You are on page 1of 60

November 2016

Vol 60

Chief Editor : Deepika Kachhal


Senior Editor : Shyamala M. Iyer
Joint Director (Production) : V.K. Meena
Cover Design : Gajanan P. Dhope
YOJANA
E-mail (Editorial) : yojanace@gmail.com
Sub Editor : Vatica Chandra
E-mail (Circulation) : pdjucir@gmail.com
Website : www.yojana.gov.in
Facebook : https://www.facebook.com/pages/Yojana-Journal

Let noble thoughts come to us from all sides


Rig Veda

CONTENTS

Tax Reforms: Past, Present and Future GST: game changer for Indian Economy?
TN Ashok ....................................................................................7 Ranjeet Mehta............................................................................35
Indias Tax System: Increasing Progressivity GST and the Constitutional Conundrum
Malini Chakravarty....................................................................12 Jayanta Roy Chowdhury............................................................41
do you know?...................................................................15
special article
Indirect Tax Reforms : Goods and Services Tax:
Facilitative tax regime The International Experience
Najib Shah..................................................................................17 Pravakar Sahoo , Ashwani Bishnoi............................................45
Ushering in a New Era of Tax Reforms
GST: One Nation, One Tax
D S Malik...................................................................................22
Shishir Sinha..............................................................................52
Road Map for Taxation
Timsy Jaipuria............................................................................27 NORTH EAST DIARY . .........................................................55

focus GST: rejuvenating the


black money menace: manufacturing sector
Government on war-footing Amiya Kumar Mohapatra..........................................................58
Dilasha Seth...............................................................................30

Our Representatives : Ahmedabad: Amita Maru, Bengaluru: Punita, Chennai: A. Elangovan, Guwahati: Anupoma Das, Hyderabad: Vijayakumar Vedagiri,
Kolkata: Rama Mandal Mumbai: Umesh Sadashivarao Ujgare: Thiruvananthapuram: Dhanya Sanyal K., Jalandhar: Gagandeep Kaur Devgan, Bhubaneshwar
Girish Chander Das.
YOJANA seeks to provide a vibrant platform for discussion on problems of social and economic development of the country through in-depth analysis of these issues in the wider
context of government policies. Although published by the Ministry of Information and Broadcasting, Yojana is not restricted to expressing the official point of view. Yojana
is published in Assamese, Bengali, English, Gujarati, Hindi, Kannada, Malayalam, Marathi, Oriya, Punjabi, Tamil, Telugu and Urdu.
Chief Editor's Office : Room No. 660, Soochna Bhawan, CGO Complex, Lodi Road New Delhi 110 003 Ph: 24362971. Yojana (English): Room No. 647, Soochna Bhavan,
C.G.O. Complex, Lodi Road, New Delhi - 110 003. Business Manager (Hqs.) : Ph :24367260, 24365609, 24365610
Correspondence address of journals unit for new subscriptions, renewals, enquiries has changed. Please contact : Business Manager (Circulation & Advt.), Publications
Division, Ministry of Information & Broadcasting, Room No. 48-53, Soochna Bhawan, CGO Complex, Lodi Road New Delhi 110 003(Ph: 011 24367453).Sales
Emporia : Publications Division: *Soochna Bhavan, CGO Complex, Lodhi Road, New Delhi -110003 (Ph 24365610) *Hall No.196, Old Secretariat, Delhi 110054(Ph
23890205) * 701, B Wing, 7th Floor, Kendriya Sadan, Belapur, Navi Mumbai 400614 (Ph 27570686)*8, Esplanade East, Kolkata-700069 (Ph 22488030) *A Wing, Rajaji
Bhawan, Basant Nagar, Chennai-600090 (Ph 24917673) *Press road, Near Govt. Press, Thiruvananthapuram-695001 (Ph 2330650) *205 II Floor CGO Towers, Kavadiguda,
Secundrabad-500080 (Ph 27546312)*1st Floor, F Wing, Kendriya Sadan, Koramangala, Bengaluru-560034 (Ph 25537244) *Bihar State Co-operative Bank Building, Ashoka
Rajpath, Patna-800004 (Ph 2683407) *Hall No 1, 2nd floor, Kendriya Bhawan, Sector-H, Aliganj, Lucknow-226024(Ph 3025455) *Ambica Complex, 1st Floor, above UCO
Bank, Paldi, Ahmedabad-380007 (Ph 26588669) *KKB Road, New Colony, House No.7, Chenikuthi, Guwahati 781003 (Ph 2665090) *Sco 103, Puda Market, New Bus
Stand, Jalandhar. (Ph 2224243)
SUBSCRIPTION : 1 year ` 230, 2 years ` 430, 3 years ` 610. For subscriptions abroad the same rates plus Air Mail charges as prescribed by India post from time to time, as
applicable for concerned countries.
No. of Pages 64
Disclaimer :
l The views expressed in various articles are those of the authors and not necessarily of the government. The views expressed in the articles are of the author
and they don't represent the views of their organisation.
l Maps/flags used in the articles are only indicative. They don't reflect the political map or legal representation of the flag of India/any other country.
l The readers are requested to verify the claims made in the advertisements regarding career guidance books/institutions. Yojana does not own responsibility
regarding the contents of the advertisements.

YOJANA November 2016 3


YE-168/2016

4 YOJANA November 2016


YOJANA

Tex Reform-Intergral to development

T
axes the word conjures up an image of a person rushing to pay his income tax before
the last date. Or, an income tax raid on a businessman where wealth and money is
unearthed. However scary the term may sound but it is a fact that Taxes are essential for
development of any economy. It is these very taxes which the citizens of a country pay that go
towards development activities like building roads and bridges, constructing dams, maintaining
the railways network, offering health care services, etc.
The rajas and maharajs of yorealso collected taxes. The more enlightened ones like Ashoka
and Akbar evolved a systematic taxation policy and also tax collection policy so as to earn revenue
to run the kingdom without creating much hardship for the common man. Some kings had an
arbitrary tax collection system which they used to maintain their lavish lifestyles and wage wars.
Today, in the modern economies, taxes are regulated by various rules and regulations and are
monitored by the peoples representatives.
Indian tax system is the most complicated one in the world with the Centre, the States and
the local bodies having powers to levy variety of taxes to earn revenue. Various kinds of taxes
are collected at different levels like the direct taxes which affect the common man directly like the income tax and wealth tax,
indirect taxes which the common man pays for goods and services availed of like VAT and service tax, corporate tax, etc. Every
budget sees expectations on tax reforms by both the common man and the corporates. The common man wants the income tax
slab raised, while the corporates want tax relief in various sectors. Government handles these requests according to the economic
necessity. Over the years India has experienced unprecedented rates of economic growth. This growth required reforms in the
taxation system to make it simpler and attractive for the foreign as well as domestic investors. In an effort to keep in line with the
changes in global economy, Indian taxation system has undergone remarkable reforms during the last decade with rationalization
and simplification of tax laws.
The Goods and Services Tax which was passed recently is one of the most historic tax reforms in Indian taxation history. It
seeks to streamline the taxation system so that there is only a single tax paid for supply of goods and services. The bill will replace
nearly 15 state and federal taxes which is in line with the Governments focus on cooperative federalism. With 16 States ratifying
the GST bill so far, minimum requirement of 50 percent states ratifying the bill has been completed. The Government is all set
to usher in a new era on 1st April, 2017 with the roll out of the Goods and Services Tax (GST) in the country. It is expected that
this landmark reform will go a long way in facilitating ease of doing business and enabling India to compete with world trade.
While the GST is a major step towards simplifying tax system in India, the complexity of the system so far has resulted in
evasion of taxes and creation of blackmoney in the country. The amount of this black money is so huge that it is said to run almost
like a parallel economy in the country. The Government has adopted a multipronged strategy to unearth and control black money
which includes policy-level initiatives, more effective enforcement action on the ground, putting in place robust legislative and
administrative frameworks, systems and processes with due focus on use of information technology. Voluntary disclosure of
income Schemes (VDIS), Constitution of the Special Investigation Team (SIT) on Black Money, Enactment of a comprehensive
new law - The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to specifically deal with
the issue of black money stashed abroad, Introduction of the Benami Transactions (Prohibition) Amendment Bill, are some of
the recent major initiatives of the Government in this regard.
Indian taxation system has come a long way from closed, complicated one to open, simple and futuristic. And the current
Government is committed to take it further to make India one of the most favorable investment and manufacturing destinations
in the world. q

YOJANA November 2016 5


YE-172/2016

6 YOJANA November 2016


dynamics of taxation
rationalisation

Tax Reforms: Past, Present and Future

TN Ashok

T
ax reforms are an integral Realising this , two legislators
part of the development are trying to deliver a broad tax
process of any country. reform. Max Baucus, the Democrat
Even developed who heads the Senates tax-writing
countries such as the committee, and Dave Camp, his
United Kingdom and the Republican counterpart in the House
United States, which are often the role of Representatives, have been at
models for developing countries such the exercise for the last three years;
as India, too undertook reforms in the they have been talking to people and
last few years. floating ideas. Though any full plan
GST is .... a giant leap for is yet to fructify, their principles
Take the United Kingdom. The
the country in tax reforms Conservative Liberal Democrat are sound: lower tax rates for both
to inspire confidence of coalition government undertook corporations and individuals, paid for
manufacturers and investors reforms between 2010 and 2015. In the by limiting or scrapping tax breaks.
to push the economy forward reforms initiated in 2013, two million Though they belong to different
and one can hope for a further people were virtually removed from parties, both Baucus and Camp have
slew of reforms in the 2016-17 paying income tax altogether when the felt that ideally, no tax break should
Chancellor of the Exchequer presented be spared, even the popular ones for
budgets to propel GDP growth
the budget. The raft of reforms brought charity, housing, health insurance and
further. While the government about a rise in the personal allowance,
might take time on DTC or research and development. Though
which meant that no one paid any desirable, they impose a cost, in
Corporate Indias bucket list, tax until he or she earned more than the form of higher taxes, on other
it is apparent that it will stay 9,440. The threshold for the higher desirable things. As an Economist
focused on the main objective rate of tax - above which people pay
article points out, the political reality
of making tax laws simple tax at 40 per cent - dropped from
is that, some of these tax breaks will
34,370 to 32,010, excluding the
to make life easier for the personal allowance.
survive, just as there is no hope for a
individuals as also business carbon tax, one of the more sensible
besides bringing in larger At the same time the top rate of ways to raise money.
populations into the tax net income tax fell in 2013-14 from 50
Yet Camp and Baucus found
per cent to 45 per cent for those whose
and making every Indian taxable income exceeded 150,000.
enough common ground to build a
conscious of his social more efficient tax system. They differ
obligation toward paying Take a country like the United on the crucial question of whether tax
States. A symbol of free trade and reform should raise more revenue.
taxes, making the country
an advanced economy, it is a country While Camp, being a Republican,
more tax compliant that needs tax reforms very badly. felt NO, Baucus, like the rest of his

The author was Economics Editor and Chief of Bureau (Economic) of PTI specialising in infrastructure/finance/commerce sectors and
environment. He has covered the historic Earth Summit in 1992 at Rio De Janeiro as also the 1st inaugural WTO Ministerial summit
at Singapore in 1996. He provides strategic advice on public affairs/ media to leading MNCs and Indian transnationals.

YOJANA November 2016 7


Democrats led by the President Barack tax. And this population is concentrated under the GST regime will be kept at
says YES. in the urban agglomerate. minimum workable rate so that no
state government ends up annoying
So, India is no exception to tax Even as the government brings its people with a higher tax rate. The
reforms. Ever since economic reforms more and more reforms to bring more final rate is to be decided by the GST
were unveiled in the early 90s, tax and more people into the net and raise Council. The bill will now have to be
reforms too became a crying need. the tax collection buoyancy, the single ratified by at least 16 of the 29 state
After much deliberation, the then most critical tax reform that stands assemblies, which the Prime Minister
government felt that any taxation out is the Goods and Services Tax hoped would be done at the earliest.
system should be reasonable, fair and (GST).. Virtually codifying all taxes
non-discriminatory so that, both the into one so that manufacturers did not The GST forges a single
individual tax payer under the direct face the burden of multiple taxation in economic zone for the country from
taxes category and the corporates and the country and movement of goods a thicket of overlapping federal
industry accounting for bulk of the becomes easier. and state taxes. The New York
indirect taxes, became not only tax Times described the legislation as
Lets see why the GST is a historic the biggest tax reform since 1991
compliant, but feel the social and civic
piece of legislation, given the twists when India opened its markets first.
obligation to pay taxes which are the
and turns and uncertainties it faced Potentially one of the most dynamic
core for any government to undertake
before it was finally adopted by both economies in the developing world,
development projects.
houses of parliament. The GST is India is hampered by a bewildering
So, tax reforms have been one expected to make consumer the array of state-by-state tax codes that
dynamic process through successive king. The Constitution (122nd discourage doing business across
governments until 2016. The principles Amendment) Bill was first passed state borders.
have largely remained the same ,
a transparent, just, equitable and ...tax reforms have been one The GST is widely viewed as
fair taxation system that was easy a breakthrough that will allow the
dynamic process through successive authorities to confront the problem,
to administer. Consistently, the governments until 2016. The
governments of the day have been eventually creating a more unified
rationalising the direct tax structure in principles have largely remained economy that will allow businesses
such a way that the individual tax payer the same , a transparent, just, to expand nationwide far more easily,
benefitted the most. the NY Times observed. This is long
equitable and fair taxation system overdue but hugely consequential for
Year after year, though marginally, that was easy to administer. the ease of doing business, and for
the ceiling on entry level taxation was Consistently, the governments of demonstrating to the outside world
lifted and the taxation slabs have now the day have been rationalising that India is dragging its economy into
been neatly and simply structured into the 21st century, Milan Vaishnav, a
the direct tax structure in such a senior associate in the South Asia
three slabs. 10 per cent, 20 per cent and
30 per cent flat for incomes ranging way that the individual tax payer program at theCarnegie Endowment
between Rs 2.50 lakhs to Rs 5 lakhs to benefitted. for International Peace is quoted as
Rs 10 lakhs respectively. That is, those saying.
earning less than Rs 2.50 lakhs paid no by the Lok Sabha in May 2015, then The GST replaces 15 existing
tax, between Rs 2.50 to Rs 5 lakhs paid taken up again by the Lower House state and federal taxes and could help
at 10 per cent and Rs 5 lakhs to Rs 10 to approve the changes made in it by India increase its economic growth
lakhs at 20 per cent and those above the Rajya Sabha. Finally, both houses by 0.5 and two percentage points.
Rs 10 lakhs paid a flat 30 per cent tax accorded approval and it has got The GST is in keeping with the
on their incomes. the Presidential assent as well. The present governments line of thinking
The corporate taxes too have been government had moved six official of having cooperative federalism
rationalised. besides a plethora of amendments, including scrapping of wherein the Centre and the States
excise and customs levies have been 1 per cent additional tax, to the bill work together for the nations benefit
made easier. In all these, the main which was approved by the Upper and where the states also get their due
aim has been to encourage people to House. share. The government had revised
become tax complaint and bring in the tax revenue sharing formula to
The GST is expected to be a devolve more to the states to bring
a larger population into the tax net. legislative measure that will help
While the tax to GDP ratio may be them in line with the centre's line of
transform the economy ushering thinking of marching hand in hand.
progressive, the tax to demographic in transparency and most of all,
population is abysmal, it is said that bringing the concept of one country It all began in 1991 when
hardly 2 per cent of the population pays one tax into fruition. The tax rate government embraced market reform

8 YOJANA November 2016


policies devolving more power to the IT and IT enabled services netting in archaic (older and no longer useful)
states, including more taxes to them. valuable foreign exchange which now Income Tax Act. However, many
Successive governments had felt the stands at over US$ 370 billion. provisions in the Income Tax Act
need for a tax overhaul as it became will be a part of DTC as well. Mutual
increasingly clear that overlapping tax Tax reforms dont end with GST. Funds/ULIP will be dropped from
We still have another major legislation
codes blocked growth. 80C deductions: Income from equity-
to push through, the Direct Tax Code
oriented mutual funds or ULIP shall
Benefits of GST will be indeed (DTC) that will simplify the direct
be subject to tax @ 5 per cent, Fringe
slow to come, probably by 2019. taxes structure further benefitting a
benefits tax will be charged to the
It is also likely that the GST could large number of the population. The
employee rather than the employer.
eventually lead to an inflationary bump Finance Ministry has indicated in
Political contribution of up to 5 per
as the governments Chief Economic 2016-17 budget that the direct tax code
cent of the gross total income will be
Advisor Arvind Subramanian points was being scrapped. But the standing
eligible for deduction.
out. The GST is a single uniform tax committee on Finance of Parliament
pan India that will be fiendishly, mind- has told the Finance Minister that DTC The DTC seeks to have a Single
bogglingly complex to administer, provisions need to be brought forth as Code for direct taxes:All the direct
Subramanian is quoted as saying. the next major step towards reforming taxes are sought to be brought under
the tax reforms. a single Code and unify compliance
In the longer run, the GST is procedures, eventually paving the way
expected to attract foreign investment What does DTC entail? As
envisaged by the government, it for a single unified taxpayer reporting
reducing the cost of capital goods; system. The use of simple language in
raise manufacturing and exports, seeks to replace the Indian Income
Tax Act of 1961 by amending all the DTC seeks to achieve voluntary
increase tax collections and most tax compliance from the people so the
importantly create jobs, the need of laws relating to direct taxes, namely
income tax, dividend distribution tax, that tax laws have clarity. The Scope
the hour. for litigation wherever possible is
fringe benefit tax and wealth-tax with
The GST is being hailed as the a view to establishing an economically being reduced, avoiding ambiguity
mother of all economic reforms in so as to avoid rival interpretations.
India. Business leaders and Corporate The statute has been developed in a
India claims that the change would In the longer run, the GST is manner capable of accommodating the
have a profound effect on their daily expected to attract foreign changes in the structure of a growing
lives. It is expected that GST will put economy without resorting to frequent
investment reducing the amendments.
an end to Tax Terrorism because
industry says that under the plethora cost of capital goods; raise
As most taxpayers are in the small
of taxes in states and the centre, it is manufacturing and exports, and marginal category, the tax law is
currently harassed and victimized by increase tax collections and most what is reflected in the Form. So tax
multiple tax authorities. Most of the importantly create jobs, the need laws are being logically reproduced
time, we are busy in complying with in a Form. The DTC seeks to provide
those taxation formalities, collecting of the hour.
stability where all rates of taxes are
taxes, depositing taxes, submission of proposed to be prescribed in the First
forms, our money stuck in the system, efficient, effective and equitable direct to the Fourth Schedule to the Code
and other issues, a spokesman of the tax system that can facilitate voluntary itself, thereby obviating the need for
industry is quoted as saying. compliance and help increase the tax- an annual Finance Bill. The changes in
GDP ratio. the rates, if any, will be done through
The vexatious issue between the
Centre and States on GST has been Another objective is to reduce appropriate amendments to the
tax rates. States want high rates the scope for disputes and minimize Schedule brought before Parliament
to maximize their revenue and the litigation. It seeks to provide stability in the form of an Amendment Bill.
centre pushes for lower rates to in the tax regime as it is based on
Since a lot of thought has gone
prevent inflation from spiking. Indias accepted principles of taxation and
into the DTC, it cannot be wished
economy is now growing at a robust best international practices. It will
away. while nomenclatures could
7.6 per cent enjoying the lowest eventually pave the way for a single
change, call DTC by another name,
inflation rate in decades. Job growth is unified taxpayer reporting system.The
but certainly most of the provisions
still not there and the corporate sector Highlights of the Direct Taxes Code:
are going to be retained for the benefit
is still starved of funds leading to a lull proposed measure has 319 sections
of the tax payer.
in the manufacturing sector. much of and 22 schedules against 298 sections
the growth momentum is being pushed and 14 schedules in the existing IT The Corporate sector has a huge
by the services sector including the Act, Once enacted, DTC will replace bucket list for further tax reforms.

YOJANA November 2016 9


Abolition of the Minimum Alternate Tax (MAT), burying the
ghost of retrospective tax (the Vodafone/IT department crisis
in realising arrears of tax), phasing out tax holidays could
reduce investments in SEZs, and restoration of capital gains
tax treatment for buy-back of shares.
GST is, thus, a giant leap for the country in tax reforms
to inspire confidence of manufacturers and investors to push
the economy forward and one can hope for a further slew
of reforms in the 2016-17 budgets to propel GDP growth
further. While the government might take time on DTC or
Corporate Indias bucket list, it is apparent that it will stay
focused on the main objective of making tax laws simple to
make life easier for the individuals as also business besides
bringing in larger populations into the tax net and making
every Indian conscious of his social obligation toward paying
taxes, making the country more tax compliant.

Reference
Media Reports: New York Times, Guardian, Business
Standard and Wikipedia.  q
(E-mail:ashoktnex@gmail.com)

HIMANSH, Indias Remote,


High-Altitude Station
6 OCTOBER 13 OCTOBER
Our Successful Students
As part of the Indian governments initiatives
to better study and quantify the Himalayan glacier
responses towards the climate change, National Centre
for Antarctic and Ocean Research (NCAOR), Goa,
under the Ministry of Earth Sciences has established
a high altitude research station in Himalaya called
HIMANSH (meaning, a slice of ice), situated above
13,500 ft (more than 4000 m) at a remote region in
Spiti, Himachal Pradesh.
The station houses many instruments to quantify
the glacier melting and its relation to changing
climate. Some of the instruments that are available
at this research facility include Automatic Weather
Stations for weather monitoring, water level recorder
for quantifying the glacier melt, ground penetrating
radar to know the thickness of glaciers, geodetic GPS
systems to study the glacier movements, snow fork
for studying snow thickness, steam drill, snow corer,
temperature profilers, as well as various glaciological
tools. Also, this will be used by the researchers as a
base for undertaking surveys using Terrestrial Laser
Scanners (TLS) and Unmanned Aerial Vehicles (UAV)
that would digitize the glacier motion and snow
cover variations with exceptional precision. Himansh
will provide the much needed fillip to the scientific
YE-169/2016

research on Himalayan glaciers and its hydrological


contribution.

10 YOJANA November 2016


YE-163/2016

YOJANA November 2016 11


mobilising financial resources
in-depth

Indias Tax System: Increasing Progressivity

Malini Chakravarty

W
e all pay taxes to the tax revenue and non-tax revenue. Tax
government in some Revenue: Tax revenue refers to the
form or the other in money collected by the government
our daily lives. These through payments imposed by law.
taxes we pay play Non-Tax Revenue: Non-Tax Revenue
an important role in refers to revenue of the government
financing different raised through instruments other
functions that the government performs. than taxes such as fees/user charges,
There are many responsibilities that dividends and profit of public sector
the government is required to fulfil. enterprises, interest receipt, penalty or
These include ensuring the rule of fine, etc. For most countries across the
law; providing public goods and world, tax revenue forms a significant
services; building physical and social proportion of government revenues.
infrastructure; investing in education
It is hoped that of the population; alleviating poverty, Direct and Indirect Taxes
introduction of GST etc. Clearly, the government needs Taxes can be broadly classified
to mobilise a significant amount into two kinds: Direct Taxes and
would help to simplify of financial resources in order to Indirect Taxes. Direct Taxes: Those
and rationalise the tax fulfil its many commitments. The
government mobilises financial
taxes for which, the burden of the tax
falls on the entity that is being taxed
system and increase resources for funding its different are known as direct taxes. In other
activities mainly through taxes, user
compliance. At the fees/ service charges and borrowings.
words, an entity that directly pays
this kind of a tax to the government
same time, it is also The sources of funds which neither bears the burden of that particular
create liabilities nor reduce assets
important that the are called revenue receipts. Other
tax and cannot shift the tax burden.
Direct taxes are levied on incomes,
government take some sources of funds such as borrowings property and wealth. Indirect taxes,
which create liabilities or those that
steps to increase direct reduce assets (e.g. disinvestment) are
on the other hand, are those taxes
for which the tax-burden can be
taxes that would help called capital receipts.Thus, taxes
and user fees/service charges are some
shifted or passed on to other persons
later through business transactions
increase progressivity examples of revenue receipts of the of goods/ services. These taxes are
government while borrowings are
of Indias tax structure capital receipts.
indirect because the agent who bears
the burden of the tax is not the one on
Tax Revenue and Non-Tax Revenue whom it is normally levied. Indirect
taxes include Customs Duties, Excise
Governments revenue receipts can Duties, Service Tax, and Sales Tax/
be further divided into two categories: Value Added Tax (VAT).
The author is presently working with centre for budget and governance accountability (CBGA). Her research interests include
issues related to macroeconomics, public finance, international trade and social protection.

12 YOJANA November 2016


Taxes: Different Types Direct taxes Indirect Taxes
There exist a number of taxes, Corporation Tax: This tax is levied on the Excise Duties: It is a
both direct as well as indirect, that incomes of registered companies/corporations type of tax levied on
are levied on incomes of various in the country (whether national or multina- those goods, which
kinds, production and sale of goods tional/foreign). National companies in India are manufactured in
and services within the economy and are taxed on the basis of their aggregate in-
others that are levied on cross-border the country and are
come, irrespective of its source and origin.
movement of goods. Examples of some meant for domestic
Whereas foreign companies are taxed only on
of the different types of taxes that exist consumption.
income that arises from operations carried out
in India is given in the box. in India. Taxes on Personal Income: This is Sales Tax: It is gen-
Division of Taxation Powers a tax on the income of individuals, firms, etc. erally charged at
between Centre and States other than Companies, under the Income Tax the point of pur-
Act, 1961. chase or exchange of
The Constitution of India clearly
demarcates the taxation powers at Direct taxes also include other Taxes such as certain taxable goods,
different levels of governance. Thus, the Securities Transaction Tax, which is charged as a percent-
the power to levy taxes and duties has levied on transaction in listed securities un- age of the total value
been divided among the governments at dertaken on stock exchanges and in units of of the product.
the three tiers i.e. Central Government, mutual funds.
State Governments, and Local Value Added Tax
Capital Gains Tax: Profits generated from the (VAT): VAT, is a mul-
Bodies.
sale of a capital asset (physical and financial),
tistage tax, levied only
The power to levy taxes on such as, any kind of property held by an asses-
corporations and personal income on the value added at
see, paintings, jewellery and ornaments, busi-
(except for tax on agricultural income, ness stocks, mutual funds, etc., are taxable as each stage of a supply
which the State Governments can capital gains, either short-term or long-term. chain and not on the
levy) lies mostly with the Central The capital gain or net profit which is taxable entire value of sales;
government. is basically the difference between the price at in VAT, taxpayers re-
In the arena of indirect taxes, the which the asset is sold and the price at which ceive credit for tax
Central government has the authority it was purchased. The tax is applicable in the already paid on the
to impose a broad spectrum of excise year in which the sale of the capital asset takes inputs in earlier stages
duties on production or manufacture place. of the supply chain.
and service tax on services provided,
Wealth Tax: This is a tax levied on the speci- Service Tax: It is a
while States are assigned the power to
fied assets of certain persons including indi- tax levied on services
levy tax on the sale of goods and some
other taxes. Some of the indirect taxes viduals and companies, under the Wealth Tax
provided by an entity
that the Centre levies are Customs Act, 1957. Wealth tax is not levied on produc-
and the responsibil-
duties, Central Excise, Sales Tax and tive assets. Therefore, investments in shares,
debentures, UTI mutual funds etc. are not sub- ity of payment of the
Service Tax. tax lies on the service
jected to wealth tax. Wealth tax was, however,
State Governments have been abolished in 2015-16 and replaced by an addi- provider.
vested with the power to levy: Sales tional surcharge to be paid by the super-rich. Customs Duties: It is
Tax, Stamp Duty (a duty on transfer
of property), State Excise (a duty on Property Tax: As per the Income Tax Act of a type of tax levied on
manufacture of alcohol), Land Revenue India, incomes from properties are regarded goods imported into
(a levy on land used for agricultural/ as one of the heads of income. Therefore, tax the country as well
non-agricultural purposes), Duty on is levied on the income from property. These as on goods exported
Entertainment and Tax on Professions. usually include buildings, flats, shops and from the country.
The system of Sales Tax levied by land etc.
State governments has been replaced
with Value Added Tax (VAT) since for use/consumption within areas of Distribution of Revenue collected in
2005 when all States moved to the the Local Bodies), Tax on Markets and the Central Tax System
VAT system. Tax/User Charges for utilities such as
water supply, drainage, etc. In the last For various reasons, imbalances
Local Bodies have been empowered arise between the taxation powers
to levy tax on properties (buildings, few years, Octroi has been abolished
in a number of Local Bodies. and expenditure responsibilities of
etc.), Octroi (a tax on entry of goods the Centre and the States respectively.

YOJANA November 2016 13


In order to address this, a Finance Indias Tax- GDP Ratio (Centre and States combined) (in per cent)
Commission is set up once every
Year Total Tax-GDP Direct Tax-GDP Indirect Tax-
five years to recommend sharing
Ratio Ratio GDP Ratio
of financial resources between the
Centre and the States, a significant 2001-02 13.39 3.11 10.28
part of which pertains to the sharing 2002-03 14.08 3.45 10.63
of revenue collected in the Central 2003-04 14.59 3.86 10.73
government tax system. At present,
2004-05 15.25 4.23 11.02
revenue collected from all Central
taxes, barring those collected from 2005-06 15.91 4.54 11.37
Cesses, Surcharges and taxes of Union 2006-07 17.15 5.39 11.77
Territories, and an amount equivalent 2007-08 17.45 6.39 11.06
to the cost of collection of central taxes
is taken as the shareable / divisible 2008-09 16.26 5.83 10.43
pool of Central tax revenue. The 14th 2009-10 15.5 5.8 9.6
Finance Commission (beginning 2010-11 16.3 5.8 10.50
April 1, 2015), has recommended 2011-12 16.3 5.6 10.7
devolution of 42 per cent of the
shareable / divisible pool of Central 2012-13 16.9 5.6 11.3
tax revenue to States every year and 2013-14(RE) 17.1 5.7 11.4
the Centre is to retain the remaining 2014-15 (BE) 17.4 5.8 11.6
amount for the Union Budget.
Note: RE Revised Estimate, BE Budget Estimate;
Tax-GDP Ratio and Progressivity of Source: Indian Public Finance Statistics 2014-15, Min. of Finance, Govt. of India.
Taxes in India: tax payer increases. In India, more them with one indirect tax: the GST.
A countrys tax-GDP ratio is an than 60 per cent of total tax collected It is similar to a VAT and hence, is
important indicator that helps to (Centre and States) is accounted for expected to reduce the problem of
understand how much tax revenue is by indirect taxes, implying that the tax cascading effect of taxes. It is to be
being collected by the government structure is extremely regressive. levied on most goods and services
barring items such as petroleum,
as compared to the overall size of the Reforms in Taxes: tobacco, alcohol, etc. The GST, though
economy. A higher tax-GDP ratio gives
a single tax, would comprise two
more room in a governments budget Over the years, a number of tax
components: a central GST and a State
so that it can spend more without reforms, especially in the indirect
GST. As per the Committee headed by
borrowing. However, despite many tax system, have been initiated by
A. Subramanian, the number of rates
years of high growth, Indias tax-GDP the government to make India more
is likely to be limited to: i) a standard
ratio continues to remain low, so much tax-friendly as well as make the tax rate to be levied on majority of goods
so that it has the lowest tax-GDP ratio system less complicated. One major tax and services, ii) a lower rate on merit
among the BRICS countries. There is reform being pursued currently refers goods and essential items, and iii)
therefore, an urgent need to raise this to the Goods and Services Tax (GST). a higher rate on non-merit goods
ratio. Although, the sales tax was replaced like luxury goods. With the GST,
by the VAT in all States by 2005, at the demarcation of taxation powers
Another aspect of Indias structure present, a number of other indirect
is the lack of progressivity in it. Taxes between the Centre and the States
taxes are levied in addition to the VAT. would get diluted considerably as
that impose a proportionately greater This leads to the problem of cascading
burden (in relation to their consumption both the Centre and States can impose
effect of taxes, whereby an item is indirect taxes on production as well as
or income) on the lower income groups taxed several times from the production
than on the upper income groups are sale of goods and services.
to the final retail sales stage. That, in
described as being regressive taxes. turn, has the effect of raising the tax It is hoped that introduction of GST
Indirect taxes, therefore, are generally component of products and results would help to simplify and rationalise
considered to be regressive since the in higher tax-induced prices. Further, the tax system and increase compliance.
rich and the poor are subject to the multiple taxes imposed by different At the same time, it is also important
same tax rate for similar goods they States and the Central Government that the government take some steps to
consume. Direct taxes, on the other give enormous scope for tax evasion. increase direct taxes that would help
hand, are considered to be progressive increase progressivity of Indias tax
since they are linked to the tax-payees The GST is to put an end to the structure. q
ability to pay and the average tax rate complex web of multifarious indirect
taxes that exist at present and replace (E-mail: malini@cbgaindia.org)
increases as the taxable income of the

14 YOJANA November 2016


do you know?
Project Saksham &'
&
Project SAKSHAM is a New Indirect Tax Network
of the Central Board of Excise and Customs (CBEC)
pertaining to systems integration. It was approved by the
Cabinet Committee on Economic Affairs. The project 


is expected to help in the implementation of Goods and
Services Tax (GST), extension of the Indian Customs
Single Window Interface for Facilitating Trade (SWIFT)
       ! 
and will also facilitate taxpayer-friendly initiatives under      " 

Digital India and Ease of Doing Business of Central Board
of Excise and Customs.

 
The aim of the project is to ensure readiness of
CBECs IT systems by April, 1, 2017, when GST is to be  


 
introduced. The challenge is to upgrade the IT systems
and making sure that the existing Tax-payer services keep     

running without glitches since the number of Taxpayers/
lmporters/Exporters/Dealers under various indirect tax   
 
laws administered by CBEC at present is about 36 lakhs,
which is likely to grow more than 65 lakhs once the
  
GST is introduced. This will obviously lead to document  

load on CBECs current IT system, which was set up
in 2008,unable to tackle the increased load under GST     ! 
without an immediate upgrade of its IT Infrastructure.
   !


CBECs IT systems need to be integrated with the
Goods & Services Tax Network (GSTN) for processing  "#$%
of registration, payment and returns data sent by GSTN
systems to CBE.They must also act as a front-end for
other modules like Audit, Appeal and Investigation. This  
  
IT infrastructure is also urgently required to carry out the
CBECs e-Services in Customs, Central Excise & Service
 
Tax, and also in implementation of taxpayer service like
scanned document upload facility, extension of Indian 
 

Customs Single Window Interface for Facilitating Trade
(SWIFT) initiative and integration with Government
initiatives such as E-Nivesh, E-Taal and E-Sign.
   
CBEC has also implemented the Indian Customs
Single Window Interface for Facilitating Trade (SWIFT) 
and is collaborting with other partner agencies involved in
Customs clearance to make this process simpler and faster.
The Customs EDI system which is currently operational
at about 140 locations in India has to be extended to many 
more locations with improved response time and better
service delivery. Taxpayers have to be given a facility for
Upload of Digitally Signed Scanned Documents in order


to reduce the physical interface with tax authorities and
to increase the speed of clearance.  
The total cost involved in the project is Rs.2256 crore,
which will be incurred over a period of seven years. q 
 



YE-166/2016

(Compiled by Vatica Chandra, Sub Editor)


(E-mail: vchandra.iis2014@gmail.com)  
   


YOJANA November 2016 15


LIVE/ONLINE GS CLASSROOM PROGRAMS
Continuous Assessment through Assignments and All India Test Series
Classes also
Individual Guidance Comprehensive and Updated Study Material
available
www.vis GENERAL STUDIES
ion Foundation Course
CSE 2015 ias Starts:
.in - for GS Prelims | - for GS Mains 14 Nov th

- for GS Prelims and Mains


Alternative Classroom Program
CSE 2013 - for GS Prelims and Mains Starts:
2018 and 2019 14 Nov th

TINA DABI GS Prelims Fast Track Course


AIR-1 Advanced Course for GS Mains
PT 365
- One Year Current Affairs for Prelims
GAURAV
AGRAWAL Mains 365
- One Year Current Affairs for Mains
AIR-1
ARTIKA
Ethics Module
200+ Selections
SHUKLA in CSE 2013 Essay Enrichment Program
AIR-4 For details visit: www.visionias.in

50+ in top 100


500+ Selections
PHILOSOPHY
by Anoop Kumar Singh

SHASHANK
in CSE 2015 45 days
program
@
JAIPUR
10 Nov
th | PUNE
1 Dec
st

TRIPATHI Includes comprehensive and updated study material


Answer Writing Program for Philosophy (QIP)
AIR-5
ALL INDIA TEST SERIES
Get the Benefit of Innovative Assessment System from the leader in the Test Series Program
PRELIMS MAINS /visionias.upsc
General Studies General Studies Philosophy
/Vision_IAS
CSAT Geography Sociology
Essay /c/VisionIASdelhi
DELHI: 2nd Floor, Apsara Arcade, Near Metro Gate 6, 1/8 B, Pusa Road,
Karol Bagh. Contact : - 8468022022, 9650617807, 9717162595
YE-175/2016

JAIPUR PUNE HYDERABAD


9001949244, 9799974032 9001949244, 7219498840 9000104133, 9494374078

16 YOJANA November 2016


clean tax policy environment
path breaking

Indirect Tax Reforms : Facilitative tax regime

Najib Shah

T
ax Direct and Indirect Indirect tax to GDP ratio for 2016-17
Ta x p l a y a v e r y is 5.20 per cent. In 2015-16, CBEC
important role in nation achieved a figure of 7.09 lakh crore,
building. In the scheme representing a growth of 31 per cent
of Indirect taxes, the and has been tasked to collect Rs. 7.78
Central Board of Excise lakh crore in the current fiscal.
and Customs (CBEC), a statutory
body constituted under the Central Some of the path-breaking
Boards of Revenue Act, 1963 (54 initiatives undertaken by CBEC in
of 1963) has been tasked with the the last two and a half years are:
formulation and implementation i) Make in India:
of policy concerning the levy and
collection of customs, central excise To provide a level playing field to
Following the policy and service tax. The Government has, domestic private sector in defence
of RAPID (Revenue, while appreciating the significant role manufacturing, customs and
of revenue collection in the growth central excise duty exemptions
Accountability, and development of the country, also to defence supplies and central
Probity, Information, stressed that tax policy should be excise duty exemptions to defence
aimed towards creating a competitive, PSUs and Ordinance Factory
Digitisation), CBEC predictable, and clean tax policy Boards have been withdrawn.
has taken a lot of environment which is non-adversarial
ii) Preparatory steps towards
initiatives for improving in its approach. Following the policy
implementation of GST:
of RAPID (Revenue, Accountability,
the ecosystem for Probity, Information, Digitisation), a) Excise duty of 1 per cent (without
doing business in CBEC has taken a lot of initiatives input tax credit) imposed on
for improving the ecosystem for jewellery.
India by relaxing doing business in India by relaxing
the procedures and the procedures and addressing the b) To reduce multiplicity of taxes,
concerns of manufacturers/importers/ 13 cesses levied by other
addressing the concerns Ministries and administered by
exporters, which would go some
of manufacturers/ distance in fostering a non-adversarial Department of Revenue are being
importers/exporters, and facilitative tax regime. abolished. Education Cess and
Secondary and Higher Education
which would go some Indirect tax collections have Cess on excisable goods & taxable
distance in fostering shown a turnaround during 2015-16. services abolished.
With growth in indirect tax collections,
a non-adversarial and the Indirect Tax to GDP ratio for 2015- c) Service tax imposed on all
services provided by the
facilitative tax regime 16 is about 5.2 per cent, as compared
Government or local authority to
to 4.4 per cent for 2014-15. Estimated

The author is the Chairman, Central Board of Excise and Customs.

YOJANA November 2016 17


a business entity, except services improved liquidity in hands of objections raised by CAG. The
that are specifically exempted or the businesses. Circular provides that demand
covered by any other entry in the notice in cases of agreement
(e) 24X 7 customs clearance facilities
Negative List. extended to 19 sea ports and 17 on audit objections should be
Air Cargo complexes. issued and decided expeditiously.
iii) Ease of Doing Business However, where revenue does
(a) To address issues relating to (f) Procedure for handling related not agree with the objections,
Customs Clearance and party transactions by Special no demand notice would be
infrastructure, impacting Valuation Branches and those issued. This is an effort to make
clearance of Exim goods, Customs involving special relationships the indirect tax administration
has been completely revamped. assessee friendly and non-
Clearance Facilitation Committee
(CCFC) have been set up at (g) E-payment of central excise adversarial by bringing the
every major Customs seaport and and service tax refunds and audit objections to closure in an
airport. rebates through RTEGS/NEFT expeditious and fairer manner.
implemented. (m) 80 per cent of the refund amount
(b) Central Board of Excise and
Customs, has launched Customs (h) Number of central excise returns granted within 5 days for service
SWIFT (Single Window Interface filed by manufacturers reduced exporters.
for Facilitating Trade) clearances from 27 to 13.
iv) D i s p u t e R e s o l u t i o n a n d
from 01.04.2016 onwards. This
Litigation Management:
allows traders the facility to Central Board of Excise and
lodge their clearance documents Customs, has launched Customs a) Penalty provisions in Customs,
electronically at a single point Central Excise and Service
only with the Customs. Required
SWIFT (Single Window Interface for
Tax rationalised to encourage
p e r m i s s i o n s , i f a n y, f r o m Facilitating Trade) clearances from compliance and early dispute
other regulatory agencies are 01.04.2016 onwards. This allows resolution.
obtained online by Customs, and traders the facility to lodge their
clearances are effected based (b) Withdrawal of all cases in High
clearance documents electronically Court and CESTAT where there
on the same without the trader
having to approach each agency at a single point only with the is a precedent Supreme Court
individually. This project has Customs. Required permissions, if decision and against which, no
been launched in India from 1st review is contemplated by the
any, from other regulatory agencies department.
April, 2016 and has significantly are obtained online by Customs,
resulted in reduction in time (c) The threshold limit below which
of clearances. So far, since and clearances are effected based
appeals are not to be filed by the
1st of April 2016, around one on the same without the trader department in CESTAT (Tribunal)
million import documents (Bills having to approach each agency and High Courts has been raised
of Entry) have been processed individually. This project has been to Rs 10 lakhs and Rs 15 lakhs
successfully on single window respectively. 2051 cases in High
platform. launched in India from 1st April,
Court and 5261 cases in CESTAT
2016 have been identified for such
(c) To increase the coverage of
digitally signed documents withdrawal.
and subsequent phasing out of (i) Cenvat Credit Rules amended
to improve credit flows and (d) Prosecution proceedings in cases
physical/manual submission of older than fifteen years involving
documents, CBEC has enabled reduce litigation.
duty of less than Rs 5 lakh have
that all importers, exporters, (j) Facility of direct dispatch of been identified for withdrawal.
shipping lines and air lines shall goods by registered dealer from
file customs documents under seller to customers premises (e) Pre show cause notice consultation
digital signature with effect from provided. Similar facility allowed has been made mandatory at the
01.01.2016. in respect of job-workers. level of Principal Commissioner/
Commissioner in all the cases
(d) Deferred duty payment for select (k) Time limit for taking CENVAT
where duty involved is above Rs
categories of importers and Credit of duty/tax paid on inputs
50 lakhs.
exporters: This provision will and input services increased from
enable release of cargo without six months to one year. It would also not be out of place
payment of duty, which shall (l) Circular issued to simplify to mention that CBEC has, for the
enable speedier clearance and procedure to deal with Audit second year running, conducted a

18 YOJANA November 2016


tax payers experience survey in with disparate tax rates and dissimilar l Will prevent cascading of taxes as
association with FICCI and KPMG. tax practices divides the country into Input Tax Credit will be available
Several initiatives including the ones separate economic spheres. Creation across goods and services at every
outlined above have revealed that of tariff and non- tariff barriers such stage of supply.
72 per cent of the respondents have as Octroi, entry Tax, Check posts
l Harmonization of laws, procedures
felt a perceptible change in policies etc. hinder the free flow of trade
of the Tax Department by way of throughout the country. Besides that, and rates of tax.
becoming liberal and friendly to the the large number of taxes created high l Will improve environment of
tax payer. The number of reforms compliance cost for the taxpayers compliance as all returns to be
with regard to clearance procedures in the form of number of returns, filed online, input credits to be
pertaining to import and export of payments etc. In fact, it is said that verified online, encouraging more
goods have had a positive impact on our tax laws have created a situation paper trail of transactions.
time and cost. The impact is visible where business decisions are based on
in the improved scorecard of India in tax considerations rather than logical l Uniform SGST and IGST rates
Logistics Performance Index (LPI), a economical factors. All these issues will reduce the incentive for
survey done by World Bank Group on created a need for one tax that will evasion by eliminating rate
trade logistics. India has moved up 19 be able to mitigate number of these arbitrage between neighboring
positions (from 54 to 35) in LPI rank problems to a large extent. States and that between intra and
and Indian Customs has moved up by inter-state sales.
27 positions (from 65 to 38) in 2016 it is said that our tax laws l Electronic matching of input
report as compared to 2014 report. have created a situation where tax credits all-across India
business decisions are based thus making the process more
Goods and Services Tax
transparent and discourage mere
on tax considerations rather
The phenomenon of GST invoice shopping.
has gripped the imagination of than logical economical factors.
l Common procedures for
the economists, industry and the All these issues created a need registration of taxpayers, refund
government. In fact, it is the hottest for one tax that will be able of taxes, uniform formats of
selling topic and a keen source of
discussion at many domestic and
to mitigate number of these tax return, common tax base,
international forums. The genesis problems to a large extent. common system of classification
of the introduction of GST in the of goods and services will lend
country was laid down in the Budget greater certainty to the taxation
All the taxes mentioned earlier are
Speech of 2006. thereafter, there system.
proposed to be subsumed in a single
has been a constant endeavor for the tax called the Goods and Services l Greater use of IT will reduce
introduction of the GST in the country Tax (GST) which will be levied on human interface between the
whose culmination has been the 122nd supply of goods or services or both taxpayer and the tax administration,
Constitution Amendment Bill. at each stage of supply chain starting which will go a long way in
from manufacture or import and till reducing corruption.
Why GST: Presently, the Central
the last retail level. GST is proposed
Government levies tax on manufacture
to be a dual levy where the Central l Will provide a more transparent
(Central Excise duty), provision of
Government will levy and collect basis for applying the WTOs
services (Service Tax), interstate
Central GST (CGST) and the State National Treatment Principle
sale of goods (levied by the Centre will levy and collect State GST
but collected and appropriated by on import of goods by charging
(SGST). The Centre will also levy additional duty of customs (CVD)
the States) and states levy tax on and collect Integrated GST (IGST)
retail sales (VAT), entry of goods as equivalent to IGST.
for inter-state supply of goods and
in the State (Entry Tax), Luxury services. l It will boost export and
Tax, Purchase Tax, etc. It is clearly m a n u f a c t u r i n g a c t i v i t y,
discernible that this fractured mandate Advantages of GST: generate more employment
of taxation between the Central and
A) Advantage to the and thus increase GDP with
State Governments leaves a lot of gaps
Government: gainful employment leading to
in the supply chain. There is cascading
substantive economic growth.
of taxes as taxes levied by Central l Will help to create a unified
Government are not available to set common national market for l Ultimately, it will help in poverty
off against the taxes being levied by India, giving a boost to Foreign eradication by generating more
the State governments. Further, the investment and Make in India employment and more financial
variety of VAT tax laws in the country campaign. resources.

YOJANA November 2016 19


B) Advantages to Trade and investment of resources and less public interface between
Industry: manpower in maintaining the taxpayer and the tax
records. administration.
l Simpler tax regime with fewer
exemptions. l More efficient neutralization l Timelines to be provided for
of taxes especially for exports important activities like obtaining
l Reductions in the multiplicity of registration, refunds, etc.
taxes that are at present, governing thereby making our products more
our indirect tax system leading to competitive in the international l Average tax burden on companies
simplification and uniformity. market and give boost to Indian is likely to come down which
exports. is expected to reduce prices
l Will prevent cascading of taxes as and lower prices mean more
Input Tax Credit will be available l Simplified and automated
procedures for various processes consumption, which in turn means
across goods and services at every more production thereby helping
stage of supply. such as registration, returns,
refunds, tax payments, etc. in the growth of the industries.
l Reduction in compliance costs This will create India as a
- No multiple record keeping l All interaction to be through Manufacturing hub  q
for a variety of taxes - so lesser the common GSTN portal- so (E-mail:chmn-cbec@nic.in)

Yojana Science for Development


Forthcoming Issue

YE-167/2016

20 YOJANA November 2016


GS MENTORS
An ISO 9001:2015 Certified Company

IAS-2017
GENERAL STUDIES Comprehensive & extensive
coverage of Syllabus

BATCHES START
Class synchronised
study material
MORNING EVENING WEEKEND
BATCH BATCH BATCH
Weekly Tests
Mukherjee Nagar Rajinder Nagar Rajinder Nagar
objective & subjective

THE MENTORS
ZULFIQUAR MOHD. TARIQUE KHAN VIKASH RANJAN AYUSSH SANGHI
Ex-Assistant Professor of Economics, DU Author of 'Modern India' (TMH) Over 15 years of teaching experience (Governance & Contemporary issues)

AYAZ KHAN SURAJ SURAYVANSHI SONALI BANSAL MITHILESH SINGH


Over 12 years of teaching experience Ethics Internal Security CSAT

AND TEAM
Selected Candidates Mentored by the Faculty of GS Mentors

And Many More


Result-2015

Tina Dabi Gaurav Singh Amit Aasery Shashvat Saurabh Mohit Jangid Siddiqui Mohd Aamir Prabha Mahor Yashvir Yadav
Rank-1 Sogarwal, Rank-99 Rank-490 Rank-595 Rank-713 Mohd Iqbal, Rank-729 Rank-759 Rank-823

And Many More


Result-2014

Aditya Ranjan Zainab Syeed Safeer Karim Bhanu Parbha Imran Raza Anjali Yadav Afaq Ahmad Ch. Mohd. Yasin
Rank-99 Rank-107 Rank-112 Rank-160 Rank-165 Rank-443 Giri, Rank-457 Rank-459
And Many More
Result-2013

Rachit Raj Neha Jain Faiz Aq Ahmed Md. Musharraf Ali Chakravarti Singh Sana Akhtar Tejaswani Gautam Raunaq Jamil Ansari
Rank-3 Rank-12 Mumtaz, Rank-17 Faruqui, Rank-80 Rathore, Rank-85 Rank-90 Rank-239 Rank-763

REGIONAL CENTRES (ONLINE)


Meerut, Gwalior
E-Learning Jodhpur, Sirsa
Programme Gorakhpur, Jabalpur
Ajmer, Aurangabad
Mumbai, Jaipur, Pune
CLASSES ON TABLET/LAPTOP ONLINE CLASSES Franchisee in other major cities are also invited
& 7840888777, 555
YE-162/2016

532, Dr. Mukherjee Nagar, Delhi-9 Website: www.gsmentors.com 23-B, 3rd Floor, Pusa Road, N. Delhi-5
011- 27607070, 7840888777 e-mail: gsmentors1@gmail.com
011-47451000, 7840888666

YOJANA November 2016 21


gamut of reforms
schemes

Ushering in a New Era of Tax Reforms

D S Malik

T
he present Government menace of domestic black money. It
from its very inception has was announced by the Union Finance
shown its commitment Minister in his Budget Speech of
to tackle the menace 2016. Accordingly, the Government
of black money. The had formally launched the Income
very first decision of the Declaration Scheme (IDS) 2016 from
present Government after taking over 1stJune, 2016 which was kept open for
in May 2014 was to set-up a Special four months i.e. till 30th September,
Investigation Team (SIT) headed by 2016. It provided an opportunity to
the Honble Mr. Justice M.B. Shah, persons who had not paid full taxes in
former Judge of the Supreme Court the past to come forward and declare
as Chairman and Honble Mr. Justice their domestic undisclosed income and
Arijit Pasayat, former Judge as Vice assets. Declarations could have been
Chairman. The constitution of Special made online as well in printed copies of
Investigating Team (SIT) was approved the prescribed form up to the midnight
by the Union Cabinet in its First
...this overall Meeting to implement the decision of
on 30th September, 2016.

gamut of large scale the Honble Supreme Court on large


amounts of money stashed abroad by
Under IDS-2016, 64275 declarations
were filed upto the midnight of 30th
tax reforms both in evading taxes or generated through September, 2016 with an aggregate
unlawful activities. of Rs.65,250 crore worth of hitherto
case of Direct and undeclared incomes in the form of cash
The SIT has since then given
Indirect taxes will its various reports to unearth black
and other assets being declared. With
the final stock taking of declarations
go a long way in money and undisclosed assets beside
suggesting/recommending various
being filed in physical printed forms all
over the country, this number is likely
making India one of other measures to that effect. Many SIT to be further revised upwards.
recommendations have been already
the fastest growing accepted by the Government such as The response to the Scheme was
emerging economy in mandatory quoting of PAN for cash
transactions etc.
much higher than the expectations
of the tax experts and others. Under
the world with a tax Another major step undertaken by
IDS-2016, the declarer had to pay
45 per cent tax on the declarations
friendly base the present Government to unearth
made which include a penalty of 15
black money from domestic market
per cent.
was the Income Declaration Scheme
(IDS)-2016 which was a huge success. Before that, the Government had
This Scheme was the latest initiative of brought a Scheme i.e. Undisclosed
the Government of India to tackle the Foreign Income and Assets and

The author is Addl Director General (M&C), Press Information Bureau, Ministry of Information and Broadcasting, Government of
India and incharge of Media and Publicity for Ministries of Finance and Corporate Affairs.

22 YOJANA November 2016


Imposition of Tax Act, 2015 to
unearth the black stashed outside
the country. The Act provided for
one time compliance window to
declare assets held abroad and pay
due taxes and penalty on the value
of assets declared.The Black Money
(Undisclosed Foreign Income and
Assets) and Imposition of Tax Act,
2015 came into force with effect from
1st July, 2015.
A total of 644 declarations
were made under the compliance
window provided in the Black Money
(Undisclosed Foreign Income and
Assets) and Imposition of Tax Act,
2015.The amount involved in these
644 declarations was 4,164 crores.
The declarants were liable to pay tax
at the rate of 30 per cent and a like Income Tax: Direct tax for the comman man
amount of 30 per cent by way of penalty prosecution complaints in l75 HSBC years which is more than double as
on the value of assets declared, by 31st cases; detection of Rs.5, 000 crores compared to previous two years.
December, 2015. The amount received of undisclosed deposits in foreign
by way of tax and penalty upto 31st accounts made out of ICIJ cases, 55 Other major tax initiatives in
December, 2015 is Rs 2,428.4 crore. case of Direct Taxes undertaken by
prosecution cases filed in those cases;
The shortfall was primarily on account the Government include reversal of
big investigation in Panama cases
of certain declarations, in respect of retrospective tax laws, increase in
has led to 250 references being made
which, there was prior information the threshold limit for filing appeals
under the provisions of Double to other countries asking for details
about tax evaders and bank accounts by the Income Tax Department and
Taxation Avoidance Agreements making the tax laws simpler and
(DTAAs)/Tax Information Exchange among others The quantum jump in
the searches and survey has resulted transparent so that more and more
Agreements (TIEAs) or receipt of people become tax compliant. The
payment after 31st December, 2015. efforts of the Government is to widen
Other major steps taken by the The effort of the Government is the tax base by including maximum
Government to tackle black money to widen the tax base by including people who are liable to pay the taxes
include making tax crimes predicate
offence under PMLA; amendment of
maximum people who are liable under its tax net and make the people
to pay the taxes under its tax net tax compliant by making payment of
FEMA to provide for confiscation of
due taxes in time. This will not only
domestic assets in place of foreign and make the people tax compliant
assets; enactment of Black Money increase the revenue collections of
by making payment of due taxes the Government, but would also help
Law and Amendment to Benami Act
among others. in time. This will not only increase in bringing down the tax rates to a
the revenue collections of the reasonable level. The Government
Besides above, various international focuses to provide maximum tax
treaties were signed for exchange of Government, but would also help based services online so that there
information about tax evasion and in bringing down the tax rates to a is minimum human interaction i.e.,
undisclosed assets including signing reasonable level. Minimum Government, Maximum
of FATCA with USA; amendment Governance. This will bring down not
of Mauritius Treaty; Initiative for only corruption, but would also bring
signing of Automatic Exchange of in seizure of Rs.1986 crores as well
as undisclosed income of Rs.56, 378 more transparency and efficiency
Information Treaty with all major in the tax system. Accordingly, to
countries including Switzerland, crore in the last two and half years. The
upgradation of IT capabilities has led prevent undue harassment, the income
initiatives under BEPS (Based Erosion tax department is also focusing on
and Profit Sharing) such as country to non-intrusive methods of detection
of tax evasion. Rs.16, 000 crores electronic based communication with
by country reporting, PoEM (Place of
received as tax out of one such system the tax payers at large. Providing a
Effective Management) etc.
of Non-filers of Monitoring System fair environment to not only corporate
An assessment of Rs.8000 crore in (NMS). 3626 cases of prosecution and but individual taxpayers seems to be
HSBC cases as well as filing of 164 compounding in the last two and half the key focus of the Government. The

YOJANA November 2016 23


Prime Minister in various PRAGATI grandfathering period till April next Governments strenuous efforts to
Meetings had also asked the tax officials year gave investors the opportunity to carry every political party on board and
to take care of pending grievances and transition smoothly into the new tax get the 122nd Constitution Amendment
resolve them at the earliest. environment. Bill passed by both the Houses of
Parliament unanimously in the first
Similarly, in a bid to settle pending Another area of tax reforms week of August this year during the last
tax disputes with companies, the Union includes the field of Corporate Tax. Monsoon Session. This Constitution
Budget 2016-17 also announced a one- India, companies are also looking Amendment Bill was stuck for the last
time settlement window for resolution forward to Budget 2017-18 when the more than ten years I.e. since 2006,
of tax disputes. Terming litigation as Finance Minister is expected to throw in the Parliament for one reason or
a scourge for a tax friendly regime more light on his roadmap to lower the other.
which also creates an environment corporate taxes.
of distrust, the Finance Minister in The GST, which is seen as the
the Budget had announced a Dispute In Budget 2015-16, the Finance most ambitious and most significant
Resolution Scheme (DRS). Minister had announced a plan to lower tax reform in the history of indirect
the corporate tax rate from the existing tax laws, would subsume not only the
A taxpayer who has an appeal Union Levies including the Central
pending as of today before the The GST, which is seen as the most Excise Duty, Service Tax etc, but also
Commissioner (Appeals) can settle the State Level levies such as Value
his case by paying the disputed tax and
ambitious and most significant tax
Added Tax, Octroi, Entry Tax, Purchase
interest up to the date of assessment, reform in the history of indirect Tax and Entertainment Tax among
the Finance Minister had announced. tax laws, would subsume not others. It is the culmination of efforts of
The Scheme, which is currently open, only the Union Levies including over 13 years by the successive Central
allows for no penalty in respect of and State Governments to reach the
Income-tax cases with disputed tax up
the Central Excise Duty, Service present level.
to Rs 10 lakh will be levied. A penalty Tax etc, but also the State Level
The Union Finance Minister who
of up to 25 per cent of the minimum levies such as Value Added Tax,
imposable penalty on cases with chairs the GST Council that includes
Octroi, Entry Tax, Purchase Tax and State Finance Ministers as its members,
disputed tax exceeding Rs 10 lakh will
be imposed for both direct and indirect
Entertainment Tax among others. has set a target date of22ndNovember
It is the culmination of efforts of 2016 to finalise all the modalities of the
tax cases. Any pending appeal against
tax, including the model legislation and
a penalty order can also be settled by over 13 years by the successive the crucial rates for the tax.
paying 25 per cent of the minimum of Central and State Governments to
the impossible penalty. In the last two meetings held on
reach the present level.
22nd, 23rd and 30th September, 2016,
Domestic and foreign investors
the GST Council has already decided
are also gaining comfort from the 30 per cent to 25 per cent over a four on issues including the threshold for
Governments attempt to have year period, which would be in line businesses on which GST would be
transparent tax policies and its efforts with the rates of other Asian countries levied, the Draft Business Rules, the
to reach out and discuss all policy and enhance Indias competitiveness as future of Area Based Exemptions as
changes. an investment destination. This would, well as control over small businesses
A case in point, for instance, was in turn, be done with an elimination of among others.
the plugging of the tax loophole incentives to companies.
Businesses with an annual turnover
with Mauritius. India and Mauritius of up to Rs 10 lakh in North Eastern
As far as tax reforms in the field
amended the double tax avoidance States and upto Rs 20 lakh in other
of Indirect Taxes are concerned, the
agreement in May this year, which States will be exempted from GST.
historical tax reform being undertaken
allowed India to levy capital gains tax On the issue of administrative control,
by the present Government as a
from the sale of shares of an Indian States will have the sole control over
challenge is the Goods and Services
company fromApril 1, 2017onwards. manufacturing businesses with an
Tax (GST), which is at present under
Soon after the announcement, the annual turnover of up toRs.1.5 crore.
the process of implementation. The
Finance Ministry swung into action and For those above the threshold, there
Government has decided to implement
met with foreign institutional investors will be an element of dual control and
this law with effect from 1st April,
as well as domestic companies to either the State or Centre will have
2017. The Economic Survey 2015-
clarify their doubts. control over the businesses based on
16 had termed GST as a reforms
measure perhaps unprecedented in the risk assessment.
It also announced its intent to
plug similar tax loopholes with other the modern global tax history. In Some analysts have however,
countries such as Singapore and the fact, this is the result of the present pointed out certain concerns with

24 YOJANA November 2016


regard to the implementation of GST is almost complete. Working of GST are needed to widen the revenue base
from April next year. One such concern Network will be tested in January and and expand the fiscal envelope to
is that certain number of items are February next year. support investment in infrastructure,
exempt from the tax, e.g., petroleum education and healthcare.
and petroleum products and electricity The GST Law is being keenly
will not be under GST. States and the awaited by domestic and foreign The Union Finance Minister said
Centre will continue to levy taxes on investors as well as global rating during his recent visit to Washington
them. agencies have, as it would promote in October 2016 that structural reforms
Ease of Doing Business and cut down like GST can only add to Indias growth
However, a pragmatic approach on internal tariff barriers put-up by each prospects. The IMF and the World
will allow the Centre and States to State Government. The Government Bank have pegged Indias growth rate
reach a consensus on issues easily, and expects that it would give a boost to the to 7.6 per cent in the next two years.
allow for the timely roll-out of GST. countrys ranking in the Ease of Doing As per various estimates, GST will
Notwithstanding these concerns, Business Report, where it is currently boost revenue collections by plugging
the Centre is hopeful that the model placed at 130 out of 189 countries. The leakages and evasion and will have
Bills for Central GST, State GST and Prime Minister hopes to bring India the potential to boost the countrys
Integrated GST will be finalized by amongst the top 50 countries on the gross domestic product by as much as
next month i.e. November, 2016 and rankings. 2 per cent.
can be passed by the Parliament and The International Monetary Fund
respective State Assemblies during Thus, this overall gamut of large
(IMF) in its recent World Economic scale tax reforms both in case of Direct
their respective Winter Sessions before Outlook had said that the advent of
the end of December, 2016. and Indirect taxes will go a long way in
GST would boost Indias medium making India one of the fastest growing
Simultaneously, the work on IT term growth prospects. Noting that it emerging economy in the world with a
infrastructure for GST GST Network is positive for trade and investment,the tax friendly base.  q
(GSTN) that will provide a common IMF report said, This tax reform and the
system to States, Centre and taxpayers, elimination of poorly targeted subsidies (E-mail:dprfinance@gmail.com)

YE-170/2016

YOJANA November 2016 25


VAJIRAM IAS TEST SERIES-2017
Vajiram announces an ENRICHED Test Series
for the Civil services Preliminary Test that
includes class room tests on Papers I & II
with explanatory session for General Studies
Paper I & current affairs material.

EVALUATE YOURSELF BEFORE


THE UPSC EVALUATES YOU
A total of 14 Tests in GS & CSAT.
Test & Evaluation strictly on UPSC pattern.
Comprehensive Grading System.
Test Series Commences in January, 2017.

ONLINE Test Series with detailed


Test explanation is also available.

Vajiram & Ravi


( A unit of Vajiram & Ravi IAS Study Centre LLP)
For details contact
9-B, Bada Bazar Marg, Old Rajinder Nagar , New Delhi- 110 060
Ph.:011-25820000, 25734058; e-mail:vajiramandravi79@gmail.com
YE-165/2016

Visit us at www.vajiramandravi.com

26 YOJANA November 2016


Taxation Policies
approach

Road Map for Taxation

Timsy Jaipuria

A
fter having faced The Scheme was effective from
criticism globally over 1 June 2016 for a period of 4 months
uncertain tax policies, (i.e. till 30 September 2016) and saw an
India in the past 2 years overwhelming response with Indians
has been on a tax overhaul declaring over Rs 65,000 crore of
which has shored up the unaccounted income. Any disclosure
government's reform made under the Scheme was immuned
credentials. from high taxes and penalty with no
Be it the announcement of a scrutiny or inquiry shall be undertaken
road map for phasing out deductions in respect of such declarations.
under the Income-tax; indicating
Be it the announcement that the rate of corporate tax will be
To encourage entrepreneurship
through incentives for start-ups, the
of a road map for phasing reduced from 30 per cent to 25 per government had announced that income
out deductions under the cent over the next four years along of such start-ups subject to specified
with corresponding phase-out of
Income-tax; indicating that exemptions and deductions to simplify
conditions would not be chargeable to
income-tax and that they could receive
the rate of corporate tax the tax laws, making them clearer capital at a value which may not be
will be reduced from 30 per and more transparent; or the policies equivalent to the fair market value.
encouraging entrepreneurship through
cent to 25 per cent over the incentives for start-ups, an array of Additionally, the government also
next four years along with reforms are what now India is being decided to abolish Wealth -tax, which
corresponding phase-out credited for. was introduced in 1957 and was levied
@1 per cent on Individuals, HUFs and
of exemptions and With the recent success of the
Companies if the Net Wealth of such
income declaration scheme for
deductions to simplify the unearthing domestic black money, India person/entity exceeds Rs. 30 lakhs.
tax laws, making them with these reforms is also increasing its To r e d u c e l i t i g a t i o n s , t h e
clearer and more revenues and is also getting acclaimed government went for Direct Tax
globally.
transparent; or the Dispute Resolution Scheme, providing
The Finance Minister, in his an opportunity to taxpayers to settle
policies encouraging budget speech, proposed a limited their past cases by making payment of
entrepreneurship through period compliance window for the prescribed tax, interest or penalty
incentives for start-ups, an domestic taxpayers to declare their in respect of any tax arrear or specified
undisclosed income whether in the tax. The key objective of the Scheme
array of reforms are what form of investment in assets in India is to reduce the pending direct tax
now India is being or otherwise, and clear up their past tax litigation, involving various corporate
credited for transgressions by paying a total of 45 and personal tax cases or disputes
per cent of the undisclosed income. which can be settled in one go.
The author is currently Special Correspondent with CNBC TV18, has been a business journalist since last more than eight years
working with Hindustan Times, Financial Express and The Pioneer. She specializes in writing on economic, socio-economic and
politico-economic issues ranging from taxes, international trade relations, infrastructure, social schemes and many more.

YOJANA November 2016 27


Besides, another scheme for APA
or Advance Pricing Agreements was
introduced in the Income-tax Act in
2012 and the Rollback provisions were
introduced in 2014. The scheme is seen
as one of the most robust endeavors to
provide certainty to taxpayers in the
domain of transfer pricing by specifying
the methods of pricing and determining
the arms length price of international
transactions in advance for a maximum
period of five future years. Further, the
taxpayer has the option to roll-back the
APA for four preceding years. More
than 700 applications (both unilateral
and bilateral) have been filed in just
four years.
North Block, which has not been
seen in such a revolutionary mode ever
before, took another decision to build Taxing Wealth
upon and overcome various legacy
issues. The Central Board of Direct Taxes to generate the EVC for electronic
(CBDT) has issued a consolidated verification and filing of their paperless
A series of recommendations of the instruction to its officers on November income tax return.
first report of the Tax Administration 7, 2014 to achieve a non-adversarial
Reform committee (TARC) relating to It has also cut down on the face
tax regime. The CBDT has directed its
to face meeting with the tax officers
dispute management were also being officers of the Income-tax Department
to reduce complaints of harassment
taken forward. to adhere to the specified guidelines
by bringing in e-hearing for paperless
issued time to time. Besides, various
The CBDT has issued specific assessments.
procedural reforms also took place
guidance notes, circulars and to bring in greater ease in doing this concept uses email-based
instructions for uniformity in approach business. communication for paperless scrutiny
on interpretation of taxation provisions proceedings on a pilot basis and
from time to time. This process is being This is being done by department
it is now being carried in various
further strengthened with the issue of using Sevottam platform that connects
divisions.
Circulars on the recommendations of all income tax offices in the country to
the High level Committee set up by address the queries and grievances Additionally, the CBDT has
the Finance Minister to identify issues in real time, or making PAN and recently notified the procedures and
requiring clarification. CBDT has also TAN application process faster and the standards to be followed to ensure
clarified various provisions of the paperless. secured transmission of electronic
Income-tax Act for reducing litigation communication.
To ease the burden of taxpayers
and easing burden of compliance. like you and me, the income tax The Ministry of Finance,
Amendments/ clarifications have department introduced usage of Government of India, had announced,
been issued for e.g. in respect of indirect either digital signature or Electronic through a Press Release issued on
transfer, foreign tax credit rules. This Verification Code (EVC) to file a 10 December 2015, a new facility
paperless income tax return in India. for pre-filling of the withholding tax
has not just reduced litigation by the
The EVC can be generated by using [called Tax Deducted at Source (TDS)]
department, but has also increased the
Aadhaar Number, Net Banking, schedule while submitting online
limits of disputed tax, thereby bringing
ATM or registered e-mail and mobile rectification request on the e-filing
more and much needed clarity.
number of a taxpayer. In order to portal of Income-tax department.
Meanwhile, a major transition include more taxpayers under the EVC
With such series of work, the
seen in the last few years is the fact process, the Central Board of Direct
transition, transformation and up
that PM himself is issuing instruction Taxes (CBDT) has recently issued a
gradation in direct taxes is still going
to Income-tax officers - an attempt notification to include two additional
on to get India at par with best global
towards a non-adversarial tax modes of generating the EVC. Now,
practices and biggies. q
regime, to correct the image of the taxpayers can also use their Bank
department. account or Demat account details (E-mail:timsy.jaipuria@gmail.com)

28 YOJANA November 2016


  
 

 


 
 


YE-176/2016

YOJANA November 2016 29


multi-pronged strategy
focus

black money menace:


Government on war-footing
Dilasha Seth

E
ven at two hours Of the over 120 crore population
to midnight on in the country, less than 5 per cent
September 30th, or 5.43 crore individuals pay taxes.
people were seen Honest taxpayers face a steep tax
streaming into various burden on account of non-compliance
tax offices across the by a significant chunk of individuals
country while many others were who do not declare income. Although,
glued to their computer screens to it is difficult to ascertain the quantum
declare all the unaccounted wealth of black money flow in the economy,
and assets they owned and come various estimates and reports peg
clean. They were amongst the 64275 it at anywhere between 20 per cent
and 70 per cent of the size of Indias
The Indian government individuals who availed the one-
2 trillion-dollar economy. According
time opportunity offered by the
has significantly stepped government and made black money the Swiss government, till the end
up efforts to unearth disclosures under the four-month of 2010, there were deposits worth
Rs 9500 crore in all Swiss banks by
black money from the window that opened on June 1.
Indian citizens. Of about Rs 8 lakh
The midnight hustle guaranteed the
system, which is only set declarants a comfortable sleep in crore worth direct tax revenue, the
to expand going forward future amid governments war-like collections are significantly skewed
in favour of corporation tax, which
with the help of technology approach to fight the black money
had a 60 per cent share and personal
menace. The declarants will escape
such as Project Insight. prosecution under the Income Tax
income tax a 40 per cent share. This
While the efforts using highlights the potential of widening
Act, Wealth Act and Benami Act.
of the tax base. Of the 25 crore PAN
technology are in the Although the government will get
card holders in the economy, only
close to Rs 30,000 crore in taxes by
right direction, the focus September next year from the Income
5.43 crore pay taxes. Governments
must be on discouraging toughened stance against black money,
Declaration Scheme (IDS), which is in line with its electoral promise is
cash transactions and 45 per cent of the Rs 65250 crore set to make the going difficult for
worth of declarations that came in, it
encouraging card payment may well be just a tip of the iceberg.
tax evaders within the economy and
those with unaccounted wealth stashed
in the economy. This will be Incidentally, the Prime Minister has overseas.
the key to curb black money taken up the task of unearthing black
money on a mission mode. It could The government is working on a
circulation be made out from his statement last multi-pronged strategy to tackle the
month warning evaders of tough black money menace. Besides IDS,
decisions after September 30. a slew of other measures includes
The author is a Special Correspondent with Business Standard newspaper and covers Ministry of Finance. With over five years
experience in field, she has written on a range of economy and policy related issues such as macroeconomic data, international
trade, WTO, GST, taxation and FDI among others. earlier she was with The Economic Times and covered the Ministry of
Commerce and Industry.

30 YOJANA November 2016


Foreign Assets Disclosure window,
constitution of Special Investigative
Team (SIT) for black money, reworking
bilateral tax treaties, making PAN card
mandatory for transactions over Rs
2 lakh, Project Insight and signing
information exchange treaties with
various countries. The introduction of
one of the biggest taxation reforms-
goods and services tax (GST)- from
next financial year will also make
it tough to evade indirect taxes,
which is likely to improve the overall
compliance rate. The GST will
subsume various indirect levies of
Centre and states like service tax,
excise duty, octroi, value added tax,
among others and create an input tax Unearthing Black Money
credit chain for refunds.
The government has also made 30 lakh and the RBI for issue of bonds
Non-intrusive target evaders it mandatory to furnish PAN for all exceeding Rs 5 lakh.
transactions over Rs 2 lakh through
According to the ministry of all payment modes from January 1, I-T lens widens
finance, Rs 16, 000 crore have been 2016. It has also revised monetary
collected by using non-intrusive A quantum jump in the searches and
limits for furnishing of PAN for gold survey has resulted in the seizure of
measures using third party information jewellery to above Rs.2 lakh from the
and quoting of PAN on account of Rs 1,986 crore as well as undisclosed
earlier limit of Rs 5 lakh. All fixed income of Rs 56,378 crore in the last
upgraded IT database. deposits with post offices, cooperative two and half years. Most seizures by
At present, about 92 per cent of the banks, Nidhis, non-banking finance the income tax department were in the
tax departments revenue comes from companies will also need PAN. medical and education sector.
tax deducted at source (TDS), advance
tax and self-assessment tax, while A quantum jump in the searches In what underlines the department
the remaining 8 per cent comes after effectiveness in using third party
and survey has resulted in the information, the CBDT issued 7
scrutiny. This looks set to change.
seizure of Rs 1,986 crore as well as lakh letters to individuals to come
Stepping up tech support to nab undisclosed income of Rs 56,378 clean under IDS. This was based
evaders, the big ticket Project Insight on information of 90 lakh pieces of
with the help of L&T Infotech will crore in the last two and half years.
information of transactions without
allow the government to collate Most seizures by the income tax PAN.
all information available with the department were in the medical
income tax department from various It has scrutinized the Annual
and education sector. Information Returns (AIR) for high
sources and systematically profile
people using permanent account value transactions which have divulged
number (PAN) details. Through Currently, seven third-party sources cash deposits of over Rs 10 lakh in a
profiling, all transactions by a person have to mandatorily report transactions savings bank account, sale/purchase
including purchase of immovable and file an annual information return of immovable property valued at Rs
property, jewellery and vehicles will (AIR). These include banks that 30 lakh or more, and many of these
be available with the tax department accept cash deposit of Rs 10 lakh transactions do not have PAN.
in a systematized manner, making or more in a year from any person; The Prime Minister, in his address
identification of tax evaders simpler. bank or a company issuing credit to tax officers a few months ago, had
The project is also expected to rank cards where payment against bills pointed out that if 42,000 officials of
tax evaders based on the amount of exceeds Rs 2 lakh in a year for any CBDT are engaged for ensuring direct
tax that could be recovered, so that person; mutual funds collecting Rs tax revenue, then the tax net should
the authorities could go after the 2 lakh or more for sale of units by increase further.
highest value targets first. Several any person; company receiving Rs 5
government departments like Central lakh or more against issue of shares, The central board of direct taxes
Board of Direct Taxes, intelligence bonds/debentures and registrar/sub- (CBDT) has also instructed officers
bureau and others are working closely registrars in respect of sale/purchase to scrutinize production details and
on the project. of immovable property exceeding Rs tax returns filed by the companies

YOJANA November 2016 31


engaged in mining activities and action against those companies which Similarly, investigation in the
take appropriate action in case of had claimed duty drawback without Panama papers has led to 250
discrepancy found. bringing earnings from exports to India. references being made to other
In such cases, the country loses on two countries asking for details about tax
In case of indirect taxes, the counts first by not getting export evaders, bank accounts, etc.
enhanced enforcement measures proceeds and then by wrongful claim
have helped unearth tax evasion of In the compliance window in 2015
of duty drawback.
Rs 50,000 crore of indirect taxes and for undisclosed assets stashed abroad,
undisclosed income of Rs 21,000 Unaccounted money stashed the government received disclosures
crore. abroad: worth Rs 4147 crore, and the 60 per
SIT for capping cash cent tax translated to Rs 2428 crore
The information exchange pacts
transactions: in revenue.
with other countries will make it
further challenging to stash black The Panama Papers leak revealing
The special investigative team
on black money constituted in 2014 money in overseas accounts. The over 11 million documents figured
and chaired by former Supreme Indo-US Foreign Account Tax names of at least 500 Indians who
Court Judge MB Shah has called for Compliance Act (FATCA), which flouted rules and regulations. These
a complete ban on cash transactions came into effect last year is aimed documents pertain to 214,000 offshore
over Rs 3 lakh to curtail black money to ensure that tax is paid on income entities and span almost 40 years.
circulation in the economy and a generated from wealth abroad. The papers originated from Mossack
limit of Rs 15 lakh on cash holdings India has already started receiving Fonseca, a Panama-based law firm with
in its recent report. The suggestions under Automatic Exchange of offices in more than 35 countries.
if accepted, made after examining Information (AEOI) under FATCA.
provisions in various countries, may The government will start receiving In the light of the Panama leak,
make transacting or holding cash over the SIT has suggested amendment
the said amount illegal and punishable The government is on a spree of the Black Money (Undisclosed
under law. Foreign Income and Assets) and
to revise the double taxation Imposition of Tax Act, 2015 where
It was felt that the limit of cash avoidance agreement with these an assesee must inform the concerned
transaction could only succeed if countries and gain taxation rights jurisdictional commissioner of income
there was a limitation on cash holding. tax department of the state before
It suggested that if any person of over capital gains, which currently
investing any amount or purchasing
industry required holding more cash, rests with these low or no tax any property overseas, even if the
they may obtain necessary permission jurisdictions. India has revised
from the Commissioner of Income tax permission of the Reserve Bank of
of the area. DTAA with Mauritius and Cyprus India was not required.
and is close to amending the pact
The SIT has suggested that an Act Revising DTAAs:
be framed to declare such transactions
with Singapore.
Tax evaders have often exploited
as illegal and punishable under law. It
information from other countries under loopholes in the existing tax treaties
is being deliberated by the ministry
AEOI route from 2017 onwards. with low or zero tax jurisdictions like
of finance.
Mauritius, Singapore and Cyprus,
The panel has asked the Reserve Although, it will provide ensuring complete tax avoidance.
Bank of India (RBI) to develop an information prospectively from the This ensures that unaccounted
institutional mechanism, in consultation time of coming into effect, it may help money kept overseas is routed back
with the revenue department, to share the tax department to detect audit trail to India disguised as foreign capital.
export-import and foreign exchange for an entitys past transactions. While Double Taxation Avoidance
(forex) transaction information with Agreements (DTAA) are aimed to
The government has filed 164
investigative agencies, to curb illicit ensure that taxpayers do face the
prosecution cases of the 175 cases
financial flows out of the country. It burden of double taxation in both
of black money stashed overseas in
called for a mechanism to allow sharing countries, evaders have managed
of information of RBI databases a HSBC bank's accounts worth Rs
8,000 crore. Based on investigation to avoid taxes in both countries.
with enforcement authorities the
by International Consortium of The government is on a spree to
department of revenue intelligence
Investigative Journalists (ICIJ), revise the double taxation avoidance
(DRI) and Enforcement Directorate
undisclosed deposits in foreign agreement with these countries and
(ED) - for verification.
accounts worth Rs 5000 crore have gain taxation rights over capital gains,
It has also asked the Directorate been detected by the government and which currently rests with these low or
of Revenue Intelligence (DRI) to take 55 prosecution cases have been filed. no tax jurisdictions. India has revised

32 YOJANA November 2016


DTAA with Mauritius and Cyprus and Cyprus has also agreed to give benami transaction has been widened
is close to amending the pact with India taxation rights over shares in to include a transaction made in a
Singapore. return for removal from the blacklist. fictitious name; where the owner is
Companies based in Europe and the not aware of or denies knowledge of
Mauritius and Singapore are US routed investments into India, the ownership of the property; or the
the top two FDI sources in India, deriving complete tax avoidance as person providing the consideration for
making up for about half of total the tax treaty provided for zero capital the property is not traceable.
direct investments into the country. gains tax and a low withholding
Total FDI from Mauritius over the tax rate of 10 per cent on interest Investment in property or real
last decade and a half stands at payments made to entities based estate is used commonly to park
US$95.9bn, while that from Singapore in Cyprus. India has agreed to take unaccounted money. A significant
is about US$45.8bn. Cyprus is eighth Cyprus off the blacklist. Cyprus number of transactions in real estate are
on the list with investments worth was declared a non-cooperative not reported or are under-reported.
US$8.5bn. jurisdiction by India in 2013 over not The Bill has made the penalty and
Ahead of General Anti Avoidance sharing information related to Indian prosecution provisions more stringent.
Rule (GAAR) being rolled out account holders. It was the first tax The penalty under the amended Act
from April 1, 2017, these low tax jurisdiction to be labeled that by India, will be rigorous imprisonment of one
leading to a 30 per cent withholding year up to seven years, and a fine
jurisdictional economies have, in
tax on all payments made to Cyprus
fact voluntarily come forward to which may extend to 25 per cent of
and greater scrutiny of Indian entities
revise treaties to plug these loopholes. the fair market value of the benami
receiving funds from there requiring
GAAR is a set of rules designed to property as against imprisonment up
additional disclosures, including the
give Indian authorities the right to to three years or fine or both in the
source of the money. Indian entities
scrutinize and tax transactions which current legislation.
with investments from Cyprus also
they believe are structured solely to
have to forego deductions on account The penalty for providing
avoid taxes.
of expenditure and allowances. false information will be rigorous
India amended the DTAA with imprisonment of six months up to five
Mauritius in April, allowing New With all major economies of the years, and a fine which may extend to
Delhi to impose capital gains tax on 10 per cent of the fair market value of
world uniting against the cause
shares. Companies routing funds the benami property.
into India through Mauritius from of eradication of black money,
the next fiscal will have to pay short- seen from Base Erosion and Profit Way forward:
term capital gains tax at 50 per cent Sharing (BEPS) agreement and With all major economies of the
prevailing rate during a two-year multilateral information exchange world uniting against the cause of
transition period beginning April eradication of black money, seen
2017. The short term capital gains tax pacts, it will become very difficult
from Base Erosion and Profit Sharing
rate is 15 per cent at the moment. The to carry out tax evasion. The free (BEPS) agreement and multilateral
full rate will be imposed from 2019 exchange of information between information exchange pacts, it will
onwards. The concessional rate of 50 countries will now provide more become very difficult to carry out
per cent would be subject to fulfilment tax evasion. The free exchange
of conditions in newly-inserted leads to tax officers to pin down
of information between countries
Limitation of Benefit (LOB) which is offenders. will now provide more leads to tax
an expenditure of at least Rs 27 lakh officers to pin down offenders. The
in Mauritius in the previous fiscal. Benami Transactions Act: Indian government has significantly
The Singapore treaty amendments are stepped up efforts to unearth black
being negotiated by the two sides. It T h e B e n a m i Tr a n s a c t i o n s
(Prohibition) Amendment Act money from the system, which is only
will automatically be amended from set to expand going forward with the
April 1, 2017 as it is under the same approved by the Parliament in August
saw widening of definition and help of technology such as Project
protocol as Mauritius. Insight. While the efforts using
increase in penalty and punishment
India has Double Tax Avoidance for those who hold assets in the name technology are in the right direction,
Agreements with 82 nations, including of other person or in fictitious name the focus must be on discouraging
all popular tax haven countries. Of to avoid taxation. The legislation cash transactions and encouraging
these, India has expanded agreements is intended to effectively prohibit card payment in the economy. This
with 30 countries which requires benami transactions and thereby will be the key to curb black money
mutual effort to collect taxes on behalf prevent circumvention of law through circulation.  q
of each other. unfair practices. The definition of a (E-mail:dilashaseth@gmail.com)

YOJANA November 2016 33


YE-177/2016

34 YOJANA November 2016


most significant tax reform
perspective

GST: game changer for Indian Economy?

Ranjeet Mehta

A
t the outset, the level it includes VAT or sales tax,
government of India octroi, state excise, property tax,
must be complimented entry tax and agriculture tax. These
on the tremendous efforts taxes lead to increased tax burden
being made on the GST on the Indian products affecting the
front. The passage of prices and sales in the domestic as well
the Constitutional Amendment Bill as international markets.
as well as release of the Model GST
laws indicates the determination of To address this, the Constitution
the Government to implement GST Amendment Bill for Goods and
The GST subsumes at the earliest. One of the thrust Services Tax (GST) has been approved
by the President of India post its
Indias messy plethora policy initiatives of the government
passage in the Parliament (Rajya Sabha
is the Make in India project that
of indirect taxes, would enable India to become a on 3 August 2016 and Lok Sabha on 8
August 2016) and ratification by more
duties, surcharges and manufacturing hub as it will create
than 50 per cent of state legislatures.
employment / job opportunities for the
cesses into a single burgeoning youth of the country.In The Government of India is committed
tax. It is expected to order to make India a manufacturing to replace all the indirect taxes levied
hub, it is imperative that the foreign on goods and services by the Centre
ease a cumbersome investors/companies find it conducive and States and implement GST by
tax system, help goods to do business here. One of the major April 2017.
move seamlessly across impediments to a smooth business, To have achieved this, in a large
especially in the manufacturing sector, and complex federal system of
state borders, curb is the uncertain and unpredictable multiparty democracy, with a Centre,
tax evasion, improve indirect tax regime. 29 States and 2 Union Territories
compliance, raise The current multi-staged tax of widely divergent interests via a
structure has charges from the State constitutional amendment requiring
revenues, spur growth, and Union governments separately, broad political consensus, affecting
stimulate investment and leading to cascading effect of taxes. potentially 7.5 million tax entities, and
There are taxes at different rates and at marshalling the latest technology to
make investing and doing multiple points. The Centre has taxes use and improve tax implementation
business in India easier like income tax, service tax, central capability, is perhaps breathtakingly
sales tax, excise duty and security unprecedented in modern global tax
transaction tax while at the State history.

The author is Director at PHD Chamber of Commerce and Industry, New Delhi, addressing various policy related issues in Infrastructure,
Power Sector, Renewable Energy, Oil and Gas, Housing sector, Real Estate Regulatory Bill, Land Acquisition Bill, Master Plan of Delhi,
National Water Policy and Logistic Sector. He has written extensively on various subjects. His publications include six books, more than
45 research papers and articles in many journals of repute, leading national and international magazines.

YOJANA November 2016 35


Sometimes, we are insufficiently
appreciative of how much the country
has achieved in coming to this
point with the GST. Credit should
go to all stakeholders at the Centre
and the States for having worked
towards the GST. The time is ripe
to collectively seize this historic
opportunity because the GST will
decisively alter the Indian economy
for the better.
GST is also the most significant
tax reform since independence for
India which is now Asias third
largest economy. The GST subsumes
Indias messy plethora of indirect GST: Facilitating inter-state trade in goods
taxes, duties, surcharges and cesses
will have a comprehensive tax base the poorest States for example,
into a single tax. It is expected to
with minimum exemptions will Uttar Pradesh, Bihar, and Madhya
ease a cumbersome tax system, help help industry, which will be able to Pradesh who happen to be
goods move seamlessly across state reap benefits of common procedures large consumers will increase
borders, curb tax evasion, improve and claim credit for taxes paid. This substantially.
compliance, raise revenues, spur is expected to reduce the cost for
growth, stimulate investment and consumers. GST will increase Indias The Indian GST will be a leap
make investing and doing business GDP by around 2 per cent as per the forward in creating a much
in India easier. Finance Ministry. cleaner dual VAT which would
minimise the disadvantages of
With GST, it is anticipated that completely independent and
the tax base will be comprehensive as GST will have a far-reaching completely centralised systems. A
virtually all goods and services will impact on almost all the aspects common base and common rates
be taxable with minimum exemptions. (across goods and services) and
GST will be a game changing reform of the business operations in
very similar rates (across States
for the Indian economy by creating a the country, for instance, pricing and between Centre and States)
common Indian market and reducing of products and services, supply will facilitate administration
the cascading effect of tax on the cost chain optimization, IT, accounting, and improve compliance while
of goods and services. It will impact also rendering manageable the
the tax structure, tax incidence,
and tax compliance systems. That collection of taxes on inter-
tax computation, tax payment, is the reason GST Bill has been State sales. At the same time,
compliance, credit utilization and described as a reform measure the exceptions in the form of
reporting, leading to a complete of unparalleled importance in permissible additional excise taxes
overhaul of the current indirect tax on special goods (petroleum and
independent India. tobacco for the Centre, petroleum
system.
and alcohol for the States)
GST will have a far-reaching Major Benefits of GST: will provide the requisite fiscal
impact on almost all the aspects of autonomy to the States. Indeed,
the business operations in the country, The GST will decisively take
even if they are brought within
for instance, pricing of products and the Indian economy to the next
the scope of the GST, the States
services, supply chain optimization, level for the better. As the Prime
will retain autonomy in being
IT, accounting, and tax compliance Minister outlined in an interview,
able to levy top-up taxes on these
systems. That is the reason why GST the GST will increase the resources
goods.
available for poverty alleviation
Bill has been described as a reform
and development of the country. The GST will facilitate Make
measure of unparalleled importance
This will happen indirectly as the in India by bringing India on a
in independent India.
tax base becomes more buoyant single tax platform. The current
Currently, tax rates differ from state and as the overall resources of the tax structure is fragmenting Indian
to state. GST will bring uniformity, Central and State governments markets along State lines. These
reduce the cascading effect of these increase. But it will also happen distortions are caused by three
taxes by giving input tax credit, directly because the resources of features of the current system: the

36 YOJANA November 2016


Central Sales Tax (CST) on inter- have a federal structure. GST ability to support ease of doing
State sales of goods; numerous will basically have three kinds business.
intra-State taxes; and the extensive of taxes namely Central, State
nature of countervailing duty and one called integrated GST GST will reduce tax burden on
exemptions that favours imports that will help to tackle inter-state producers and foster growth
over domestic production. In one transactions. Under the current through more production.
fell dive, the GST would rectify GST tax reform, all forms of This double taxation prevents
all these distortions: the CST supply of goods and services like manufacturers from producing
would be eliminated; most of the transfer, sale, barter, exchange to their optimum capacity and
other taxes would be subsumed and rental will have a CGST and retards growth. GST would take
into the GST; and because the SGST. care of this problem by providing
GST would be applied on imports, tax credit to the manufacturer.
the negative protection favouring Amalgamating several Central
and State taxes into a single Various tax barriers such as
imports and disfavouring check posts and toll plazas lead
domestic manufacturing would tax would help mitigate the
to a lot of wastage for perishable
be eliminated. items being transported, a loss
The proposed GST regime law
Another significant benefit is, that translates into major costs
aims to simplify and harmonize
the GST would improve tax through higher need of buffer
the indirect tax regime in the stocks and warehousing costs as
governance in two ways. The
first relates to the self-policing country. GST shall be levied on both well. A single taxation system
incentive inherent to a value- goods and services which would could eliminate this roadblock for
added tax. To claim input tax subsume most of the indirect tax them.
credit, each dealer has an incentive
laws (except few taxes such as A single taxation on producers
to request documentation from would also translate into a
the dealer behind him in the stamp duty) and hence is touted
lower final selling price for the
value-added/tax chain. Provided as a major tax reform. Transfer consumer, therefore less burden
the chain is not broken through of (completed) properties may on the common man. Also, there
wide-ranging exemptions,
continue to be outside the purview will be more transparency in the
especially on intermediate goods,
of GST and be liable only to system as the customers would
this self-policing feature can
know exactly how much taxes
work very powerfully in the applicable stamp duties. they are being charged and on
GST. The second relates to the
what base.
dual monitoring structure of the double taxation, leading to a
GST one by the States and common national market. From GST provides credits for the
one by the Centre. Critics and the consumer's point of view, taxes paid by producers earlier
taxpayers have viewed the dual the advantage would be in terms in the goods/services chain. This
structure with some anxiety, of a reduction in the overall would encourage these producers
fearing two sources of interface tax burden on goods, which is to buy raw material from different
with the tax department and currently estimated at 25 per cent registered dealers and would
hence two potential sources of to 30 per cent. bring in more and more vendors
harassment. But dual monitoring and suppliers under the purview
should also be viewed as creating Reduction in prices: Manufacturers of taxation. GST also removes
desirable tax competition and or traders would not have to the custom duties applicable on
cooperation between State and include taxes as a part of their exports. Our competitiveness in
Central authorities. Even if one cost of production, which would foreign markets would increase
set of tax authorities overlooks lead to reduction in prices. on account of lower cost of
and/or fails to detect evasion, transaction.
there is the possibility that the Lower compliance and procedural
other overseeing authority may cost: There would be reduction in Sectorial Impact
not. the load to maintain compliance.
Also keeping record of CGST, Real Estate Sector:
The scenario of multiple taxes SGST and IGST separately would
and its cascading effect which not be required. The real estate sector has strong
is a burden on common man economic multiplier effects through
has been addressed by GST. GSTs successful implementation backward and forward linkages.
The framework of proposal has would give a strong signal to the Construction is the second largest
dual GST which means it will foreign investors about Indias employment generator in the country

YOJANA November 2016 37


after agriculture and accounts for a At present, developers pay various can alone add 2 per cent to Indias
significant proportion of the GDP. non-creditable taxes on supplies. GST pharmaceutical market size. Because
According to the Economic Survey may replace these multiple taxes with a GST will help pharmaceutical
2015-16, the real estate sector single tax; credit on supplies may also companies rationalize their supply
constituted 7.4 per cent of Indias GDP be available, thus reducing costs for all chain, they will have to review their
in 2013-14. Under the current indirect players. However, if real estate output distribution networks and strategy.
tax regime, the real estate industry is exempted, then input GST credit
has been embroiled in disputes due could be a substantial cost for the Additionally, GST implementation
to ambiguity in provisions as well as sector, resulting in blockage of credit will also envisage aseamless flow of
multiple taxation. and higher costs to end consumers. tax credit, account for improvement
in overall compliance and is also
Under the current law in force, expected to create a level-playing
various types of different taxes are Health Care Sector
field for pharmaceutical companies
involved, starting from construction One of the major concerns of in India.
of property to sale of the same to end this industry is the current inverted
customer: duty structure that adversely affects A big advantage for companies will
domestic manufacturers, cost of be the reduction in transaction costs
- Service tax. with thediscontinuanceof Central Sales
inputs being higher than output.
- Value Added Tax (VAT). This discourages investment in this Tax (CST). GST is expected to bring
industry. GST may either remove the down the manufacturing cost and even
- Stamp duty. a 2 per cent reduction in production
inverted duty structure or allow refund
of accumulated credit. This would be or distribution cost is believed to add
- Building Cess on construction,
over20 per centto profits. If the rate of
etc.
...as GST is a destination-based GST is below the current total tax rate,
- Further, there are various other it will eventually help consumers by
taxes which are embedded in the
tax, it might be a challenge to making healthcare and medicines more
cost of procurements (such as determine the destination of affordable which already is a big goal
excise duty, CST etc) certain services (at present, for the Indian Government.
Hence, sale of under construction services are taxed at the place of This sector enjoys several tax
property attracts multiple taxes/duties rendering the service). This may exemptions and benefits. It is still
under the current regime, leading to lead to a difficulty in determining not clear whether these benefits will
cascading of taxes and higher tax cost state GST, central GST or inter-state continue under GST. Health insurance
burden on house purchasers. and diagnostic centres, which are
GST on B2B and B2C transactions. mainly service-oriented, may fall
The proposed GST regime law
under higher tax rates, thereby making
aims to simplify and harmonize the a boon for this industry and can act as such services more expensive for
indirect tax regime in the country. its growth catalyst. consumers.
GST shall be levied on both goods
and services which would subsume The current cascading tax structure Banking and Financial services
most of the indirect tax laws (except on import duty makes it expensive for Sector:
few taxes such as stamp duty) and the industry to import machinery.
hence is touted as a major tax reform. GST is likely to reduce this cost. In India, most of the banking
Transfer of (completed) properties may Further, GST is expected to have a and financial services are exposed to
continue to be outside the purview of positive effect on the pharmaceutical service tax, at the rate of 14.5 per cent,
GST and be liable only to applicable sector. It will help the industry while GST is expected to be 18 per
stamp duties. by simplifying the tax structure, cent to 20 per cent. Thus, services are
sinceeightdifferent taxes are levied likely to get costlier. GST may make
The GST is likely to result in things cumbersome as financial service
in the pharmaceutical industry at
transparency in the real estate sector, providers may be required to adhere
the moment. A consolidation of all
which will significantly reduce
these into one tax would ease doing to compliances across multiple states
tax evasion through more efficient
business, as well as mitigate the instead of the current single, centralised
transaction-tracking methods, and
cascading effects of multiple taxes registration compliances
improved enforcement and compliance.
applied on one product.
Since GST may be levied on a single Also, as GST is a destination-
value, the current issue of levying tax Apart from this, GST will also based tax, it might be a challenge to
on tax (VAT on central excise duty) is result in operational efficiency by determine the destination of certain
likely to be removed. streamlining the supply chain which services (at present, services are

38 YOJANA November 2016


taxed at the place of rendering the after the implementation of GST. In pay service tax and vat both. Under
service). This may lead to a difficulty case it doesnt, the sector may be able the GST regime, it would be a single
in determining state GST, central to avail of input credit or CENVAT tax. As the states are expected also to
GST or inter-state GST on B2B and credit on the duty paid on purchase of decide service tax rates, your phone
B2C transactions. inputs and services. These are likely bill could see escalation of taxes.
to bring down the final cost for the Accordingly, services consumed by
Interest on loans, trading in industry. a common man such as telecom, rail,
securities, foreign currency and transportation, banking, air travel,
retail services are also expected impact on Common Man
etc may become expensive. Whereas
to fall within the ambit of GST. small cars, FMCG products, etc may
Recommendations by the banking As the GST reaches its final stages,
the historic legislation promises to become cheaper.
industry suggest that such services
unify the tax system for the nation
and income should not come under Television could get cheaper, as
and increase the GDP by 2 per cent.
GST. It is still to be seen whether part of the Make in India initiative,
So, while services could get more
these recommendations will be the GST is expected to be lower. So
expensive, its a mixed bag for
accepted. at present for Rs 20,000 LED TV you
consumers for goods.
pay around 24.5 per cent tax, shelling
Overall, it appears that imposing
out Rs 24,900 eventually. Under GST
GST on banking and financial services
if it is around let say 18 per cent, it will
may become a challenge and India, if As the GST reaches its final stages, cost Rs 23,600, thereby bringing the
successful, will chart a new course,
the historic legislation promises to cost down for the consumer.
which could well become a model for
the rest of the world. unify the tax system for the nation Buying bags, shoes, electronics
and increase the GDP by 2 per cent. goods online will be getting more
Travel, Tourism and Hospitality: expensive as the e-commerce industry
So, while services could get more
I n d i a s t r a v e l , t o u r i s m a n d comes into a tax net and will have
expensive, its a mixed bag for to pay tax deducted at source for
hospitality industries have multiple
taxes, levied by both the centre and consumers for goods. every purchase from its sellers. So
the states. It is expected that under e-commerce companies which will
GST, supplies of hotels and restaurants Goods today are typically taxed at see shrinking of profit margins and
will be subjected to a single tax. 12.5 per cent (excise duty) plus 5-15 increase tax compliance net could
per cent (VAT) which is invariably slash discounts and freebies that they
At present, no credit is available passed on to the end customer. If the offer.
on input services related to renovation standard rate of GST is capped at 18
or construction of hotels and resorts. It can be concluded that the real
per cent, there exists a scenario where
This is expected to change under GST. success of GST lies on the impact on
prices of goods can significantly
R&D cess, payable on franchise fees the common Indian consumer. The
reduce for the customer. This is
and technical know-how, is likely essence of GST is that all goods and
because procurement costs will also
to be subsumed under GST, thus go down for a business and some of services be taxed at moderate rate.
simplifying compliance procedures the profit can be passed on to the end One nation, one tax proves to be
and reducing multiple taxes. However, of the chain. The corollary to this is a game changer in a positive way and
it is unclear whether various benefits the Consumer Price Index where 55 proves to be beneficial not only to
available under the existing Foreign per cent items are tax-exempt, 32 per the common man, but to the country
Trade Policy will continue under GST. cent are at a low rate and only 12 per as a whole. As and when a new law
If such benefits are provided, input cent are at a standard rate. is imposed, it surely leaves its impact
credit may not be available, resulting especially on the common man. Same
in higher costs. On the whole, GST is This means that some essential applies in case of GST wherein the
likely to eliminate multiplicity of taxes items in a household (textiles, books, common man being the final consumer
and lack of credits. However, it may cooking oil, etc) are actually subject of goodsshall be directly affected after
also lead to increase in tax rates. to about 5-8 per cent tax because of introduction of GST. We hope GST
exemptions. If the rate hits 18 per leaves a positive impact and helpsto
Education Sector: cent, then these goods go up in pricing, boost up the Indian economy and
wobbling the entire structure. In the convert India into a unified national
The education sector currently service industry, the typical tax output market with simplified tax regime. A
enjoys various tax exemptions and will go up from 15 per cent to 18 per rising Indian economy will anyways
benefits; services provided by schools cent. help in the financial growth of the
and colleges are either not taxed or
Eating out under GST regime common man! q
are covered in the negative list. The
situation is likely to continue even could be cheaper, as right now you (E-mail: ranjeetmehta@gmail.com)

YOJANA November 2016 39


YE-164/2016

40 YOJANA November 2016


new taxation system
framework

GST and the Constitutional Conundrum

Jayanta Roy Chowdhury

T
he much awaited Goods coloured by its own experiences during
& Services Tax, intended partition, when sedetious tendencies
to transform India into threatened to render apart the nascent
a single marketplace state still in its infancy.
as similar taxes have
transformed Canada and Many who were involved in
the European Union, may have one the proceedings of the Constituent
unintended consequence : turning Assembly as well as independent
Indias constitution from being observers have often opined that the
described as `federal with a unitary Assembly was possibly obsessively
bias to a `Constitution for the Union focused on the need for ensuring
with a federal bias. the unity and integrity of the new
nation. In fact, in one lengthy debate,
Ahead of the passage of the GST, Syamanadan Sahaya, MP from Bihar
What the future protesting against the vexatious system argued In the matter of financial
holds for Indias of multiple taxation at various stages
in different states, some ingenious
adjustments between Provinces and
the centre, I think that the Provinces
taxation laws is businessmen came up with the slogan have not been treated as well as they
of One nation, one tax. The process should be. In fact, I have a feeling that
something which the of unifying the countrys market in this matter, the Provinces are worse
started with VAT in the begining of
Indian polity would this century. However, states remained
off than in the days of the 1935 Act.
The responsibilities of the Provinces,
determine in its own staunchly independent in their taxation
policy, in some cases led by their own
their commitments and their sphere for
introducing ameliorative measures for
unique manner. fiscal imperatives and this created the people are greater than even those
a situation where VAT was often
However for the supplemented by a variety of taxes,
of the Centre and as such, they should
have been given sufficient scope in the
present, the churn leading to India being described as one
of the highest taxed nations.
field of taxation.

which has produced The slogan was, of course, a reaction


However, the fear of excessive
federalism was cogently argued as
GST will for many to the absence of a seamless scheme of being against the spirit of One India and
taxation which smoothens the course the framework which thus came out
years to come well of commerce and not a reflection of tended to focus legislative and taxation
the process of constitution making
define Indias federal in the aftermath of independence
powers with the centre rather than
with the states. Indeed, Pt Hridaynath
relations and partition. Indias decision to be Kunzru, MP from the United Provinces
a federation with a Unitary bias was placed the Unitary debate in focus

The author is currently Senior Editor-Business with The Telegraph, has been a journalist for more than two and a half decades. He specializes
in writing on Economic and Politico-Economic issues, but has a wide range of interests ranging from history to security issues to fiction. He
was Chevening Fellow in Development Economics at University of Bradford, UK, in 2010.

YOJANA November 2016 41


in the same debate arguing : the levy many taxes
financial and administrative stability independently
of the provinces depends to no small and earn
extent on the position of the Centre. It h a n d s o m e l y,
would be short-sighted of the provinces for instance,
to demand a larger share from the the Mumbai
Centre, regardless of the effect that Corporations
their claims would have on the position huge income
of the Central Government. from Octroi
duty which will
In the early years, with most states
be financially
run by Congress Ministries in sync
challenged with
with the Union Government led by
the roll out of the
Pandit Jawaharlal Nehru never sought
to question this arrangement. From the GST, their power
to tax would be GST: Affecting Federalism
1960s, when alternate Governments
emerged in states, there have been virtually decimated. Recognising this, from both the Union parliament and
challenges which sought greater powers the Ministry of Urban Development state legislatures and these have to
for the federal units. has asked for a 25 to 30 per cent share be implemented across the country.
for all urban local bodies in the states Without going into the issue of
States currently have the right to tax share of the nation-wide goods and weightage of voting powers within
a wide range of goods and professions services tax. the GST Council, the fact remains that
through a variety of taxes, levies and this Council will now be the Supreme
charges, which states have over time legislative body in determining tax
very cleverly enlarged taking advantage The combination of these two rates on all goods and services through
of loose drafting of legislations. Bengal Acts the GST Constitution the length and breadth of the country
for instance, levies a charge on coal Amendment and the FRBM Act and not the directly or indirectly
sold outside its borders. Other states elected Members of Parliament and
had introduced an entry tax for goods - in turn, turns the states Chief State legislature. In essence, this will
coming from across its borders. These ministers and Cabinets into be like an educated super-body elected
to any consumer or business are indeed political executives charged with by Electors.
anachronisms.
implementation of programmes Not only this, the snuffing out of a
However, this ability of raising within their respective provinces, variety of taxes which the state levied
higher taxes gave states which were by subsuming them in the GST and
but without the right to consider the early bias which the Constitution
efficient, the ability to raise larger
resources to address problems unique how to raise funds for such imbibed by granting the Union taxation
to them or in some cases to squander programmes or even to scale powers over income and over residual
larger resources. The State of Tamil matters, means the state executive and
up their programmes without legislature will have little say over what
Nadu, which opposed many clauses
in the GST had a point when it said the connivance of the central taxes can be raised in their respective
that it had implemented wide ranging government. states.
social sector reforms on the back A Fiscal Responsibility and Budget
of cash generated from its taxation While GST is expected to be divided Management Act also caps the amount
programme. between the Centre and states based on of money which a state may raise
It is true that the Southern states have a mutually acceptable formula, the through bonds or market loans. While
done remarkably well in there social ministry has argued that urban local the measure was indeed necessary
parameters its health and education bodies will have to deal with a huge given the propensity of Indian states
parameters have helped catapult it way fiscal gap once local body tax, octroi to rush into indebtness which would
ahead of its rivals and are comparable and other entry taxes are scrapped have put even Greece to shame, the
to that of OECD countries. In the to make way for the new taxation measure does stop a potential Dr B C
words of economist Jean Dreze Kerala system. Roy or a Sir Visvesveraya or a Partap
and Tamil Nadu routinely come at or Singh Kairon from turning to debt as
near the top in rankings of summary Besides this, legally speaking, an instrument to address their state's
development indexes, they also surpass the GST Amendment Act effectively extraordinary needs for development
other States in terms of the speed of transfers the power of taxation over funds.
improvement. large swathes of possible taxation to
an unelected body. Effectively, the The combination of these two Acts
Even more than the states, it would GST Council, set up by the Act, takes the GST Constitution Amendment
be municipal bodies which could on the power of deciding tax rates and the FRBM Act - in turn, turns

42 YOJANA November 2016


the states Chief ministers and Cabinets into political executives
charged with implementation of programmes within their
respective provinces, but without the right to consider how to raise
funds for such programmes or even to scale up their programmes
without the connivance of the central government.
The power to tax is the crux of the argument of sovereignty,
succinctly made during the American War of Independence which
the Continental states waged. The Finance Minister, a polished
constitution lawyer himself very deftly and aptly handled the
objections raised to the move by stating that : for some of those
who felt that this was surrendering their sovereignty, this was, in
fact, pooling in of sovereignty of the states at the Centre.
However, it would do well to remember that the world has
not yet totally embraced GST as a panacea for its fiscal ills. In
fact, the United States itself has, as yet, not agreed to usher in
any form of GST. Possibly because of the federal nature of its
constitution.In fact, the plethora of taxes levied by US federal
authorities, States and other municipal governments are often
bewildering for a newcomer. Especially since direct taxesfall in
the purview of the states in that country, unlike in India, where it
is levied by the central Government and then shared with states
according to a set formula.
State and local taxable income is determined under state
law, though often based on federal taxable income calculations.
Yet, in some cases, this is not so, with states devising alternative
measures of calculating taxable income, or even alternative
taxes. Confusing as this may be, the total measure of taxation on
individuals still work out to 24.8 per cent of GDP, compared to
Indias 16.6 per cent.
In fact, in Canada where the GST was introduced in the last
century, the provinces have the power over direct taxes, while
the federal Government has the power to tax indirect taxes,
which is why the change over to GST did not entail any impact
on state powers.
It is yet to be seen how the Indian polity will respond to
the challenge to the eventual implementation of the Goods and
Services tax. It could well accept the taxation powers which have
now evolved or chafe at the bit and seek a change from the new
status quo.
In case, states eventually decide to seek a fiscal arrangement
which is less straight-jacketed they could then either chose the
Australian model, where 75 per cent of all taxes are raised by the
federal or commonwealth government and distributed through a
very sophisticated mechanism akin to that established by Indias
Finance Commissions or opt for the Canadian model, with
Indias states swapping the power to levy indirect taxes with the
Centre and instead taking over the power to tax direct incomes
or to devise a new system altogether.
What the future holds for Indias taxation laws is something
which the Indian polity would determine in its own unique
manner. However for the present, the churn which has produced
YE-173/2016

GST will for many years to come well define Indias federal
relations.  q
(E-mail:jrchowdhury@yahoo.com)

YOJANA November 2016 43


YE-179/2016

44 YOJANA November 2016


the global scenario
special article

Goods and Services Tax:


The International Experience
Pravakar Sahoo
Ashwani Bishnoi

T
he most awaited in India is its complicated tax system
economic reforms in with multiple rates at both the centre
India, for a simplified and states. Compliance with taxation
and uniform tax rate, norms requires enormous time and
were passed in the money, and simplification has been
Parliament of India on one of the most demanded reforms
3 August 2016. The biggest tax from industry and investors over
reform in independent India, and also the past decade. Integrating taxes on
the biggest economic reform since goods and services will reduce the cost
the structural reforms in 1991, has of compliance and also give full tax
now been passed in both houses of credit for inputs at one go.
parliament after 11 years of political
For the first time, all political logjam, debate, and discussion. The present VAT system, at both
parties came together central and state levels, has certain
The goods and services tax shortcomings. At the central level,
and passed the GST Bill (GST), which subsumes 15 central only taxes paid on raw materials is
unanimously. This is not and state taxes on goods and services, given as input credit, but not taxes
only a mature act but truly will create one single indirect tax rate paid for post-manufacturing expenses.
an achievement for the across states, and make India a truly Service tax is imposed on limited
unified market. Come April 2017, products; therefore, it is difficult to
government. The GST is there will be no state boundaries give credit of services tax consumed
called the worlds most in taxation terms. This landmark in the process of manufacturing these
complex tax reform, where achievement, which will be a game- products. The comprehensive GST
7.5 million businesses can changer in coming years, is by far the will tax both goods and services, and
biggest milestone of the government is, therefore, essential to reduce the
register, make payments, in terms of economic reforms, but the cascading effect.
and file returns on a GST GST rate still needs to be fixed, and
The present state VAT suffers
portal. It is really a big relief operational issues sorted out.
from limitations like charging VAT on
for business, as even today, The existing system of the central excise duty already paid to the centre,
because of layers of taxes value added tax (CENVAT) and state levying various other indirect taxes
and exemptions, the cost of VAT suffers from the cascading effect. like luxury tax, entertainment tax,
As the two are not inter-linked, the etc., and not having the provision of
tax compliance in India is system leads to high tax on consumers, taking input credit on the central sales
too high. In sum, it is a much different input tax credit from the tax (CST). Therefore, a compressive
needed landmark reform centre and states, and differential state GST is necessary to align rules for
VAT rates. One of the most difficult taking and utilising credits for CGST
challenges for investors and industry and SGST. Overall, both assesse and

Pravakar Sahoo is Associate Professor, Institute of Economic Growth (IEG), Delhi.


Ashwani Bishnoi is Assistant Professor, Department of Humanities and Social Sciences, National Institute of Technology (NIT),
Kurukshetra

YOJANA November 2016 45


the government exchequer will benefit their products without any additional of tax burden due to mitigation of
from a simpler tax system, mitigation tax burden with proper input tax credit. cascading effect and increase in tax
of cascading effect, development of This will result in scale economies in revenue to the government owing to
common markets, broadening tax production. Ultimately, transaction increase in base whereas on, other
base, and reduction in compliance cost would be lower, and consumers hand, there is possibility of spike in
cost. would benefit. prices.
The proposed dual GST, with a The existing differential tax There are around 160 countries
central and state GST, will replace structure across states creates in the world that have implemented
this system. The CST will be replaced distortionary incentives for different VAT/ GST. There are seven countries
by an integrated goods and services players. For production and logistics, in ASEAN, 19 in Asia, 53 in Europe,
tax (IGST), to be levied on inter-state investors prefer locations that offer the seven in Oceania, 44 in Africa, 11 in
supplies of goods or services in India least tax rate and administration. Now, South America and 19 in Caribbean,
and collected by the centre. The IGST this tax incentive-influenced skewed central and North America. Clearly,
will apply to import of goods and production structure will go, which is Europe has the highest number of
services and inter-state stock transfers good for Make in India. Therefore, countries which have implemented
of goods and services. As the proposed simplifying the tax system through VAT or GST. France was one of the
GST is a destination-based tax, the tax the GST would be a game changer, first countries to implement GST in
burden will shift from the state of origin though other important reforms, like 1954, followed by Germany in 1968
to the state of consumption, and result land acquisition and flexible labour and the United Kingdom in 19731.
in less revenue for manufacturing and laws, will remain to be made. Typically, GST is a unified tax system
developed states. Though the GST in most of the countries but Canada
International Experience and Brazil have dual GST like India
would compensate states for any
revenue loss for the first five years, it The international experience proposed GST. Standard rate of VAT/
is not good news for developed states, shows that the success of a GST GST in most of the countries ranges
which have invested in infrastructure depends mostly on the model and between 1620 per cent similar to
and other utilities to attract investment effective implementation. Over time, Indias proposed GST rate of between
and industries for growth. Therefore, many countries have fine-tuned their 18 to 22 per cent.
consumption or destination states framework to reap the benefits of GST
If we look at some of the major
(like Odisha, Uttar Pradesh, Bihar, in terms of growth, revenues, and
countries like Australia, Canada, New
and Kerala) stand to gain, while origin price stability. So far, the experience in
Zealand, Singapore, Japan, Korea
states (like Tamil Nadu, Gujarat, and countries like Australia, Canada, and
United Kingdom etc (Table-1), we find
Maharashtra) stand to lose. Overall, New Zealand is better fiscal finance
that they have done fairly well in most
one single indirect tax rate all over and price stability in the short- to
of the macroeconomic indicators. The
India will create a common market medium-term. Of course, in case the
type of GST framework varies from
and lead to a less effective tax burden GST rate is high, there is always the
country to country. For example,
on final consumers. fear of price hike immediately after
Australia adopted the least neutral,
GST implementation in the short
The GST will not apply to a few New Zealand most neutral while
run.
lucrative sectors (such as alcoholic Canadas GST was intermediate.
products for human consumption, Many services (such as education, Most of these countries in Table-1
electricity, real estate, and petroleum health, and commercial and business experienced a temporary spike in their
products); states will apply differential services) are not taxed now or taxed price levels immediately after the
tax rates on these sectors. However, at a low rate. As the proposed GST GST implementation. However, price
petroleum products, the prices of rate is 1822 per cent, implementation levels stabilised and then declined
which have wide implications on the of GST may lead to inflation in the after few years and in the medium
general prices of other products, will short term. International experience term. As reported in Table-1, the
be brought under the GST once the shows that inflation went up in the inflation rate in most of the countries
GST Council notifies the date. short term as a lot of new services and have stabilised at lower rate after the
goods taxed under GST which were implementation of VAT/GST. Other
A uniform, pan-India GST will not taxed earlier. GST framework macro indicators like GDP growth
facilitate seamless input tax credit, will make it very difficult for non- rate, fiscal balance, current account
eliminate the tax-cascading effect, GST paying or businesses not paying balance, Tax-GDP ratio have improved
and enable the free flow of goods taxes as the entire value chain starting in most of the countries, particularly
and services across states. This will from manufacture to retail would in case of Canada, Australia, New
help manufacturing firms achieve transparently captured by an integrated Zealand, Korea, Singapore and United
economies of scale across the supply IT infrastructure. Therefore, on one Kingdom. Therefore, a simple and
chain and source raw material and sell hand there is possibility of reduction unified tax system like GST has made

46 YOJANA November 2016


these economies more competitive, Australia which implemented GST that GST would be inflationary in
helps improve exports, generate in 2000 has experienced positive nature especially if the effective tax
more revenues to the exchequer outcomes particularly in case of tax rate is higher than what prevailed
and stabilise prices. However, the revenues and current account balance before. For instance, Singapore saw
performance of the economy in (see Fig-2). Another country that has a spike in inflation in 1994 when it
general and major macro indicators as been successful in implementing GST introduced the GST. That makes it all
mentioned in Table-1 varies in great is New Zealand which introduced GST the more important for administrators
deal across countries due to the level in 1986. Unlike most countries, there to keep tabs on how prices move after
of development of these countries are few exemptions: for example, all imposition of the tax. Malaysia, to an
and also effective implementation types of food are taxed at the same extent, was able to mitigate this risk
of proper GST model. Moreover, rate. In the European Union, the GST, as price control on account of the GST
performance of these macro variables better known as the Value Added Tax, was administered by the Ministry
like growth, fiscal balance, current are known as output VAT (VAT on of Domestic Trade and Consumer
account balance, etc are not dependent its output supplies) and input VAT Affairs.
only on the taxation structure but (VAT that is paid by a business to
many other structural, policy and another business on the supplies it Another key lesson from Malaysia
endowment factors. receives). A business is usually able is that businesses need to start early with
to recover the tax it paid either by the implementation process to be GST-
Following the success of many setting it against the output VAT if it ready. The Malaysian Government
countries adopting GST framework, is in excess by claiming a repayment received strong resentment even after
Malaysia is among the recent countries from the government. providing 1.5 one and half years for
in Asia to introduce GST and China is GST preparedness. Given the complex
working towards a uniform system of However many countries have GST model proposed in India and the
taxes. Malaysia introduced the GST had to increase rates very soon after need for a businesses to undergo a
of 6 per cent only from 1stApril2015. introduction. This is highly relevant transformation to adapt to the GST
In the south Asian region most of the in the India context where once regime, it would be quite challenging
countries including Bangladesh, Sri revenue-neutral rate was discussed
for the Indian government to tackle
Lanka, Pakistan and Nepal had VAT at 27 per cent and now realistically
the task of requiring businesses to
in place from the 1990s latest by early being talked about at 1618 per cent.
implement GST in less than 9 months,
2000s. Most African countries also It is imperative that a reasonable rate
with 1 April 2017 as the potential
had VAT in place before India did with structure is adopted to ensure the
date.
the exception of a few like Burundi, success of GST.
Congo, Gambia and Mozambique and F u r t h e r, t h e i n t e r n a t i o n a l
Seychelles, who have done so during International ExperienceL lessons experience is that, for long, GST has
the last 78 years. A main challenge encountered been essentially a central tax and
by most of the GST countries was the levy by two different levels of
Similar to the Indian context, it is
only Canada that has the concept of
dual GST. While there was a strong Figure-1: GST and Macroeconomic Performance in Canada
opposition to the introduction of
GST in Canada by various political 20
factions, Canada went ahead and 18
16
Canada
implemented it despite the opposition. 14
In fact, the government of Canada 12
10
has been pragmatic and consistently 8
worked towards reduced GST rate 6
4
post-implementation. In Canada, the 2
GST replaced the Manufacturers 0
-2
Sales Tax and came into force in 1991. -4
-6
The tax did not apply to products
such as groceries, residential rent,
and medical services, and services
such as financial services. The macro
economic performance in terms of
growth, government finance, tax
revenues and price stability have 1981-1990 1991-2000 2001-10 2011-15
improved in case of Canada during
post-GST period (Fig-1). Similarly, Source: World development Indicators, World Bank.

YOJANA November 2016 47


Table-1: Economic Performance of GST Implementing Countries
Country Year of GDP Growth (per cent) Fiscal Balance (per cent of GDP)
introduction
1961 1971 1981 1991 2001 2011 1961 1971 1981 1991 2001 2011
70 80 1990 2000 10 15 70 80 1990 2000 10 14
Australia 2000 5.09 3.02 3.42 3.32 3.05 2.64 - 0.11 0.04 -1.36 -0.14 -2.50
Brazil 1964 6.19 8.51 1.77 2.60 3.73 1.02 - - -3.39 -2.26 -2.37 -2.13
Canada 1991 5.21 4.06 2.67 2.87 1.87 2.13 - - - -2.17 0.77 -0.16
France 1954 5.57 3.64 2.49 2.10 1.22 0.85 - 1.16 -1.05 -4.50 -4.94 -4.21
Japan 1989 9.30 4.50 4.64 1.14 0.80 0.62 - -3.32 -3.31 - -4.01 -7.72
Korea, Rep. 1977 8.71 9.05 9.74 6.63 4.44 2.96 - - 1.53 1.90 1.49 1.69
Mexico 1980 6.81 6.71 1.88 3.64 1.82 2.84 - - -2.55 -0.45 - -
New Zealand 1986 - 1.26 1.91 3.06 2.55 2.71 - 0.49 -2.47 - 1.41 -2.16
Singapore 1994 9.35 9.09 7.79 7.19 5.91 3.96 - - 10.51 14.95 5.75 8.92
United 1973 3.06 2.14 2.95 2.44 1.62 2.10 - -1.24 -0.70 -3.62 -4.90 -6.44
Kingdom
Current Account Balance (per cent of GDP) Tax to GDP (per cent)
Year of introduction 1961 197180 1981 1991 200110 201115 1961 197180 1981 1991 200110 201114
70 1990 2000 70 1990 2000
Australia 2000 - - -5.56 -3.95 -5.32 -3.64 - 19.40 22.27 21.43 23.75 21.53
Brazil 1964 - -4.40 -1.55 -1.93 -0.68 -3.32 - - 12.01 11.31 15.39 14.50
Canada 1991 -1.91 -2.87 -2.28 -1.43 0.49 -3.00 - - - 14.16 13.07 11.75
France 1954 - 0.23 -0.58 1.26 0.11 -0.84 - 18.45 19.32 20.45 22.12 22.74
Japan 1989 - - - 2.39 3.44 1.64 - 10.27 11.84 12.27 9.84 10.24
Korea, Rep. 1977 - -3.80 -0.74 0.60 1.64 5.12 - - 13.35 13.08 14.23 14.44
Mexico 1980 - -4.69 -0.79 -3.28 -1.30 -1.93 - - 11.78 9.53 - -
New Zealand 1986 - - - -3.30 -4.32 -3.17 - 27.86 30.42 - 29.74 27.34
Singapore 1994 - -11.41 0.34 13.99 19.71 19.21 - - 14.54 15.45 12.80 13.58
United 1973 1.51 -0.30 -0.77 -1.33 -2.32 -3.99 - 23.02 24.26 25.33 26.33 25.52
Kingdom
Taxes on goods and services (per cent of revenue) Inflation (Growth in CPI)
Year of introduction 1961 197180 1981 1991 200110 201114 1961 197180 1981 1991 200110 201115
70 1990 2000 70 1990 2000
Australia 2000 - 21.10 23.12 20.04 24.03 23.37 2.47 10.45 8.13 2.22 3.01 2.30
Brazil 1964 - - 24.17 25.09 31.02 25.99 - - - - 6.69 6.72
Canada 1991 - - - 17.38 15.97 14.21 2.94 8.06 5.97 2.00 2.02 1.68
France 1954 - 34.47 29.67 26.37 23.59 21.57 4.22 9.67 6.37 1.72 1.71 1.10
Japan 1989 - 22.22 19.38 13.87 31.78 37.04 5.80 9.10 2.06 0.84 -0.26 0.72
Korea, Rep. 1977 - - 34.72 32.33 28.01 24.88 - 16.48 6.39 5.10 3.19 1.90
Mexico 1980 - - 56.05 55.03 - - 2.87 16.80 69.08 18.69 4.68 3.61
New Zealand 1986 - 18.94 21.06 - 26.27 26.29 4.02 12.52 10.76 1.83 2.57 1.57
Singapore 1994 - - 16.00 17.07 22.83 24.49 1.19 6.72 2.28 1.73 1.62 2.53
United 1973 - 26.23 29.99 32.80 31.32 32.98 - - - 2.69 2.10 2.27
Kingdom
Source: World development Indicators, World Bank

48 YOJANA November 2016


Figure-2: Figure-1: GST and Macroeconomic Performance in Canada Operational Issues:

26 As the main hurdle of constitutional


24
22
Australia amendment is over, the operational
20 issues of effective implementation
18 are likely to be taken care of soon, as
16
14 the finance minister has promised to
12 implement the GST from 1April2017.
10
8 And many issues need sorting out.
6 The GST is a landmark reform bill.
4
2 However, given that Indias tax system
0 is complex, the implementation of
-2
-4 GDP growth Cash Current Tax revenue (% Taxes on goods the GST is fraught with challenges.
-6 (annual %) surplus/deficit account of GDP) and services (% The two main challenges that the
-8
(% of GDP) balance (% of of revenue) government would need to overcome
GDP) is the setting of the revenue-neutral
rate (RNR) and the threshold limit
1991-2000 2001-10 2011-15
in the GST. It would be mandatory
to ensure that through the RNR the
Source: World development Indicators, World Bank.
revenues of the government remain
the same despite of giving tax credits.
government was considered infeasible like this. Keeping the exemption
Similarly, fixing an appropriate
or undesirable due to high collection list long will not enhance states threshold limit would be a challenge
costs, compliance costs and possible fiscal autonomy, makes the tax base especially to ensure that there is no
distortions arising from tax disharmony narrower and in any case will not taxing burden on small businessmen
and the possible limitations on the ensure comprehensive crediting of in the country.
central governments powers to input taxes.
undertake effective macroeconomic There are few other challenges
and redistribution policies (Bird A m o n g d i ff e r e n t c o u n t r i e s , that make introduction of GST by
and Gendron 2007) 2 . Technical New Zealand has the least number 1April2017 a daunting target. These
objections to the levy of sub-national of exemptions and the most include rolling out the required IT
GST were also raised on account of comprehensive coverage of GST, but platform for implementing GST
cross-border trade. Therefore, most it may not be possible to follow that in and sorting out the administrative
federal countries have the VAT at the a country like India. At the same time, arrangements for a very complex
federal level though some of them it is important to resist the political GST system consisting of state GSTs,
share the revenues with sub-national pressures to accord exemptions central GST, and an integrated GST
governments. The earliest sub-national to fulfil ostensible objectives of for inter-state movement of goods
VAT was introduced in Brazil on an equity, administrative ease, regional and services. Tax litigation policies
origin basis. The European Union development, employment creation and procedures have to be unified
(EU) implemented the VAT on the through small-scale industry and an effective litigation system has
basis of the destination principle, development and many more. to be evolved before implementation
but the issue of cross-border trade of GST on a national level. Having a
From the lessons learnt, there is robust IT network is another major
continues to be a subject of discussion no denying that acceptance of GST
(Keen 2009; Cnossen 2010) 3. The challenge for the implementation GST.
by general public, businesses and Government has already incorporated
Canadian experience with dual VAT firms would not be an easy task, with
by harmonising the tax bases and to Goods and service tax network
advance planning and extending (GSTN). GSTN has to develop GST
some extent rates has shown that the adequate time to industry, continued
system is eminently workable. portal which would ensure technology
dialogues between businesses and support for registration, return filing,
The international experience with administrators, engaging with industry tax payments, IGST settlements,
GST suggests that it is necessary to on the implementation planning, a etc. A robust IT backbone would be
keep the exemptions to the minimum, reasonable tax rate, timely release of essential. Improvement in banking
but resising the pressures from various the legislative documents, has proven system, providing extensive training
political groups to accord exemptions to aid in smooth GST implementation to tax administration staff, finalisation
in one pretext or other is not going in many countries. Of course, GST is of the GST rate, safeguarding the
to be easy. However, it is possible to proven to be an efficient tax collection interests of less developed states with
prune the list collectively by all the system despite teething problems in lower revenue potential, protecting
states concerned in a reform exercise the initial implementation period. and balancing the present and future

YOJANA November 2016 49


revenues of the centre and states are a few of the other key
challenges.
The successful implementation of GST requires fixing

*6,,3/86
the appropriate GST rate, which is the RNR, and requires an
efficient IT infrastructure and capacity building of the entire 3UHFXP0DLQV
tax administration. There have been many recommendations
for fixing the revenue-neutral GST rate at between 11 per
cent and 12 per cent. But the report of the Committee on
RNR and Structure of Rates for General Sales Tax (2015)
headed by Dr. Arvind Subramanian (Chief Economic
Adviser to the Government of India) recommended that
the RNR should be between 15 per cent and 15.5 per cent,
with a standard GST rate of 1718 per cent.
0385,
Second, the government needs to go all out for a
successful Digital India programme, as the GST will
require a state-of-the-art IT infrastructure all over India
for effective implementation. Ensuring high-speed IT
LQ*6,,0DLQVZDVIURPRXU
connectivity across states with huge geographical disparity
 &ODVV1RWHV 7HVW6HULHV
in such a short time is going to be challenging. Moreover,
the entire tax administration needs capacity building to
handle the GST. &RPSOHWHFRYHUDJHRIV\OODEXV 5HDOLW\QRW
The proposal to give states the freedom to impose the PHUHO\5KHWRULF
state GST within a band will dilute the purpose of unified 1HZSDWWHUQGHPDQGVVSHFLDOL]HGIRFXV
GST. Therefore, the GST Council, the proposed highest
decision taking body, made up of voting representatives
$SSURDFK
from the states and the centre, should stick to one GST rate 8QGHUVWDQGLQJRIWUHQGV LVVXHDQGQRWPHUHO\
for every state. There are also issues of balance of power HYHQWV IDFWV
in favour of the centre in most powerful GST council with *RYHUQDQFHVSHFLILFYRFDEXODU\EXLOGLQJ
one-third share in voting rights.
$UWRIRSLQLRQEXLOGLQJVKDSLQJDVRSSRVHGWR
For the first time, all political parties came together and PHUHO\SODJLDUL]LQJRSLQLRQVRIRWKHUV
passed the GST Bill unanimously. This is not only a mature
act but truly an achievement for the government. The GST $UWRIZULWLQJ$QVZHUVZLWKSUHFLVLRQ EUHYLW\
is called the worlds most complex tax reform, where 7.5 &RXUVHFRYHUVQHDUO\UGRI*66\OODEXV
million businesses can register, make payments, and file
returns on a GST portal. It is really a big relief for business,
1(;7%$7&+:,//&200(1&(6,1129(0%(5QG:((.
,1',$1(&2120<
as even today, because of layers of taxes and exemptions,
the cost of tax compliance in India is too high. In sum, it
is a much needed landmark reform.
But, although the merit of the GST is evident and
indisputable, the devil lies in the details, as they say, and ,QFOXGLQJ7RSLFVRI3DSHU,,, $$**$5:$/
only time will tell if it is a success.
Reference

" &RPSOHWHFRYHUDJHRI%DVLFVIURP1&(57V
"&RPSUHKHQVLYHFRYHUDJHRI%8'*(7 (&2120,&6859(<
1. http://gst.customs.gov.my/en/gst/Pages/gst_ci.aspx " $QVZHUZULWLQJ SUREOHPVIRU3UH0DLQV ,QWHUYLHZ
2. Bird, Richard and Pierre-Pascal Gendron (2007): Value Added
Taxes in Developing and Transitional Countries (Cambridge and
" 'HYHORSPHQWDO6FKHPHVDQG3URJUDPPHV
New York: Cambridge University Press)
3. Cnossen, Sijbren (2010): VAT Coordination in Common Markets $'0,66,2123(1
and Federations: Lessons from the European Experience, Tax $QG)ORRU2OG5DMHQGUV1DJDU
Law Review, Vol 63, pp 584622. Keen, Michael (2009): What 1HDU%LNDQHU6ZHHW 'HOKL
Do (and Dont) We Know about the Value Added Tax?, Journal
3K0
YE-171/2016

of Economic Literature, Vol 47, No 1, pp 15970 q  


(E-mail:pravakarfirst@gmail.com
ashwani.mbe@gmail.com)
9LVLWPSXULLDVFRP
50 YOJANA November 2016
YE-174/2016

YOJANA November 2016 51


explaining gst
overview

GST: One Nation, One Tax

Shishir Sinha

I
am sure that the enactment will join the select club of nations such
of the GST, will bring as Canada, Australia, Singapore and
about the best as far as the Malaysia having GST as the indirect
economic management of tax system.
this country is concerned,
in a federal form. It will Now, in order to introduce GST
empower the States. It will from April 1 next year, the Government
increase the revenue of the States as has jet set the process in motion. First,
also of the Central Government. It will the Goods & Service Council, the apex
try to dissuade and discourage, and body of Centre and the States, has not
bring down levels of evasion. It would just been set up, but already taken key
ensure that there is no tax on tax. So the decisions in its initial meetings. Second,
cascading effect of taxes in the value GST Network for providing all kinds
of goods itself, will no longer be there of information technology support
for GST is fully functional. Third,
This tax, because and that would even make some of the
model GSR law is in public domain
products cost less. It would, certainly,
of its transparent give a boost, as far as the economy is which will finally be converted into
supportive legislations. And, fourth,
character, would be concerned, which is required at this
the Government aims to finalise rates,
very critical stage.
easier to administer. exemption, threshold limit and key
Excerpts from the speech of the rules for GST by November 22, 2016.
Also remember, Union Finance Minister while moving
implementation of GST the Constitution Amendment Bill(related What is GST?
will help in improving with the Goods & Services Tax) for GST is a simplified tax structure
consideration and passage in Rajya Sabha applied on both goods and services. It
Indias ranking in on August 3, 2016 isa value-added tax levied at all points
ease of doing business With this speech, the Finance in the supply chain with credit allowed
for any tax paid on input acquired for
which, in turn, will help Minister managed to end the long wait
use in making the supply. It would
for the introduction of one of the most
foreign investors to ambitious tax reforms of independent be applicable on supply of goods
bring more and India, the Goods & Services Tax or or services as against the prevailing
GST. Since, the 122 nd Constitution system of tax on the manufacture
more money into of goods or on sale of goods or on
Amendment Bill has become a law
the country (101 st Amendment) enabling the provision of services. It would be a
Centre and the States to levy GST destination based tax as against the
concurrently, India is all set to usher existing system of origin based tax.
the financial year 2017-18 with a new In order to maintain the federal
tax regime i.e. GST. Accordingly, India structure, the nation is going to have
The author is Economic & Business Journalist for last 21 years, presently working as Business Editor with ABP News. He has earlier
worked with the Hindu Business Line, CNBC Awaaz, Aaj Tak and Amar Ujala.

52 YOJANA November 2016


dual GST, Central GST (CGST) and on tax. It is believed that the new tax Develop Tax Payer Profiling
the State GST (SGST). This means regime would result in significant Utility (TPU) for Central and State
that there will be common tax base for reduction in overall tax burden (which Tax Administration.
both the Centre and the States. There is currently anything between 25-30 Assist Tax authorities in improving
will also be Integrated GST (IGST). It per cent) on goods, thus, making them Tax compliance and transparency
would be levied on inter-State supply cheaper for the consumers. of Tax Administration system.
of goods or services. This would be
GSTN Deliver any other services of
collected by the Centre so that the
relevance to the Central and
credit chain is not disrupted. Import In order to provide IT infrastructure State Governments and other
of goods or services would be treated and services for implementation of the stakeholders on request.
as inter-State supplies and would be GST, the Government set up Goods
subject to IGST in addition to the and Services Tax Network (GSTN). GST Council
applicable customs duties. Rates for It is a Section 25 company which
all the three would be decided by the means it will not work for profit. It is After the 101 st Constitutional
GST council. a non-Government and private limited Amendment, the first big development
company. The Central Government was setting up of the GST Council. This
Why GST? council is an apex body comprising of
holds 24.5 per cent equity in GSTN
while all States, including NCT of Delhi Centre and the States for GST. It has
India has a multiplicity of taxes as
and Puducherry, and the Empowered been empowered not just to finalise
the Constitution prescribes different
Committee of State Finance Ministers nitty-gritty of GST, but also to resolve
power for the Centre and the States to
(EC), together hold another 24.5 per disputes. The Council is headed by
make legislations for levying taxes on
cent. Remaining equity is with non- the Union Finance Minister while the
goods and services at various levels.
Government financial institutions. The Union Minister of State for Finance
For example, the Central Government
company has been mandated to: (In-charge of revenue) and the Minister
is authorized to make legislation as
In-charge of finance or taxation or
well as rules to impose tax on the
any other Minister nominatedby each
manufacture of goods (except alcoholic ...multiplicity of taxes results in State Government will be members.
liquor for human consumption, opium,
narcotics etc.) while the States have the tax on tax which makes a good Effectively, the council will have two
costlier for the consumer. As GST members including the Chairman
powers to levy tax on the trading of
from the Centre and one member
goods. The Centre has two distinctive will have just one tax, which means each from 29 States and the 2 Union
powers: first, it has power to levy tax on compliance would be easier and Territories (with legislature) taking
the inter-State sales of goods (however,
the tax is collected and retained by the cheaper and thus help in ease of the total strength to 33. The Union
doing business. Revenue Secretary will be Ex-officio
States) and second, only the Centre
Secretary to the GST Council while
can impose tax on services i.e. Service
the Chairperson, Central Board of
Tax. Provide common and shared IT Excise and Customs (CBEC) will be a
Such a system makes the entire infrastructure and services to the permanent invitee (non-voting) to all
indirect tax system a complex one. Not Central and State Governments, Tax proceedings of the Council.
only this, this has many disadvantages. Payers and other stakeholders.
The Council will make
For example, a business man has to Partner with other agencies for
recommendations to the Union and
maintain too many records for tax creating an efficient and user-
the States on important issues related
compliance. This increases the cost of friendly GST Eco-system.
to GST, like the goods and services that
running business, while, at the same Encourage and collaborate with may be subjected or exempted from
time goes against the basic principal
GST Suvidha Providers (GSPs) GST, model GST Laws, principles
of ease of doing business. Similarly,
to roll out GST Applications for that govern Place of Supply, threshold
multiplicity of taxes results in tax on
providing simplified services to limits, GST rates including the floor
tax which makes a good costlier for the
the stakeholders. rates with bands, special rates for
consumer. As GST will have just one
Carry out research, study best raising additional resources during
tax, which means compliance would
practises and provide Training and natural calamities/disasters, special
be easier and cheaper and thus help
Consultancy to the Tax authorities provisions for certain States, etc.
in ease of doing business. Similarly,
since GST is to be levied at all stages and other stakeholders. Every decision of the Council will
right from manufacture up to final Provide efficient Back-end be taken at a meeting, by a majority
consumption with credit of taxes paid Services to the Tax Departments of of not less than three-fourths of the
at previous stages available as setoff, the Central and State Governments weighted votes of the members present
this will remove the anomaly of tax on request. and voting. Now, the voting college has

YOJANA November 2016 53


been structured in such a way so the
Table 1
neither the Centre nor all States together
Goods and Services Tax basic issues
can apply veto. The vote of the Central
Taxes/duties to be subsumed Government will have a weightage of
From Centre: one-third of the total votes cast, and
Central Excise duty the votes of all the State Governments
Duties of Excise (Medicinal and Toilet Preparations) (including the Union Territories with
Additional Duties of Excise (Goods of Special Importance) legislatures) taken together shall have
Additional Duties of Excise (Textiles and Textile Products) a weightage of two-thirds of the total
Additional Duties of Customs (commonly known as CVD) votes cast. Any decision will require at
Special Additional Duty of Customs (SAD)
least three-fourth of total votes.
Service Tax
Cesses and surcharges as far as they relate to supply of goods or services Key decisions by GST council
From State: The council, in its first two meetings,
State VAT took some major decisions:
Central Sales Tax
Purchase Tax Threshold limitFor GST, the
Luxury Tax exemption threshold is fixed at Rs.20
Entry Tax (All forms) lakh. However, this will be Rs 10 lakhs
Entertainment Tax (except those levied by the local bodies) for businesses in the 7 North Eastern
Taxes on advertisements States (Assam, Meghalaya, Manipur,
Taxes on lotteries, betting and gambling Nagaland, Mizoram, Arunachal
State cesses and surcharges insofar as far as they relate to supply of goods or Pradesh and Sikkim) and 3 Hill States
services
(Jammu & Kashmir, Uttarakhand and
Commodities not included in GST at all: himachal pradesh). It means that those
Alcohol for human consumption traders with a turnover of below Rs.20
Electricity lakh annually in general States will be
Real Estate. exempted from getting registered under
Commodities to be included in GST but at a later date: GST while for North East States and
Petroleum crude Hill States, those with less than 10 lakh
Motor spirit (petrol) annual turnover will be out of GST.
High speed diesel Experts justify these threshold limits
Natural gas by saying that many small scale traders
Aviation turbine fuel and service providers would be saved
Existing system of VAT and Sales Tax will continue for these products. from undertaking GST compliances
and it also reduces a substantial burden
How tobacco to be treated under GST: for tax authorities to assess small time
GST to be levied on tobacco and tobacco products. In addition, the Centre dealers.
would have the power to levy Central Excise duty on these products.
Cross Empowerment It has
Compensation to the States for revenue loss, if any, after introduction of GST been decided to adopt the middle path
States to get full compensation for revenue loss, if any, for first five years. in terms of sharing of administrative
powers between the Centre and the
How import to be treated: States. It was agreed upon that States
Imports of Goods and Services will be treated as inter-state supplies and will get exclusive control over all
IGST will be levied on import of goods and services into the country. dealers up to an annual turnover of
Rs1.5 crore. For traders with revenue
How exports to be treated: above Rs. 1.5 crore, there will be an
Exports will be treated as zero rated supplies. element of dual control and cross
empowerment of officials of the Centre
List of goods and services to be exempted: and the States based on formulation
Effort is to keep the list of exemptions smaller. GST council will decide
of risk assessment. It has also been
about goods and services to be exempted.
decided that the Centre will get control
What next before the introduction of GST:
over all the existing 11 lakh service
Centre to enact two legislations, one related with CGST and another related tax-registered dealers irrespective of
with SST. States and Union Territories with legislature to enact a law related their revenue levels.
with SGST. These are ordinary laws and can be enacted by simple majority Composition Scheme A
in Parliament/State Legislatures.
consensus has been reached on the

54 YOJANA November 2016


shape of compounding or composition the specific industrial exemptions they It must be highlighted here that
scheme. It was decided that traders with wish to continue. The exact details GST will bring benefit not just for
gross turnover up to Rs 50 lakhs will on whether all the exemptions will the Industry/business or trading
pay 1-2 per cent tax. Such a scheme be grandfathered or refunded will be community, but also for the masses.
aims to facilitate small traders. Under worked out. If the new system is going to reduce
the scheme, a taxpayer shall pay tax multiplicity of taxes, to mitigate
GST Rates
as a percentage of his turnover during cascading/double taxation, bringing
the year without the benefit of input tax The Empowered Committee of more efficient neutralization of taxes
credit (ITC). The floor rate of tax for the Finance Minister suggested two especially for exports and developing
Central Goods & Services Tax (CGST) guiding principles for finalising GST the common nation market, then it is
and State Goods & Services Tax rates and now these have become going to be a simpler tax system for
(SGST) will not be less than 1 per cent. guiding for the GST council too. First of the consumer where he can expect
A tax payer opting for composition the guiding principle says that the rate reduction in prices of goods & services
levy will not collect any tax from his of taxation as it is leviable today with due to elimination of cascading of taxes,
customers. Tax payers making inter- the implementation of the GST will uniform prices throughout the country,
state supplies or paying tax on reverse gradually come down from its present transparency in the taxation system and
charge basis will not be eligible for level so that it is more citizen friendly. increase in employment opportunities.
composition scheme. The second principle prescribes that the Introduction of GST would make our
taxation should be adequate enough to products competitive in the domestic
Area Based Exemption At and international markets. Studies
maintain the present levels of revenue
present, hill states such as Jammu show that this would instantly add up
to make sure that the Central and State
& Kashmir, Himachal Pradesh and to 2 per cent in GDP. There may also
Governments are able to discharge their
Uttarakhand besides 7 North Eastern be revenue gain for the Centre and
duties and obligations with the fullest
States get area based exemptions. Such the States due to widening of the tax
amount that they collect. It is believed
exemptions from taxes provided for base, increase in trade volumes and
that the GST council will follow these
companies to set up plants is difficult. improved tax compliance. This tax,
two principles before arriving on the
Now it has been decided to continue because of its transparent character,
final rates. It is also expected that there
with area-based excise duty exemptions would be easier to administer. Also
will be four rates:
based on GST regime kicks in from next remember, implementation of GST will
year. However, these will be provided Merit rate - essential goods or
services; help in improving Indias ranking in
as refunds, not as exemptions. It was ease of doing business which, in turn,
agreed that there would be levy of tax Standard rate - goods or services
in general; will help foreign investors to bring
on all exempted entities under GST. more and more money in to the country.
The Centre or the State that gets the tax Special rate - precious metals  q
will then reimburse it to the exempted Nil rate - exempted goods or
entity. The States will now decide on services. (E-mail:hblshishir@gmail.com)

NORTH EAST DIARY


NORTH-EAST STATES AS PRIORITY STATES FOR PMUY

M inistry of Petroleum and Natural Gas will extend the benefits under Pradhan Mantri Ujjwala Yojana to the people of all Hilly States
including North-East States by treating them as Priority States and release LPG connections to the eligible beneficiaries.This
measure will help to tackle the difficulties faced by poor people in accessing LPG for cooking purposes, residing in the States of
Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Sikkim, Assam, Nagaland, Manipur, Mizoram, Arunachal Pradesh, Meghalaya
and Tripura.Pradhan Mantri Ujjwala Yojana is being implemented with an objective to provide deposit free LPG connections to BPL
households as a clean fuel solution. So far, more than 50 lakh connections have been released to the beneficiaries.
1 lakh LPG connections will be released in the next 15 days. the central government has released 2 lakh connections during the
last 2 years in J&K vis a vis 5 Lakh connections released during the previous 8 years in J&K by the previous governments. there are 4
LPG bottling plants in the state and another LPG plant at Kargil will be put up and also to increase the capacity of Leh LPG plant.
PMUY scheme provides assistance of Rs. 1600/- to the woman beneficiary, comprising security deposit of Domestic cylinder &
pressure regulator; Suraksha hose; Domestic gas consumer card and installation charges.

SECOND LINE BETWEEN NEW BONGAIGAON AND KAMAKHYA IN ASSAM

T he Cabinet Committee on Economic Affairs has given its approval for construction of second line between New Bongaigaon
and Kamakhya of Northeast Frontier Railway in Assam. The estimated cost for this line is Rs.2,232.32 crore and an expected
completion cost of Rs.2,586.85 crore. The 176 km long railway line is expected to be completed in five years during 12th and 13th
Plan period.

YOJANA November 2016 55


56 YOJANA November 2016
PM on GST
l Goods and Services Tax (GST) is a Great Step by Team India, a Great Step Towards Transformation, and a
Great Step Towards Transparency.
l Passage of the Bill is a victory not for any political party, but for Indian democracy.

l The consensus over GST is proving that Rashtraneeti is above Rajneeti (national issues are above politics) in
India.
l GST is one more pearl in the necklace of Ek Bharat much on the lines of the Railways, the All India Services,
and visions such as Bharat Net and Sagarmala.
l With GST, we intend to bring uniformity in taxation. The consumer would be supreme in the new dispensation.

l The judicious use of man, money, machine, material and minutes (time) is an important principle of sound economic
policy, and GST would aid in achieving this.
l GST would help bring in real time data, as its strength was in technology. Most of the things that can impact consumer
inflation have been kept out of the ambit of GST. GST would help reduce corruption in collection, as well as the
cost of collection.
l Small businesses will also gain tremendously from GST, and will feel more secure with GST.

l This reform will promote Make in India, help exports and thus boost employment whileproviding enhanced
revenue.
l GST is a system that benefits all Indians and promotes a vibrant and unified national market.

l GST will also be the best example of cooperative federalism, will take India to new heights of progress.

FM on roll out of the Goods and Service Tax


l The Government is working on a target date of 1st April, 2017 for the roll out of the Goods and Services Tax
(GST) in the country.
l Post GST the system will be more efficient, more compliant and the avoidance will become more difficult. There
will be no cascading effect of tax on tax. There are many items which will either have lower rate of tax or no tax
at all
l There will be one tax for one nation. There will be seamless transfer of goods and services through the country.

l The whole country will become one integrated market. Simplification will be easier. It will also lead to lesser
leakages and evasions and therefore the tax base will naturally expand. This will benefit both states and the Central
Government.
l This is a historical reform in the taxation of our country being carried out by our Parliament. This is a major
reform, which will in the long run, go in the interest of the country.

FROM OUR READERS ...

I would like to assert that the issues on Women Empowerment and Energy were really commendable. I wish to thank the entire
team for the appreciable efforts they put in. The articles were thought provoking and enlightening and a mirror for the people. They
would certainly help to shape our opinions in the right manner and direction. I would request to publish some issues on Terrorism,
or National sanctuaries etc. Saundarya Sinha
Multifaceted approach along with national and global importance on each different subject makes the articles of yojana very
valuable. Archie Roy
Response from Yojana Team
We are really grateful to our readers who take time out to send in encouraging words and valuable suggestions. It makes our
work seem worthwhile.
We do try to incorporate your suggestions in our journal whenever possible. We will definitely consider them while planning
our issues.
Please do write in with your feedback on our issues. It will help us in planning our issues.
Thanks once again

YOJANA November 2016 57


ease of doing business
vision

GST: rejuvenating the manufacturing sector

Amiya Kumar Mohapatra

I
ndia is projected to be skill development etc. Therefore, it
the Youngest Nation in is necessary to focus on its growth
the world by 2020, and perspective.
the average age of our
population will be around National Manufacturing Policy and
29 years. Besides, by that Make in India
time, we will have surplus Any paradigm shift in policy that
youth of 47 million whereas the world has benefited the masses socially and
will be facing a shortage of youth of economically, has always got the top
56 million to take the development priority in Indias developmental
agenda further. Therefore, the richness agenda. To break the vicious circle and
Indian manufacturing sector is of demographic dividend needs to be Stagnation of manufacturing sector,
primarily resource-driven than properly utilized to accelerate our Government of India has formulated
technology-driven and therefore development process and to achieve National Manufacturing Policy to
the input cost and subsequent higher GDP. The benefits of the promote this sector and has taken
taxes on it, make the sector more demographic dividend can be realized various initiatives to trigger growth of
challenging. Manufacturing sector only by making these youth productive manufacturing sector to its potential
can be strengthened through fiscal in terms of health, education and and set a target of achieving 25 per
interventions like tax concession, skill development. To attain this, cent of GDP by 2025.
tax reduction on the manufacturing Indian manufacturing sector has
process, especially on import of great potential to absorb these youth Indian manufacturing sector
and provide them the right forum to has great potential to create 90
technology and research and
make them skillful. Even though, million jobs and is able to produce
development. Besides, subsidies and
service sector contributes highest to USD 1 trillion and can contribute
other fiscal interventions on inputs approximately 25-30 per cent to
GDP and sustained till date, making
cost, import of technology and the country a Knowledge Economy, GDP by 2025 (McKinsey Report,
plant equipments will change the but long-term growth of any nation 2012).To achieve the same, National
investment climate and eco-system depends a lot upon the contribution Investment and Manufacturing Zone
and able to boost the manufacturing of manufacturing sector, to make (NIMZ) has been created to boost the
sector. Policy paradigm is the need the growth self-sustaining. Indias sector. It is based on infrastructure-
of the hour and the initiatives manufacturing sector's contribution building approach through which,
taken by the present government is is approximately around 16 per cent the congenial infrastructure support
forward-looking especially on the to GDP over a period of time, even is provided to bring much-needed
tax-front being a valued sector, in terms of its improvement in the manufacturing
contribution to GDP, employment, sector. NIMZ planned to have single

The author is Associate Professor in Economics and Area Coordinator of Strategy, Entrepreneurship and General Management at
Fortune Institute of International Business (FIIB), New Delhi. He has been engaged in teaching as well as in research in the area of
Economics, Finance and Public Policy. He has regularly contributed to various seminars and conferences both at the national and
international level. He has to his credit the authorship of five books and twelve edited volumes. He has published more than forty
articles and research papers in various books, magazines and journals of repute. He is lifetime member of Indian Economic Association
and Indian Commerce Association.

58 YOJANA November 2016


window to provide solutions and manufacturing sector,
approvals to the sectors and contribute tax incentives need
in ease of doing regulations and laws, to be provided to the
leverage on incentives etc. manufacturing units
in general and sector-
Unveiling of Make in India
specific in particular,
initiative brought unprecedented
changes in the investment landscape keeping in mind to
of India. Multi national Companies achieve the set target
(MNC) are invited and encouraged 25 per cent of GDP by
to contribute in manufacturing to manufacturing sector.
boost manufacturing sector in India.
Tax Reforms and
Government of India has created
Incentives
necessary avenues for making Make
in India successful and Skill India l I n d i r e c t t a x r e f o r m w a s l Due to implementation of GST,
to unleash the true potential of already initiated by the present
manufacturing sector. the cost of production is expected
government by formulating to reduce by 15-25 per cent on
Tax Reforms and Manufacturing unified tax systems through indirect tax components. This
Sector Goods and Services Tax(GST). will help in curbing inflationary
Introduction of GST is considered situation and will improve
In a rapidly changing as the ground-breaking reforms profitability in the manufacturing
environment, understanding in Indian fiscal system as well as sector.
and assessment of public policy in Indian federal finance in the
and subsequent developmental indirect tax regime. l Along with GST, government
intervention is very essential to look has taken initiatives to create a
for a better tomorrow. Public policy l Bundling of plethora of indirect litigation-free, investors-friendly
and its implications have tremendous taxes of Centre and states into a environment to make India a hub
impacts on our economic growth and single tax code will bring down of global manufacturing.
social development. These policies the cost and price especially in the
need to be redefined and reformulated manufacturing sector. Incidence l In the recent budget, government
in order to customize them according and impact of multiplicity of made a provision for startups that
to the current need of the economy. indirect taxes and their cascading the profits for three out of the
To match with the pressing needs, effects on input cost remains first 5 years would be eligible
government has initiated a series of the biggest challenge for Indian for 100 per cent deduction. This
tax reforms like tax concessions, tax manufacturing sector. However, is applicable to those who set up
reduction, tax holidays, simplifying tax code gets rationalized and their startups in between April
tax formalities and ease of legal become efficient owing to 2016 to March 2019.
frameworks to facilitate faster implementation of GST.
economic development. l New manufacturing companies
l Differential and multiplicity incorporated on and after 1 st
Tax reforms can be considered as of tax codes across the states March 2016, are given an option
efficient, when they result in enhancing to be taxed 25 per cent along
of India make inter-state
the tax revenue with positive spill- with required Surcharges and
trade less competitive and
over effects in terms of accelerating Cess subject to other applicable
more challenging. But due to
production, increasing employment and conditions, which is lower than
enhancing skills for job creation. The introduction of GST- a unified
and uniform indirect tax code, the previous year.
aim of tax reform is to bring certainty
in taxes, augment tax buoyancy the cascading effects of indirect l To p r o m o t e s m a l l s e c t o r s ,
with positive long-term economic taxes got nullified and cost of government has reduced the
effects. Reforms must address twin a product become simplified corporate tax rate for relatively
objectives namely, feasibility in benefiting both producer and small enterprises i.e. companies
implementation and sustainable in c o n s u m e r. G S T w i l l b r e a k with turnover not exceeding Rs.
revenue generation. Considering the inter-state barriers across 5 crores.
the above fact, tax reform (both the states and will develop a
direct and indirect taxes) is essential common national market making l To reduce cost and improve
to bring much-needed revolution in the manufacturing sector more competitiveness among domestic
fiscal-setting in fostering growth of competitive in India and world manufacturing industries,
Indian economy. To rejuvenate the as well. government has reduced custom

YOJANA November 2016 59


and excise duties rates on certain public needs. Indian manufacturing effectiveness rely on how does the
inputs to Make in India scheme sector is primarily resource-driven government monitor and implement
attractive. than technology-driven and therefore, various schemes and programs meant
the input cost and subsequent for the overall development of the
l To make Make in India a nation and manufacturing sector in
taxes on it, make the sector more
success, government has been particular. Implementation of GST
challenging. Manufacturing sector
reinstating the exemption of MAT would go a long way in promoting
can be strengthened through fiscal
for non-resident investors, those Make in India and will give much
interventions like tax concession,
are manufacturing goods in SEZs. relief to the manufacturing sector and
tax reduction on the manufacturing
This will give big boost to Make country by getting rid of cascading
in India campaign by triggering process, especially on import
of technology and research and effects of sales taxes, VAT etc.
the growth of manufacturing
sector. development. Besides, subsidies References
and other fiscal interventions on
l Government has also allowed 1. Latest Economic Surveys, Government
inputs cost, import of technology
manufacturer to import of capital of India
and plant equipments will change the
goods at zero customs duty to investment climate and eco-system 2. Union Budget Reports from 2003-04
promote electronic sector under and able to boost the manufacturing to 2016-17
the Zero duty Export Promotion sector. Policy paradigm is the need of 3. Annual Reports 2010,2011,2012, 2013
Capital Goods Scheme (EPCG). the hour and the initiatives taken by of CII, India
the present government are forward- 4. Various Issues of CMIE Reports of
Conclusion:
looking especially on the tax-front. India
The praxis of policy should be The success of the various initiatives
5. Reports of McKinsey, PwC, EY-CII
designed after understanding the undertaken by government depends
and KPMG  q
need of the economy, in the context upon the outcome (contribution to
of socio-economic environment and GDP and employment) and their (E-mai:amiyaacademics@gmail.com)

60 YOJANA November 2016


YE-178/2016

YOJANA November 2016 61






    
    
     
  

      
 
    
    
   
 
   

 !
 

   ""  
        

     !
#    "
  "


 
  $


$   $   
  

 
 
     


   

 

 
 !  
   
$
   
  $  
 
   "" 
    % $  

 
"  
 !

       
 
 $     
 $ 
& 
  
       

 '
 "
  ( $
 "       $  
   
  
!   

 "
    
 
   "
   ! 
$


$  
"
      
 "



"
 !
 )   


        
 


    


      $ 
 
 

   $ !   
    
  $     
  
  "      
"
   $ !
 * 
  

 (    
 
%      
 %


 
$
   
   
  
 

 
 !   
      $ !
 "   "     *   

      $     


 
 "   "      

  !
 
  

  
 "   $  
+ # 

 

   
"
 "    %  " 
   
 "
   # 


  
 ,#-      
 

   
   !  

  "      
 
       

 

 
$  
 " !     


 "   
     


 
    "
  !
   !    " # 

 "

 
  . "  
 
 # 

 
  
$ 
"
  $ ! /
   
$ % %       $ "



 

    
    # 
 
    
!
 /    

      $
 "
  
$ 

   ! 0   
 
  "
      
 
   

  

   
 %$  
       

  &
 "
 $
 !
 1        "     
       
    
    
     
       !
    $ #

 

"

 " " 
  
  
    0   "
 
  $     $  # 
 
   "   "
   



$
"   
   

      
     
  


    
  
 ! )    $  
  
 

      
 
"
 
  "
   
  !
 *    

 $   / 
     

 "     

   


 $             $   !

62 YOJANA November 2016