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IASbaba’s Daily Current Affairs – 30th June 2017

ECONOMY

TOPIC: General Studies 3

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Inclusive growth and issues arising from it

GST: Way ahead

Brief introduction:
The GST will replace the present very complex system where the Centre levies a central excise duty on goods up to the production stage and a service tax on services while the states levy a state VAT (value added tax) on sales of goods, but do not tax services. Each of these taxes has a VAT (value added tax) structure, but they are applied on different bases. And in addition, there are a number of additional taxes e.g. the additional duty, special excise duty and various central cesses by the Centre and luxury tax, entertainment tax, octroi etc. by the states. All these taxes by the Centre will be subsumed into a single central GST and the multiple state taxes by the state into a state GST (legally a different tax in each state). These taxes will be applied on a common base and at the same rate for each commodity across the country. This is a major simplification which should be welcomed.

Timeline:

In 2006, then finance minister P. Chidambaram, in his budget speech for 2006, set the target of moving a Constitutional Amendment Bill in 2010. It was moved by United Progressive Alliance finance minister Pranab Mukherjee in 2012, but could not be passed before the election. The National Democratic Alliance government took up the baton after coming to power in 2014. Fortunately, differences were resolved and the Bill was passed in 2016. The goods and services tax (GST) will now finally come into force on 1 July

Weaknesses in present GST:

International experience suggests that the full benefits of a VAT are only reaped if the VAT is near universal in coverage, with very few exemptions and
there are no more than two rates.

GST is very far from being universal and according to some it excludes 50% of the gross domestic product. Major items such as petroleum, natural gas, alcohol, electricity, and real estate/construction are left out. Residential apartments have been included but all other construction, including commercial construction and factories, is not. In addition, a very large number of commodities have been exempted. This suggests that revenue may fall short of expectations.
The second flaw is too many rates: 3% (on gold), 5%, 12%, 18% and 28 %, plus an extra GST cess on some luxury or socially undesirable items. Multiple rates are an invitation to misclassification and disputes/harassment arising from suspicion of misclassification. This reduces the efficiency gains.
A National Council of Applied Economic Research study had estimated that the GST would add between 1 and 2 percentage points to the economy’s growth rate. That was based on an ideal GST. Since what we have is very far from the ideal, the benefits will be correspondingly less.
If revenues are lower because of the exclusions and the large number of items at a very low rate, the revenue loss will be entirely borne by the Centre. This is because it will not only have less revenue under the central GST, but it is also committed to compensate the states if their revenue grows at less than 14% per annum in nominal terms.
The requirement that taxpayers must register in each jurisdiction in which thhey operate is an issue. If a unit operates in several states, it must register in each state in which it operates, and be taxed in each jurisdiction, and also maintain records that allow the tax paid in each jurisdiction to be audited.

Benefits:
Despite these weaknesses, the GST will still be beneficial in many respects.

The replacement of multiple taxes with a single rate for each commodity (taking Central and state GST together) is an advantage.
The fact that the same rate will be imposed on all imports in addition to the normal import duty, is a major gain. It will level the playing field for domestic producers vis-a-vis imports because at present imports escape the state taxes, which erodes the protective benefit of customs duty.
The elimination of border posts will be a major benefit.

Way forward:

The GST Council should set up an expert group that could assess the performance of the system based on results of the first year and work on a revised GST rate structure to be implemented after the general election in 2019. One of the terms of reference of the group should be to pronounce on the desirability of migrating to fewer rates.
The GST Council should be serviced by an independent secretariat which can undertake or farm out studies that may be desired by state finance ministers, and also comment on studies that may be put before the GST Council by either the finance ministry, or any of the states. The Central government revenue department has a great deal of expertise, but for it to service the GST is inconsistent with cooperative federalism. A separate secretariat, with people taken on deputation from the Centre and the states, and with outside experts brought in as consultants, would be ideal.
The GST was meant to unify the country into a single market. This means more and more organizations will set up in different jurisdictions and will need to operate seamlessly across them. A single registration valid across all states would have been the right thing to do.

Conclusion:
No new system is without glitches. The new system should be judged not by whether there are problems, but by whether the problems that arise are promptly corrected.

We must recognize that the birth of the GST is only a beginning. A systematic effort should be launched to correct deficiencies over time through the mechanism of the GST Council.

Connecting the dots:

Introduction of GST is a historic step in Indian tax reforms, however, it’s just the beginning and much more remains to be done so as to truly achieve the objective of one country, one tax. Discuss.

Also read: GST- Continuation

NATIONAL

TOPIC:

General Studies 3

Awareness in the fields of IT, computers,
Challenges to internal security through communication networks, basics of cyber security; money-laundering and its prevention.
Linkages of organized crime with terrorism.

General Studies 2

Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Important aspects of governance

Making Indian companies cybersecure:

India is to soon transform into digital economy. It is likely to help trigger a fresh wave of economic growth, attract more investment, and create new jobs, across multiple sectors. However this also creates cybersecurity challenges which must be dealt with seriously.

Recent steps taken by government:

Introducing Digital Locker, which eliminates the need for people to carry hard copies of documents issued by the government.
Demonetization, which has spurred the use of digital payments across the country.

Cybersecurity- one of the biggest challenge:

With the move towards a digital economy, increasing amount of consumer and citizen data will be stored digitally and a large number of transactions will be carried out online, by companies, individuals as well as government departments. That makes India a bigger target for cyber-criminals and hackers.
The cost of cyberattacks in India currently stands in excess of Rs25,000 crore ($4billion). This is despite fact that there are many cyberattacks that go undetected and unreported.
The losses emanate from operational disruptions, loss of sensitive information and designs, customer churn and impact on brand image, as well as increase in legal claims and insurance premium.
The issue is forecast to balloon further in the coming years, reaching as high as Rs1.25 trillion ($20 billion) over the next 10 years, as the business operations of most Indian companies become networked.

Issues:

Limited awareness of the impact and importance of cybersecurity currently. Many companies do not treat it as a strategic agenda, but rather as a small issue for their IT departments. In fact, a lot of cybersecurity incidents go unidentified and hence, unreported.
Limited awareness of the need for specialized and customized industry-specific cybersecurity measures which are significantly different from IT security and need to be adapted by the industry.
Low existing capability, or lack of skill sets, to drive cybersecurity agendas. This includes capability both in terms of people, cybersecurity strategies, as well as actual implementation of security measures.
Conventional IT systems and firewalls are increasingly becoming ineffective in preventing sophisticated hackers from creating havoc.

Way forward:

Companies in India need to be proactive to ensure they foster efficiency and efficacy in cybersecurity management. Cybersecurity must be put on a high priority on the management agenda.
Companies also need to assess the assets that are most at risk. This will differ from sector to sector and company to company. It is important to identify the most valuable assets, the ones which will “hit you the most”, narrow down all possible attack avenues and proactively prepare mechanisms and procedures to address those risks.
It is also important that companies run regular stress tests, which simulate real-life attacks.
Companies need to start cooperating with peers to learn from each other’s experiences—identify potential attack scenarios, identify hidden threats and co-develop a security framework.
Organizations also need to enlist their employees in the fight against breaches. There is a need to change the perception of cybersecurity from being a passive agent, to an active business enabler.
The regulators need to ensure they are covering all aspects at their end. This includes regulations that set minimum standards on cybersecurity for companies across the country.
Tough laws are needed to be put in place for perpetrators of cybercrime to ensure such criminals are deterred effectively.

Conclusion:
India is sitting on the cusp of digital evolution. The government has overcome its detractors with an eagle-eyed focus to achieve this goal for the country. It is now up to companies to ensure they are ready and prepared to harness and exploit the opportunities this evolution will bring.

Connecting the dots:

India is soon to transform into a digital economy. It will surely have multiple benefits, however, with such transformation arises the biggest challenge of cybersecurity. Discuss.