Category: Taxes & duties

Fuels under GST: Illogical proposition

Given the yawning gap between the existing tax rate and the maximum that can be levied under GST (28%), the shifting of fuels to the new regime is impractical In a recent discussion with economists and industry experts on transition of energy products into the Goods and Services Tax (GST),NITI Aayog proposed a formula for bringing two motor fuels, petrol and diesel, besides electricity under the new regime. Under it, the Centre could keep the two fuels in the highest slab of 28 per cent and electricity in the 18 per cent slab. To compensate states for the loss of revenue resulting from the shift to the GST dispensation – fully in case of electricity and partially for petrol and...
More Comments are closed

Fuels under GST – unthinkable

In a recent discussion on transition of energy products into the Goods and Services Tax (GST) with economists and industry experts, NITI Aayog has proposed a formula for bringing two motor fuels viz. petrol and diesel besides electricity under the new regime. Under it, the Centre could keep the two fuels in the highest slab of 28% and electricity in the 18% slab. To compensate states for the loss of revenue resulting from the shift to the GST dispensation – fully in case of electricity and partially for petrol and diesel – the think-tank has proposed levying a cess @50%. To understand the formula, and its implications, at the outset, it is important to place a few basic facts. First,...
More Comments are closed

Taxing MNCs: G-7 formula is flawed

The agreement reached by the finance ministers of the advanced economies at the G-7 meeting on taxing MNCs stands on two main pillars: one, a global minimum corporate tax (GMCT) rate of 15%, and two, “reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.” Concurrently, efforts are to be made for the removal of all Digital Services Taxes (DST) imposed on these companies by several countries. The move is prompted by MNCs registering in low-tax jurisdictions such as the Netherlands, Ireland and Luxembourg, and showing all their revenues and profits in those jurisdictions regardless of...
More Comments are closed

Tackling the fiscal slippages: Any takers?

The way the Govt executes its revenue plans with scant regard for accountability, it is unlikely that it will correct the imbalance between revenue receipts and expenditure For several years, the Narendra Modi government has faced a high fiscal deficit. The unusually high FD of 9.5 per cent of Gross Domestic Product during 2020-21 as per the revised estimate is attributed to the devastating effect of the Coronavirus pandemic on economic activity. However, even when there was no aberration, like in 2017-18, 2018-19, and 2019-20, the fiscal deficit was in the 5.5 to six per cent range- significantly higher than the targets set for those years. This is because, in respect of both expenditure and revenue, the government of the day...
More Comments are closed

Tackling fiscal slippages – any takers

For several years, Modi – Government has faced high fiscal deficit (FD) – excess of its total expenditure over total revenue. While, an unusually high FD of 9.5% of gross domestic product (GDP) during 2020-21 as per revised estimate (RE) is attributed to the devastating effect of Corona pandemic on economic activity, even during the earlier years viz. 2017-18/2018-19/2019-20 which were free from such an aberration, the FD was in the 5.5% – 6% range (these numbers capture the effect of off-budget liabilities unlike the official figures which don’t) – significantly higher than the targets set for the years. This in turn, is because in respect of both the expenditure and the revenue, the government of the day never lived...
More Comments are closed

Taxing MNCs — G-7 formula is erroneous

The source country should have the freedom to decide the tax rate it deems fit in sync with its policy imperatives The agreement reached by the Finance Ministers of advanced economies at the G-7 meeting on taxing MNCs stands on two main pillars, viz., a global minimum corporate tax (GMCT) rate of 15 per cent and secondly, “reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 per cent of profit exceeding a 10 per cent margin for the largest and most profitable multinational enterprises”. They also agreed that while coordinating international taxation rules around these two pillars, concurrent efforts will be made for the removal of all Digital Services...
More Comments are closed

India gets poorer, investors richer

The Corona pandemic may have brought about sharp deceleration in  India’s economic growth – the sharpest ever during the last 4 decades or so – but has yielded a bonanza for the investors. The wealth of investors in the stock market as represented by the market capitalization of Indian equities (market value of shares multiplied by their number) almost doubled from around Rs 113 trillion (a trillion equals 100,000 crore) as on March 31, 2020 to Rs 226 trillion as on March 31, 2021. In contrast, India’s GDP at current prices declined from Rs 203 trillion during 2019-20 to Rs 197 trillion during 2020-21. As a result, the   market capitalization to GDP ratio almost doubled from 56% during 2019-20 to...
More Comments are closed

A flawed idea that the US must abandon

Imposing a global corporate minimum tax will interfere with the right of a country to determine its tax policy and impair its ability to galvanise the policy to achieve certain objectives The Joe Biden Administration is pushing for a Global Corporate Minimum Tax (GCMT) rate under the new international tax rules being coordinated by it with G20 countries. In 2017, the erstwhile Donald Trump Administration had introduced the US corporate offshore minimum tax called the Global Intangible Low-Taxed Income (GILTI). It is applied on the offshore incomes of US multinationals (MNCs) having subsidiaries in low-tax countries, at 10.5 per cent, which is half the Domestic Corporate Tax Rate (DCTR) of 21 per cent. US President Biden wants to double GILTI...
More Comments are closed

Global corporate minimum tax – a flawed idea

The Biden administration is giving a big push for a global corporate minimum tax (GCMT) rate under the new international tax rules being coordinated by it with G20 countries. In 2017, the erstwhile Trump administration had introduced the U.S. corporate offshore minimum tax called “Global Intangible Low-Taxed Income (GILTI)”. It is applied on the offshore income of US multinationals (MNCs) having subsidiaries in low-tax countries @ 10.5% which is half the domestic corporate tax rate (DCTR) of 21%. Biden wants to double GILTI to 21% and correspondingly increase the DCTR to 28%. The US move is prompted by a tendency among MNCs (US companies included) to register in low-tax countries such as Singapore, Mauritius, Ireland etc and show their revenue...
More Comments are closed

Scrappage policy can be more attractive

Announcing a ‘voluntary’ vehicle scrappage policy in the Lok Sabha on March 18, Union Minister Nitin Gadkari listed its numerous benefits, such as doubling the turn-over of the Indian automobile industry from the present Rs 4.5 lakh crore to Rs 10 lakh crore, the salutary effect on environment due to mitigation of vehicular pollution, a reduction in fuel consumption and fuel import bill, job creation, increased safety on the roads, reining in input costs for industries such as automobile, steel, electronics, etc., increase in GST collection, and so on. Currently, there are 5.1 million vehicles in India which are more than 20 years old, 3.4 million that are between 15 and 20 years old, and 1.7 million vehicles older than...
More Comments are closed