GST and it’s benefits for the Indian Economy

bl10thinkGST 

The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated to be around 25%-30%. Introduction of GST would also make Indian products competitive in the domestic and international markets.

 

The idea of moving towards the GST was first mooted by the then Union Finance Minister (P. Chidambaram) in his Budget for 2007-08. Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States have the powers to levy tax on sale of goods. In case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the originating States. As for services, it is the Centre alone that is empowered to levy service tax. Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their importation into or exportation from India, the Centre levies and collects this tax as additional duties of customs, which is in addition to the Basic Customs Duty. This additional duty of customs (commonly known as CVD and SAD) counter balances excise duties, sales tax, State VAT and other taxes levied on the like domestic product. Introduction of GST would require amendments in the Constitution so as to concurrently empower the Centre and the States to levy and collect the GST. The assignment of concurrent jurisdiction to the Centre and the States for the levy of GST would require a unique institutional mechanism that would ensure that decisions about the structure, design and operation of GST are taken jointly by the two. For it to be effective, such a mechanism also needs to have Constitutional force.

 

To address all these and other issues, the Constitution (122ndAmendment) Bill was introduced in the 16thLok Sabha on 19.12.2014. The Bill provides for a levy of GST on supply of all goods or services except for Alcohol for human consumption. The tax shall be levied as Dual GST separately but concurrently by the Union, and the States. The Parliament would have exclusive power to levy GST (integrated tax – IGST) on inter-State trade or commerce (including imports) in goods or services. The Central Government will have the power to levy excise duty in addition to the GST on tobacco and tobacco products. The tax on supply of five specified petroleum products namely crude, high speed diesel, petrol, ATF and natural gas would be levied from a later date on the recommendation of GST Council.  A Goods and Services Tax Council (GSTC) shall be constituted comprising the Union Finance Minister, the Minister of State (Revenue) and the State Finance Ministers to recommend on the GST rate, exemption and thresholds, taxes to be subsumed and other features. This mechanism would ensure some degree of harmonisation on different aspects of GST between the Centre and the States as well as across States. One half of the total number of members of GSTC would form quorum in meetings of GSTC. Decision in GSTC would be taken by a majority of not less than three-fourth of weighted votes cast. Centre and minimum of 20 States would be required for majority because Centre would have one-third weightage of the total votes cast and all the States taken together would have two-third of weightage of the total votes cast.

 

GST will help to create a unified common national market for India, giving a boost to Foreign investment and “Make in India” campaign; (ii) Will prevent cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply; (iii) Harmonisation of laws, procedures and rates of tax; (iv) It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth; (v) Ultimately it will help in poverty eradication by generating more employment and more financial resources; (vi) More efficient neutralization of taxes especially for exports thereby making our products more competitive in the international market and give boost to Indian Exports; (vii) Improve the overall investment climate in the country which will naturally benefit the development in the states. Essentially, GST is going to be a game changer for the Indian Economy helping us eradicate poverty in the long run.

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The Green Taxation Framework

green-tax

“There is enough for everyone’s need but not enough for everyone’s greed” according to the father of the Indian nation – Mahatma Gandhi. It quite seems that people did not relate well to this quotation. The planet Earth of almost 4.5 billion years has been damaged beyond repair as a result of selfish human activities. This gave rise to the concept of “Climate- Change” which refers to the increase in the concentration of carbon dioxide which is a poisonous greenhouse gas which as a result leads to an increase in the average global temperature of the earth’s surface. Climate change as a concept has further being bifurcated into – “Anthropogenic Climate Change” (caused by humans) and “Natural Climate Change” (caused by any natural phenomenon).  Its sister concept “Global Warming” has a different meaning altogether, and that refers to the long-term trend of the rising temperature of the earth and its oceans. Hence, global warming is a continuous process.

The causes for climate change are plenty and wide-ranging.  Some of the natural causes include: variation in the earth’s orbital characteristics, atmospheric C02 variations, volcanic eruptions and variation in solar output.  On the other side of the coin, some of the man-made or humanly-inflicted causes include: burning of fossil fuels, landfills and use of synthetic gases (e.g.: production of aerosols), deforestation leads to 15% of the carbon – dioxide emissions and difficulty in the process of photosynthesis, lack of recycling, the decomposition of organic matter gives rise to methane which is also a major greenhouse gas.

The causes eventually led to consequences which were catastrophic and disastrous.  Effects of climate change included ecological disturbance, more warmer days and few colder days, rise in the sea level as a result of melting of ice and glaciers, i.e. 25% of glacier already melted in Antarctica, disturbance in bio-diversity, i.e. – food chain is disturbed. Moreover, the society is hit by the different dimensions of pollution, i.e. water pollution, air pollution, and noise pollution.  The first dimension has created the hazard of unclean, dirty and undrinkable water. The next dimension has transformed climate change into a public health risk wherein people suffer from serious health and respiratory problems such as bronchitis, emphysema, asthma, shortened breath and its likes. The last dimension is noise pollution which again causes hyper-tension, hearing impairment and extreme public disorder in the society. When these were not enough, we have more effects of climate change, and they are inclusive of acidic seawater which is the reason for the increment in the fatality rates of the marine life which is an essential part of planet earth, hurricanes have changed in frequency and strength, heavier rainfall causes flooding, droughts are frequent.

Post- the destruction caused, the administrative officials had to come in the picture to control, or combat the situation.  Various divisions of the administration worked towards the good of the climate, but this project will mainly highlight the works of service tax and other tax related bodies which falls under the ambit of the finance ministry.  So, thereby, the crux of this project is the different kinds of taxes levied in order to control any further damage to the planet earth which essentially we inhabit.  The green tax is one of them.  Green tax refers to a type of tax in which tax is imposed on environmental pollutants or on goods whose repeated use contributes to pollution. In India, the state government imposes it on old vehicles to curb air pollution. The concept of green taxation can also be referred to as “active control” because instead of discouraging certain kinds of peculiar behaviours, we seek to encourage positive attitudes.  Green taxation can also be referred to as an incentive, an economic benefit granted in the form of taxes to give a push to the economic, social and cultural activities. The practice of giving incentives is not new in the automotive and construction industries. The Brazilian community is using incentives to uphold and grow the cause of sustainable development which refers to “a type of development wherein resources are to be saved for the future generations by wise usage of the same”.  These incentives can be exemplified through the mentioning of the PES which is the Payments for Environmental Services which are a type of incentive offered to farmers or land-owners in exchange for managing their lands well and providing some ecological- services. As we bifurcate further, the examples of PES techniques in Brazil are environmental compensation which means companies cover –up financially for damage that is unavoidable, reforestation, i.e.: the planting of trees (along with compliance with forest management rules)  which is mainly focused on timber companies, tax exemptions for private reserves of natural heritage. Other countries also use the instrument of PES to protect the environment such as Mexico in the area of preserving rural properties and Costa Rica imposing tax on gasoline and water.

Adding to these, the polluters pay principle (party responsible for pollution is also responsible for paying for the damage done as a result) is a concept which envisages compensation for the use of naturally created resources.  The sister concept is “the users pay” which distinguishes between the offender and the polluter.

Another variety of environmental tax is a “carbon tax” which is imposed on the varied amounts of carbon emissions.  The main idea behind the implementation of the “carbon tax” is to raise or increase the cost of fossil fuels – the prime source of carbon emissions, which in turn would help to protect the environment while at the same time raising significant revenues (due to raise of revenue factor carbon tax can also be referred to as a fiscal environmental tax). By imposition, of the carbon tax the burden would massively fall on energy-intensive industries, transportation industries and lower – income households. The impact of the carbon tax would be different on different economic classes, i.e.: the lower class, the middle class, the high class and this impact will be based on two parameters:  energy price changes and regional energy production and consumption pattern. The distributional impacts of carbon tax would depend on elasticity of demand which means if demand for goods do not get affected by the change in prices then the consumers will bear the greater burden in comparison to workers or investors because the consumers will use the goods and the more they use it the greater will be the carbon – emission. Furthermore, the regressive impacts of carbon tax can be controlled by reducing social security contributions by low- income households, compensating workers in carbon intensive industries and so on and so forth.  The carbon dioxide emissions cause the same climate damage regardless of where they originate. So, on a utopian level of thinking, all countries would charge the same tax- rate but such is not the case.  Countries face difficulties in the enactment of the carbon tax because most of the tax burden would be taken in by individuals and businesses but the benefit of the reduced emissions would go to other countries. International cooperation for this very conflicting nature is necessary to prevent climate change, and this cooperation project is being handled by the UNFCC (United Nations Framework Conventions on Climate Change). Cooperation among the major carbon- producing nations would cover more than 70% percent of greenhouse gases emissions. The next kind of tax is the cost – covering charges which are created to cover the costs of environmental services such as water treatment and which perhaps will be used for associated environmental expenditures.

Other than the usual taxes being implemented, we need to wider the tax bases for better use of the concept of environmental taxation.   One of the many ways could be, synergising  environmental taxation with education wherein the government can provide scholarships to kids, on the condition that they have to plant 10 trees at a minimum figure and 25 at the maximum.  To make the maximum use of this nascent concept of “environmental taxation” for environmental protection we can also levy taxes on commercial constructions and over – consumption of electricity, or over the limit consumption of electricity because the small cities and rural areas do not get the privilege of electricity and the city people just misuse this privilege, i.e. using air conditioners in homes and offices which should on logical grounds be taxable. While assuming a hypothetical situation, in which the clear focus is on “carbon- foot print”. Say, if a person has a carbon-foot print ranging from 950 to 1600, which is a lot then the person will have to pay taxes in proportion to the damage done and that could be 30% of their finances or even 40 %  or maybe even higher for the same. So, in this manner the society members would keep a strong check on their carbon emission rates and will be stimulated at a much greater level from the sensitivity that comes with climate change and the damages which have been done upon our very own – Planet Earth.  On a very interesting note, we can have “taxation on knowledge” which indicates that a certain basic information about our planet, the climate, the very well- known concept of climate change and the hazards that are associated with it, the 17 sustainable development goals and that earlier these were called millennium development goals and much more. Such basics are to be known to all, or else the individual shall be taxed on regulated parameters. The knowledge tax will benefit in the manner that the society will be more aware of what they are doing and that they will eventually become more and more sensitive to the climate, to the environment and on broader lines – Planet Earth. And, its needs, which further will create an inner – urge to act carefully, wisely and selflessly.

Beyond these, the Municipal Corporation and the local bodies should also be taxed upon their illegitimate or unnoticed activities related to cutting of trees in colonies, and other crowd – infested areas as we look forward to a balanced society inclusive of both infrastructure and the pleasant greenery and cannot let a body of few authorities trying to change that illegitimately or in undue or unacceptably corrupt ways.  Next, we can tax people on non-plantation of peepal tree, specie of an Indian tree, as they are carbon sinks and are good for the environment. The last thought on taxation is in regards to the “psychological taxation” wherein there has to be direct interaction between the authority and the citizens and one and one campaign on pouring sensitivities regarding climate change and how to further not damage the planet. The desire to save the planet has to come from within. Here, mind matters over money as committing damage and giving money is not the solution as that would cause endless damage. Thereby, talks and dialogues and awareness campaigns become extremely necessary.

We need to imbibe from the west, as far as creation of institutions is concerned. They have done a lot in the area of climate change and we need to gain from it. They have the United Nations, European Union, United Nations Framework Convention for Climate, Paris Peace Conferences, COPs (e.g.: Cop 21) and so on. We need to start walking on these footsteps for greater mass awareness and involvement, for greater general participation and enormous awareness. It is time we start working on the lines of “climate peace” and save it from being destroyed.  We are still behind as far as creation of institutions is concerned.  We need to string a note here as well and give a fraction of our focus to this.

The last concept that this project makes an attempt to address is the dream of a probable and a very much possible smart city. A smart city is also an ideal city. A city one dreams of living in. The smart city being talked about here is the city everyone wishes to live in.  Everyone wants to live here because the very nature of a smart of city is “balanced”. It has the right of amount of greenery and tax impositions and government laws and rules are pretty much redundant here. People here are sensitive, happy, selfless and environment friendly and also hold a highly balance approach towards everything. There are environment – friendly festivals here such as Plantation Day Festival.  The Swach Bharat Abhiyan is quite a success story in the smart city as nobody litters here and there and have a very strong civic sense and take all kinds of environment friendly initiatives like car-pooling and getting their cars checked for pollution free movement. They also help the government in their various tasks as in when the government orders from attending campaigns to mobilising crowd. The people are well – aware of the importance of the environment here. We have some great buildings and ample amount of residential and other related kinds of infrastructures like hospitals, police stations and eating joints and so on.  This one is truly a smart city with great citizens.

In a nut shell, well–designed fiscal policies should very much be central to the efforts to promote cleaner and, greener economies. Environmental tax is a boon to curb the problem of environmental degradation and to stop any kind of further damage. Nevertheless, the people should also be a self-conscious lot because the government cannot do a lot without its people’s participation and support.