely to attract private investment as intended. It may be more effective to improve its connectivity to major markets and support skills development and industries such as agro-processing and labour-intensive manufacturing”.
This observation made last week by Asian Development Bank (ADB)’s Asian Development Outlook Update is welcome. It should turn focus on the limitation of corporate tax cut (CTC) announced by India. The Government should discuss publicly limited role of direct and indirect taxes in attracting investment and its trade-off with fiscal health of the country.
Let there be a status paper that should factor in non-tax factors that attract or repel investors. The paper should ideally shed light on role of foreign capital in all forms of loans & equity in catalysing growth and jobs creation.
Prime Minister Narendra Modi marketed CTC as a “very revolutionary step” before multinationals during his recent tour of the United States. CTC might not fire up growth of gross domestic product (GDP). It might not ramp up significantly capital formation.
Existing companies might well pass off CTC-induced surplus profit as higher dividend to shareholders. The companies might finance shares buyback with such surplus instead of ploughing back in greenfield projects and thus enhance lengthen the chain of CTC benefit flow.
CTC has not been accompanied by reduction or withdrawal of existing tax incentives. This is a departure from the original plan to phase out tax incentives and reduce corporation tax. The regulation & management of direct taxes regime is thus set to become complicated.
Businessmen are shrewd. They would prefer to wait and watch for announcement and interpretation of CTC rules by Income Tax Department (ITD). If CTC benefit is protected statutorily for new manufacturing projects for 15 years period, then they might feel assured to make new investments.
Read more: Corporate Tax Cut Alone Can’t Blossom New Manufacturing Projects
- Created on 10 July 2019
(Edited Image Courtesy: OECD)
“Our action has had a very concrete impact. First, you and other countries in the world have recovered taxes which had been defrauded for too long,” says a report from Organisation for Economic Co-operation and Development’s (OECD) Secretary General (SG), Angel Gurría.
The report on OECD/G20’s Base Erosion and Profit Shifting (BEPS) & related projects, submitted last month to The G20 Finance Ministers and Central Bank Governors, adds: “The very high profile of our work against tax fraud and tax avoidance has brought tax matters to the boardrooms and is having a massive impact”.
Have BEPS & related projects indeed delivered dazzling results? OECD, the projects proponent, would like the world to believe so.
G20 has, however, avoided endorsing success story as detailed out by SG’s report. International Monetary Fund (IMF) has also avoided optimism over BEPS outcome. It is here pertinent to cite IMF’s G-20 Surveillance Note issued last month.
As put by the Note, “There is an urgent need for a cooperative multilateral approach to reform the current system of international corporate taxation to address tax competition and reign in prevalent profit shifting by multinationals”.
Read more: BEPS’s Verifiable Impact on Global Economy Difficult to Capture
- Created on 20 March 2019
The UN-crafted sustainable development goals (SDGs) and Paris Agreement on Climate Change are set to alter tax revenue flows in varied ways. The alteration would result from changes in both the taxation and non-tariff norms governing production and usage of different materials.
The impact of alteration would perhaps be the most significant in the domain of fossil fuels and their derivatives notably plastics. Certain countries have either levied taxes or are likely to do so in the coming years to curb use of plastics and to facilitate their recycling. Most countries have already imposed non-tax regulations to discourage plastics usage, thereby impacting tax revenues.
The restrictions on consumption of one material facilitate increase in the demand for competing materials. In the case of plastics, the substitutes are aplenty – paper, natural fibres-derived materials, wood and aluminium, depending on the application.
Plastics are largely produced from intermediates derived from oil, gas and coal. The suppression in the demand for plastics would thus ultimately impact the entire value chain of fossil fuels. The revenue impact would also be influenced by mandated shift in electricity generation from fossils to renewable sources of energy. Same trend applies to regulatory shifts in petrol & diesel-driven vehicles to electricity-powered ones.
This issue has been aptly flagged in a White Paper titled ‘Thinking Strategically: Using Resource Revenues to Invest in a Sustainable Future’ released by World Economic Forum (WEF) on 21 February 2019.
