General Studies 3
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
- Government budgeting
General Studies 2
- Bilateral and regional groupings and agreements involving India and/or affecting India’s interests
- Effect of policies and politics of developed and developing countries of India’s interests
- Historical and contemporary perceptions of tax have characterized it as a necessary extraction, a penalty. A likely fallout of this statutory burden is that there is an innate urge to either mitigate the liability or even eliminate it.
- Tax avoidance is when a lawful mitigation of tax burden takes place.
- Tax evasion is where a seepage in the boundaries set by fiscal laws is discovered, and which is then used to escape the tax net to a great extent or altogether.
- The genesis of tax notoriety is where prima faciethe tax mitigation exercise appears legitimate, but in reality, it may be an abusive tax avoidance strategy which may lead to very low payment or no payment of taxes.
- Corporate taxes imposed on multinational corporations (MNCs) are major sources of revenue for most economies. Corporate tax payers shifting their tax liabilities from a high tax jurisdiction to a low- or no-tax jurisdiction, massive revenue losses are imminent for the fiscal jurisdiction where the taxes should have been ideally paid.
- With some creative accounting techniques and existing loopholes in different fiscal jurisdictions across the world, tax evasion has emerged as a global woe in the last few decades.
Various countermeasures have been deployed by states, either at an individual level or as members of different economic groups.
- The north and south have come together and there is a conscious attempt to tackle the reckless acts of base erosion and profit shifting (BEPS). The BEPS action plan is a step in that direction where the developing and the developed have jointly worked on strategies to curb the exploitation of gaps and mismatches in tax rules, which can be used to artificially shift profits to low- or no-tax locations.
Since a majority of corporate entities in such jurisdictions have little or no economic activity and are mere subterfuges (tricks), it is all the more critical to identify and penalize such entities.
Some jurisdictions have also taken the initiative of revising or updating their existing Double Taxation Avoidance Agreements (DTAAs) to plug the existing loopholes.
- Another important instrument of tackling tax notoriety is the Tax Information Exchange Agreements. These bilateral agreements act as information bridges between different fiscal jurisdictions and they aid in the establishment of tax transparency.
Despite some major limitations, various fiscal jurisdictions have already gone ahead with signing such agreements.
Further, novel techniques such as the Diverted Profits Tax, popularly known as the Google Tax, are providing more salvo to the tax administrators in tackling aggressive tax planning.
Apple’s Case in Ireland
- A colossal decision by the European Commission has taken the fight against “aggressive tax planning” by corporations to a new turf altogether.
- In a nutshell, the subject matter of this dispute was the selective treatment, a sweet deal, granted by Ireland to Apple Ireland.
- Apple Ireland recorded a €16 billion profit in 2011, but the effective tax rate on the same amount was just 0.05% in same period. In 2014, the rate in effect declined to 0.005% in 2014 even as the profits grew.
- These corporate tax rates are significantly lower than the corporate tax rates applicable in any other EU member state.
- Thus, the European Commission has questioned this entire special tax arrangement extended by Ireland to Apple on grounds of illegal state aid and failure to reflect economic reality.
- This retrospective action against Apple focusses on compensating Ireland for a loss of revenue in at least the last decade. Then again, it is also a clear message to all EU member states not to slacken their taxes excessively and maintain diligence when entering into special arrangements with MNCs.
Though the Commission’s decisions would appear to undo the wrong done to the EU member states by the tax-avoiding MNCs, the decisions are not seeing a meek acceptance at the hands of the concerned states and the defaulting corporations.
There is an alarming trend adding to tax notoriety wherein the states are coming to the aid of the defaulting MNCs and both are in harmony against any possible regulatory measures by the concerned authorities.
Thus, it seems clear that the tax defaulters and tax administrators are in no mood of granting respite to each other. The sensational duel between prolific tax notoriety and amplified tax vigilance continues.
Connecting the dots:
- “The perceptions of tax have characterized it as a necessary extraction, a penalty.” In context of Indian Tax laws how far the statement is correct. Critically analyze
TOPIC: General Studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure.
- Important aspects of governance, transparency and accountability
Simultaneous conduct of elections and its impact on democracy and governance
Conducting of simultaneous elections has been discussed for few years now. From TV debates to online public consultation, the decision is expected to tilt in favour of simultaneous elections. But will this practice be actually beneficial to Indian democracy?
The beginning of the debate
- India witnessed simultaneous elections to the Lok Sabha and Vidhan Sabhas till 1967 till it got derailed due to dissolution of some Assemblies after the imposition of Central rule under Article 356 of the Constitution.
- Law commission in 170th report in 1999 had also supported the idea of ‘one election once in five years for the Lok Sabha and all Legislative Assemblies’.
- The Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice’s report in December 2015 said that several structural changes will need to be done in case a decision is made to conduct simultaneous election, including the possibility of Constitutional Amendments to Articles 83, 172, 85 and 174 to streamline the process.
- The debate has now gained momentum for conducting simultaneous elections with President and PM reiterating the need for electoral reforms for strengthening democracy.
- The upcoming elections are Lok Sabha-2019, Assembly elections in 5 states- 2017, in 13 states- 2018, 1 state in 2020 and remaining in 2021.
Simultaneous elections are beneficial
- It will lighten the financial strain on the government/Election Commission machinery. Law commission report (1999) pegged it at about 4500 crores.
- It will avoid repeated enforcement of the Model Code of Conduct (MCC) which interferes with normal policy implementation and governance in the state. Thus, it will bring stability in governance.
- It will have impact on functioning of essential services. The campaigns and rallies cause traffic problems as well as loss of productivity.
- From competitiveness and productivity viewpoint, simultaneous elections reduce the type of manpower and resource deployment necessary for the conduct of elections. Thus, the administrative strain on election machinery is expected to ease.
But, there are substantial arguments against the conduct of simultaneous elections
The cost of conducting elections
- The elections in India see huge spending of money by candidates, political parties and government (ECI).
- There is cap on how much a candidate can spend on his campaign. But still, more than permitted is spent as candidates believe that it would help them reach out more voters, thereby increasing their chance to win.
- However, the question of cost which has been considered more frequently in the debate, talks about reduction in expenditure of government and not candidates and political parties which has more impact on electoral outcome.
- There is no doubt that limited number of elections will result in lesser government expenditure. But, elections are lifeblood of democracy. A seemingly possibility to impose simultaneous elections shows that monetary concerns are more important than democratic principles which is not a good practice.
- Another argument for favouring simultaneous elections is that it is for better governance.
- Due to multiple election schedule, the MCC prevented the government from new projects which ultimately slowed down development work.
- However, to solve this issue, it is more feasible to change the rules of MCC which allows government functioning for a reasonable period (in force when elections are notified and not when elections are announced).
- Not many know but there is a provision that government can consult ECI about policy decisions. If the ECI is assured that such decisions will not affect electoral outcome, such decisions get a go-ahead.
- In a normal course, the MCC will be applicable to the election state only. Then there is no reason with government to stall projects in other states or centre unless it affects electoral outcome in the election state.
Undermining federal structure
- India has a federal structure and a multi-party democracy where elections are held for State Assemblies and the Lok Sabha separately.
- ‘One country, One election’ is misleading. This slogan overlooks that though India is one country, the constitution also recognises existence of 29 States which have their own constitutional status in matters of elections and government formation.
- “One country” does have “one election”, and that is for the Lok Sabha.
- The envisaged practice of having central, state and also panchanyat elections together is a step in direction away from federal state that the constitution desires.
- The voters have increased voting choices when elections at state and central level are held at different time. This distinction gets somewhat blurred when voters are made to vote for electing two types of government at the same time, at the same polling booth, and on the same day.
- Evidence shows that there is a tendency among the voters to vote for the same party both for electing the State government as well as the Central government.
- Since 1989 elections, there have been 31 instances of holding simultaneous elections for State Assemblies and the Lok Sabha. In 24 elections, the major political parties polled almost a similar proportion of votes both for the Assembly and the Lok Sabha. In 7 states only, the choice of voters was different (For different government at centre and state).
- During the same period, when in many States the Assembly and Lok Sabha elections were held at different times, the electoral outcome (votes polled by different parties) of the two elections has been different.
- Though ECI supports the idea, it has warned of ‘’several logistical and financial challenges that have to be overcome before it can prepare to hold state and central elections together.’’
- The challenge is significant because all political parties have to be on board to and pass a constitutional amendment to this effect.
- There can be a possibility that an incumbent government falls without completing its terms or there is a creation of a hung assembly. In such cases, the mechanism to be followed has to be yet evolved.
- Though there are talks in favour of simultaneous elections becoming a reality, there is a possibility it might go against the political diversity which is essential for addressing the social diversity of India.
Connecting the dots:
- Critically analyse the effect of simultaneous elections in India.
- Simultaneous elections is not possible because of changing times, socio-economic conditions and increasing voter base and education. Discuss
- Government has multiple mediums to save money. Taking risk with the conduct of simultaneous elections with primary rationale being reduced financial strain may boomerang. Evaluate.
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