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Current Affairs for the Day
Quick Facts: Tinkhatia System (History)
The peasants (bhumihars) of Champaran (Naam toh suna hi hoga) and other areas sorrrounding
North Bihar were cultivating Indigo under the tinkathia
system. Under this system, peasants were bound
to plant Indigo in 3 out of the 20 parts in his land for his landlord.
This meant that out of 20 khatas which make an acre, peasants had
to dedicate 3 khatas for indigo plantation. This was the root cause which triggered discontent amongst the peasants of Champaran.
They had to lease this part in return to the advance at the beginning of each cultivation season. The price
was too less and was fixed on the area cultivated rather than the
crop produced. They were actually being cheated by the English
The planters had agreed to the peasants to relive them from the
lease contracts but demanded heavy compensations which they
were not able to pay.
Hence, a local peasant leader Rajkumar Shukla invited Mahatma Gandhi to visit Champaran, which lead to the Champaran Satyagraha
Quick Facts: Kaziranga National Park
Kaziranga National is famous for the Big Five namely the Rhinoceros (2,401 nos), Tiger (116 nos), Elephant (1,165 nos), Asiatic Wild Buffalo and the Eastern Swamp Deer (1,148 nos).
It houses the largest population of One Horned Rhinoceros in the world and has about 68% of the entire world population of One-horned Rhinoceros. It also has one of the highest densities of tigers in the wild in the world.
It also houses almost entire population of the Eastern Swamp Deer. Besides these big five, Kaziranga supports immense floral and faunal biodiversity.
The Kaziranga National Park has on its North the river Brahmaputra, entire stretch of which from Golaghat district boundary on the east to the Kaliabhomora bridge on Brahmaputra in the west.
On one hand the annual flood waters of the river bring nourishment, leading to a very high productive biomass, but on the other hand, the phenomenon of erosion takes away lot of valuable and prime habitat.
Taxation: The enemy within
Source: By Surjit S Bhalla: The Financial Express
The economic experts, also known as glitterati at budget time, are at it again. Which means that not only do old myths get rehashed but also, new myths get created? One of the favourite all-time Indian myths is that one must increase tax rates to increase tax revenue and the tax rate on Indian corporates is too low. This year, there is a greater urgency to the myths.
State elections for five major states are coming up, including UP, a 204-million population state. If it were a country, it would be the fifth most populous country in the world, just ahead of Brazil (201 million) and some 54 million behind Indonesia (258 million).
The stakes are high because of state elections and a people’s verdict on demonetisation. If the Modi-Jaitley combine were to bring about an economically popular budget (not populist), then the fear among the political opposition is that the Modi-led BJP will run away with all the prizes.
Unlike previous budgets, where indirect tax changes were paramount (an excise duty cut for Tweedledum, an excise duty increase for Tweedledee), in the 2017-18 budget, direct tax changes should (will?) reign supreme. Personal income tax rates were reduced to a three-tier structure (10-20-30 per cent) in 1997.
The flat corporate tax rate was reduced to 35 per cent in 1997 and 30 per cent (where it now stands) in 2005. Perhaps not coincidentally, both these changes were brought about by P. Chidambaram. The finance ministry and budgets have come forth with additional taxes in the form of surcharges and cesses over the years, but the tax rate has been considered sacrosanct.
This year, there is good reason to hope that the government will change the structure (tax slabs and rates) in a major way. Previously (in joint work with Arvind Virmani, appearing in The Indian Express, titled “Towards an Income Tax Revolution”, January 10 and “Taxing Your Way to Popularity”, January 19), I have discussed the desirability of increasing tax revenues by reducing tax rates.
Two options, both with a negative income tax component, were offered — either a flat tax rate of 12 per cent, or a two-tier tax schedule of 10 and 20 per cent. This article is concerned with what needs to be done with our corporate tax rate structure. The existing reality is a tax rate of 30 per cent and an effective tax rate of 25 per cent — the 5 per cent gap between stated and effective tax is because of exemptions.
How does this effective tax rate compare with other countries, especially our competitors? Very badly, The Indian corporate sector is one of the most heavily taxed in the world. Don’t believe me; do believe every major study done on this subject in the last decade. In a 2012 study, published in National Tax Journal, a major academic publication, Douglas Markle and A.
Shackelford, in “Cross Country Comparisons of Corporate Taxes”, find that for the two-decade 1988-2009 period, India had the fifth highest effective corporate tax (23 per cent) rate. In a 2015 study, Chen and Mintz, in “The 2014 Global Tax Competitiveness Report”, aggregate corporate income taxes for 95 countries for every year since 2005 to 2014. India had the 14th highest corporate tax rate for the manufacturing sector (29.5 per cent).
Every year, the Centre of Business Taxation, Oxford University, aggregates corporate income tax rates across 48 countries. They estimate two indicators of taxation — Effective Average Tax Rates (EATR)and Effective Marginal Tax Rate (EMTR). In 2016, India had the fourth highest EATR of 30.8 per cent. The top three are the United States, France and Argentina. India ranks 7th highest with an EMTR of 22.8 per cent.
One of the Modi government’s major goals has been to improve business conditions in India, also known as “Ease of Doing Business”. For the last two years, our rank stayed constant at 130.5 (131 and 130 in 2015 and 2016 respectively). The major reason for our rank not changing is the high rate of taxation of the corporate sector. The World Bank estimates that in 2016, Indian corporates paid a tax rate of 60.6 per cent of corporate profits — this is composed of 21 per cent corporate income tax, 4 per cent dividend distribution tax, 15 per cent social security contributions, 14 per cent central sales tax, etc.
How much do our East Asian competitors pay? An average of 35 per cent. Our South Asian neighbours pay 38 per cent; Bangladesh corporates pay 35 per cent. India’s rank on tax rates — 172 out of 190 countries. So, stop wondering why the investment rate has been steadily going down and is now close to zero for the corporate sector.
Stop blaming all as to why Indian manufacturing doesn’t grow and lags behind every major country in the world. Start blaming ourselves and our penchant (inherited from the socialist Congress) for taxing the rich in order not to have money to pay for the poor — “suit-boot ki sarkar” is what Modi inherited from the Congress.
Finance Minister Arun Jaitley had announced he wanted to move to a 25 per cent corporate tax rate, to be comparable to our East Asian competitors. Let us say that Jaitley removes all exemptions and reduces the corporate tax rate to 25 per cent. If the cess and surcharge stay, then this policy will do nothing to improve India’s competitiveness; the 5 per cent reduction in tax rate will be exactly equal to the exemptions now removed. If the corporate tax rate is reduced to 25 per cent, and no cess or surcharge or removal of exemptions, then India’s competitiveness will begin to improve and the “Make in India” slogan will start to have meaning.
If exemptions are to be removed, which they should be, then the corporate tax rate should be reduced to 20 per cent. This is compatible with the maximum marginal personal income tax rate of 20 per cent. If tax rates are brought down, wouldn’t tax revenues decline? No. They will increase because of increase in tax compliance. If the Modi government believed that reduction in tax rates did not increase tax compliance, then they were entirely wrong in their demonetisation policy.
Demonetisation explicitly (and correctly) targeted tax evasion: A meaningful reduction in effective corporate tax rates is the correct follow-through to the logic, and pain, of demonetisation. I have talked to several individuals about the possibility of significant, non-tinkerisation tax reforms in the 2017-18 budgets. As with much else since May 2014, opinion is divided not along caste lines but around whether you voted for Modi (not the BJP) in 2014.
The people arguing for bad tax policy (that is, don’t change effective corporate tax rates) are the same who don’t want Modi to be an economic reformer. If, especially post-demonetisation, corporate tax rates are not reduced the economy will be hurt — and Modi’s popularity will begin to take a hit. Most importantly, the economy’s growth rate will begin to falter.
This must be what the opponents of meaningful economic reform want. For obvious reasons, these opponents of economic reform cloak their Trojan horse arguments in terms of helping Modi, that is, don’t cut tax rates for corporates because this will confirm in people’s minds that the Modi government is really “suit-boot ki sarkar”.
What will truly damage Modi (and the BJP) is if economic growth does not accelerate, if job growth does not begin to happen, if demonetisation pain is not replaced by demonetisation gain.A necessary political and economic strategy for India’s success is for Modi/Jaitley to do the opposite of what the Nehru-Gandhi Congress has done for the last 70 years — make a significant cut in the corporate tax rate.
Capitalisation on capital gains taxation
Source: By Mukesh Butani: The Financial Express
The principle of horizontal equity in taxation predicates that passive incomes (such as from capital gains on investments) and active incomes (such as from business profits or salaries/wages) should be dealt similar tax treatment.
Similarly, returns on capital and returns from labour should be taxed on comparable terms. However, in a globalised world where there is seamless movement of capital, capital-deficit economies seek to attract capital to their markets to provide liquidity and depth besides facilitating domestic listings. In such a scenario, tax on capital gains from transfer of listed shares becomes a matter of competitive choice given rates are one of the factors in investors’ ex ante calculations of post-tax returns while allocating capital to emerging markets like India.
This is by no means the only factor, as other comparative factors like the real growth of the economy, expected performance of financial markets, regulatory environment, quality of corporate governance of domestic companies, rule of law, stable and predictable government policies, ease of operation, expected returns from other emerging markets and the cost of risk-free capital are equally important. Given capital gains tax is a critical factor for investors; let’s look at the current Indian regime.
Since 2004, all transactions for listed shares on exchanges are subject to a securities transaction tax (STT), which is essentially an indirect tax as it bears no relation to the capital gains from the transaction. Capital gains taxation is based on taxing gains held for longer periods (long-term gains) at a rate lower than those held for shorter periods (short-term gains). Following the introduction of STT, the Income-Tax Act was amended to exempt long-term capital gains (LTCG) arising from transfer of listed shares, since they are subject to STT.
The holding period for the listed share-sale to qualify as a LTCG is 12 months (as compared to 24 months for unlisted shares and 36 months for other classes of assets). The lion’s share of foreign investment in Indian capital markets is from foreign institutional investors (FIIs), many of which are large investment funds.
Since 1993, the law outlined a separate taxation regime for FIIs and, after modifying it posts the introduction of STT, it is as follows: *Short-term capital gains (STCG) on listed shares (held for 12 months or less) is taxed at 15% (and subject to STT); *LTCG on listed shares (held for more than 12 months) exempt from tax (and subject to STT); * STCG on unlisted shares (held for 24 months or less) taxed at 30%; and *LTCG on unlisted shares (held for more than 24 months) taxed at 10%.
It is fair to conclude that India has tweaked its tax policy to attract capital. Now, except for LTCG on unlisted securities, the taxation regime is the same for FIIs and domestic investors. Unlike India, most countries with active stock markets don’t tax capital gains on listed shares in the case the transfer is an FII.
Thus, there is a ‘no capital gains tax for portfolio investments in listed securities’ for non-resident investors (‘portfolio investments’ generally mean less that 10% shareholding in a listed company). India, however, does tax such gains under its tax law (that applies to both resident and foreign investors) if such shares are held for 12 months or less (at 15%), besides garnering STT (which, in FY17, will be in excess of R7, 000 crore). While the taxation of capital gains on listed shares is lighter than that for unlisted shares and debt securities, these other asset classes are not subject to STT.
FIIs investing in India have adjusted to the STT regime alongside a nil rate for LTCG and a 15% rate for STCG due to the ease in terms of tax collection and administration. Over the years, a major concern of the Indian administration was FIIs (and other non-residents) investing via Mauritius, Singapore and Cyprus in Indian capital markets. In the bilateral tax treaties/protocols India signed with the three countries, it had given up the right to tax capital gains as such gains were taxed only in the country in which the FII was resident. Since these countries were not taxing such capital gains under their domestic tax laws, such income remained untaxed in both jurisdictions except for the STT paid in India.
This is the reason why a large part of India’s foreign investment (in listed and unlisted securities of Indian companies) emanates from these countries, as global investors preferred to set up legal structures in these locations to get the highest possible post-tax returns on their investments.
The Indian tax administration was also concerned about round-tripping of domestic capital through these jurisdictions, done to take advantage of the nil tax regimes on capital gains. In 2016, these three treaties/protocols have been renegotiated (with grandfathering and transition provisions) such that investors from these three jurisdictions will now be subject to India’s capital gains tax regime.
Given that the ‘nil’ capital gains tax regime for non-resident investors in India’s capital markets has now been done away with, and there is level playing field as far as the capital gains tax regime is concerned, it would not be opportune to change the regime.
One important and persisting tax-evasion concern for policymakers is the circulation of unaccounted income by misusing capital gains exemption in case of LTCG on listed securities through the trading of ‘penny stocks’ (low cap, thinly traded shares), whose listed price can be manipulated. This can be addressed by excluding such penny stocks from the specified ‘listed shares’, which are eligible for exemption from LTCG tax.
As we celebrate completion of 66 years of adopting the Constitution on January 26, 2017, below are two issues which brought to light some constitutional provisions.
- a bull taming sport played in Tamil Nadu received widespread news coverage in last week. It is important to understand the constitutional background of this issue.
· An ordinance was promulgated to help pass a bill allowing Jallikattu. The ordinance is passed under Article 213, which authorizes Governor of a state to do so. This happens with prior approval of President.
· The ordinance needs to be passed by legislature of the state within six weeks of the ordinance coming into effect.
President Pranab Mukherji disagreed with suggestions of death penalty forwarded by Ministry of Home Affairs to convicts of Bara massacre case, 1992. The death sentence was commuted to life imprisonment by the President. Here is how the President did it-
· Article 74 states that President is bound to act according to advice of Prime minister and his council of minister.
· But in Shatrughan Chauhan case (2014), the Supreme Court (SC) had said that if there is inordinate delay in disposing of a mercy petition, then the sentence may be commuted. The accused of Bara Massacre were given the sentence in 2000.
· In the 2014 order, SC also said that under Article 141, law declared by SC shall be binding on everybody in the territory of India. This includes, Government and President.
· Thus, President followed this order and commuted the sentence.
· This is being heralded as a first-ever by any President.
· In 2013, President Mukherji had expressed strong reservations on an ordinance, “Convicted Legislators’ Protection Ordinance”. The government later withdrew the ordinance. This instance was called “Presidential Differential.”
These two recent incidents highlight why the Constitution is an important document.
Must read China's Debt-trap Diplomacy- Brahma Chellaney Source: ProjectSyndicate
If there is one thing at which China’s leaders truly excel, it is the use of economic tools to advance their country’s geostrategic interests. Through its $1 trillion “one belt, one road” initiative, China is supporting infrastructure projects in strategically located developing countries, often by extending huge loans to their governments. As a result, countries are becoming ensnared in a debt trap that leaves them vulnerable to China’s influence. Of course, extending loans for infrastructure projects is not inherently bad. But the projects that China is supporting are often intended not to support the local economy, but to facilitate Chinese access to natural resources, or to open the market for low-cost and shoddy Chinese goods.
In many cases, China even sends its own construction workers, minimizing the number of local jobs that are created. Several of the projects that have been completed are now bleeding money. For example, Sri Lanka’s Mattala Rajapaksa International Airport, which opened in 2013 near Hambantota, has been dubbed the world’s emptiest. Likewise, Hambantota’s Magampura Mahinda Rajapaksa Port remains largely idle, as does the multibillion-dollar Gwadar port in Pakistan. For China, however, these projects are operating exactly as needed: Chinese attack submarines have twice docked at Sri Lankan ports, and two Chinese warships were recently pressed into service for Gwadar port security.
In a sense, it is even better for China that the projects don’t do well. After all, the heavier the debt burden on smaller countries, the greater China’s own leverage becomes. Already, China has used its clout to push Cambodia, Laos, Myanmar, and Thailand to block a united ASEAN stand against China’s aggressive pursuit of its territorial claims in the South China Sea. Moreover, some countries, overwhelmed by their debts to China, are being forced to sell to it stakes in Chinese-financed projects or hand over their management to Chinese state-owned firms. In financially risky countries, China now demands majority ownership up front. For example, China clinched a deal with Nepal this month to build another largely Chinese-owned dam there, with its state-run China Three Gorges Corporation taking a 75% stake. As if that were not enough, China is taking steps to ensure that countries will not be able to escape their debts. In exchange for rescheduling repayment, China is requiring countries to award it contracts for additional projects, thereby making their debt crises interminable. Last October, China canceled $90 million of Cambodia’s debt, only to secure major new contracts.Some developing economies are regretting their decision to accept Chinese loans.
Protests have erupted over widespread joblessness, purportedly caused by Chinese dumping of goods, which is killing off local manufacturing, and exacerbated by China’s import of workers for its own projects. New governments in several countries, from Nigeria to Sri Lanka, have ordered investigations into alleged Chinese bribery of the previous leadership. Last month, China’s acting ambassador to Pakistan, Zhao Lijian, was involved in a Twitter spat with Pakistani journalists over accusations of project-related corruption and the use of Chinese convicts as laborers in Pakistan (not a new practice for China). Zhao described the accusations as “nonsense.” In retrospect, China’s designs might seem obvious. But the decision by many developing countries to accept Chinese loans was, in many ways, understandable. Neglected by institutional investors, they had major unmet infrastructure needs. So when China showed up, promising benevolent investment and easy credit, they were all in. It became clear only later that China’s real objectives were commercial penetration and strategic leverage; by then, it was too late, and countries were trapped in a vicious cycle.
Sri Lanka is Exhibit A. Though small, the country is strategically located between China’s eastern ports and the Mediterranean. Chinese President Xi Jinping has called it vital to the completion of the maritime Silk Road. China began investing heavily in Sri Lanka during the quasi-autocratic nine-year rule of President Mahinda Rajapaksa, and China shielded Rajapaksa at the United Nations from allegations of war crimes. China quickly became Sri Lanka’s leading investor and lender, and its second-largest trading partner, giving it substantial diplomatic leverage. It was smooth sailing for China, until Rajapaksa was unexpectedly defeated in the early 2015 election by Maithripala Sirisena, who had campaigned on the promise to extricate Sri Lanka from the Chinese debt trap. True to his word, he suspended work on major Chinese projects.But it was too late: Sri Lanka’s government was already on the brink of default. So, as a Chinese state mouthpiece crowed, Sri Lanka had no choice but “to turn around and embrace China again.” Sirisena, in need of more time to repay old loans, as well as fresh credit, acquiesced to a series of Chinese demands, restarting suspended initiatives, like the $1.4 billion Colombo Port City, and awarding China new projects.
Sirisena also recently agreed to sell an 80% stake in the Hambantota port to China for about $1.1 billion. According to China’s ambassador to Sri Lanka, Yi Xianliang, the sale of stakes in other projects is also under discussion, in order to help Sri Lanka “solve its finance problems.” Now, Rajapaksa is accusing Sirisena of granting China undue concessions. By integrating its foreign, economic, and security policies, China is advancing its goal of fashioning a hegemonic sphere of trade, communication, transportation, and security links. If states are saddled with onerous levels of debt as a result, their financial woes only aid China’s neocolonial designs. Countries that are not yet ensnared in China’s debt trap should take note – and take whatever steps they can to avoid it.
120th Birth Anniversary of Subhash Chandra Bose (Born Jan 23, 1897)
· Influenced by ideas of Swami Vivekananda and Aurobindo Ghosh
· Mobilized All-Bengal Young Men’s Conference in 1920s towards freedom struggle
· 1938- Haripura Session, President of Congress. Bose wanted to take advantage of Britain’s political instability and revolt against them using violent means if necessary. According to Bose, this would ensure freedom.
· Organised the National Planning Commission (NPC), a precursor to Planning Commission formed in independent India. NPC would formulate a plan for industrialization of India.
· 1939- following fallout with other members of Congress, Bose established his own political organisation called “Forward Bloc”. He also started a newspaper by the same number.
· Was put under house arrest by British for his views. He escaped in 1941 to Berlin.
· Established “Free India Centre” in 1941 from Berlin.
· 1943- Bose travelled to Japan and established Indian National Army or Azad Hind Fauz. Also started “Azad Hind Radio”. It was made by Indian resident in South East Asia.
· With help of Japanese, Bose intended to launch an armed assault on British forces in North East India. But suffered a defeat as Japanese withdrew support.
· He later died in a plane crash in 1945.
Editorial for january 23, 2017
Jallikattu Issue: In fruitless pursuit of permanence
The Tamil Nadu government may have had few political options but to go in for an ordinance to facilitate the conduct of jallikattu once the surge in popular sentiment in favour of the traditional bull-taming sport gathered an enormous, unstoppable momentum.
The State amendment to the Prevention of Cruelty to Animals Act, 1960, seeks to exempt jallikattu from the purview of the law. With the implacable mass movement demanding a legal solution to overcome the judicial ban on jallikattu on the one side, and related litigation pending in the Supreme Court on the other, there was little that the Union government could have done on its own.
For the Centre to bring in an amendment would have incurred the wrath of the Supreme Court, which stayed a January 2016 notification and will rule on its validity soon. Instead, the Centre granted its consent to the State Governor promulgating the ordinance. However, just when a legal solution has been found, there is another twist. The protests are continuing, as its spearheads demand a ‘permanent solution’.
Chief Minister O. Panneerselvam’s plan to inaugurate the jallikattu event in Alanganallur did not fructify.
The protesters are obviously under the mistaken impression that an ordinance is ‘temporary’. They remain unmoved even after the State government clarified that it intends to replace it with a Bill when the Assembly convenes on January 23. But even a parliamentary Act is subject to judicial scrutiny.
The ordinance has pleased neither side in the jallikattu vs. animal rights debate. The Centre’s nod may have ensured that the ordinance will not be opposed as being repugnant to a Central law, but other legal hurdles remain.
The Supreme Court has declared that jallikattu is inherently cruel and contrary to the objectives of the PCA. Unless it recognises culture and tradition as valid grounds to permit events involving bulls, the exemption given to jallikattu may be invalidated. Meanwhile, the public uprising has gone beyond jallikattu, attained a critical mass as an assertion of Tamil identity and culture and metamorphosed into a protest against mainstream political parties.
It is time the protesters took a step back and let the legislative and judicial institutions determine the future of jallikattu. It is also time for them to reassess the cruelty and the risks to life posed by the sport, and link any demand to its reintroduction with the strictest of regulations.
Two people were tragically killed and over 120 injured in the jallikattu at Pudukottai on Sunday. A culture that legitimises such mindless and unnecessary death is not Tamil culture. In fact, it is no culture at all.