Efforts to boost tax revenue will come to naught if expenses, particularly on ‘welfare schemes’, are allowed to grow in an unsustainable manner For years, the tax receipts of the Union Government have consistently fallen short of the target set in the respective year which together with the expenditure exceeding the target has led to fiscal slippage – a glamorous term for the fiscal deficit (FD). Against this dismal record in the past, 2021-22 will have the unique distinction of the tax collections – both direct and indirect – exceeding the target. The total direct tax collection net of refund as on March 16, 2022 stood at around Rs 1363,000 crore which is higher the budget estimate (BE) of Rs...
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Category: Taxes & duties
Tax buoyancy – a good omen
For years, the tax receipts of Union government have consistently fallen short of the target set in the respective year which together with the expenditure exceeding the target has led to fiscal slippage – a glamorous term for the fiscal deficit or FD (excess of total expenditure over the total receipts). Against this dismal record in the past, 2021-22 will have the unique distinction of the tax collections – both direct and indirect – exceeding the target. The total direct tax collection (includes primarily personal income tax or PIT and corporate income tax or CIT) net of refund as on March 16, 2022 stood at around Rs 1363,000 crore which is higher the budget estimate (BE) of Rs 1100,000 crore...
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Rationalising the nation’s direct taxes
The Government should rationalise direct taxes to address anomalies between PIT and corporate tax at one level and capital gains tax at another Ever since, the commencement of its second term, Modi Government has showered benevolence on the corporate sector by giving relief in income tax but when it comes to personal income tax (PIT), it has not matched the expectations. On September 20, 2019, Finance Minister (FM) Nirmala Sitharaman had announced steep reduction in the rate of corporate tax for “new entities” incorporated from October 1, 2019 in the manufacturing sector and start production by March 31, 2023 from the existing 25 percent to 15 percent. Such companies won’t have to pay minimum alternate tax (MAT). Furthermore, the tax...
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Rationalizing direct taxes
Ever since, the commencement of its second term, Modi Government has showered benevolence on the corporate sector by giving relief in income tax but when it comes to personal income tax (PIT), it has not matched the expectations. On September 20, 2019, Finance Minister (FM) Nirmala Sitharaman had announced steep reduction in the rate of corporate tax for “new entities” incorporated from October 1, 2019 in the manufacturing sector and start production by March 31, 2023 from the existing 25 percent to 15 percent. Such companies won’t have to pay minimum alternate tax (MAT) (levied on book profit of firms which have no taxable profit courtesy, exemptions and incentives). Furthermore, the tax rate on existing companies was reduced from 30...
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Tax cuts alone won’t help rein in oil prices
Given the fast pace of vaccination and substantially diminished effect of COVID-19, the GDP is expected to register growth close to 10 per cent On November 3, 2021, the Union Government notified reduction in central excise duty (CED) by Rs 5 per liter on petrol and Rs 10 per liter on diesel. Seen in isolation, these cuts may appear to be significant. However, when viewed in the backdrop of the unprecedented increase affected by the Narendra Modi Government ever since it assumed office, this is small. In May 2014, the CED on petrol was Rs 9.8 per liter whereas on diesel it was Rs 3.8 per liter. As on November 2, 2021, it was Rs 33 per liter on petrol...
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Cut in fuel taxes – not an unmixed blessing
On November 3, 2021, the Union Government notified reduction in central excise duty (CED) by Rs 5 per liter on petrol and Rs 10 per liter on diesel. Seen in isolation, these cuts may appear to be significant. However, when viewed in the backdrop of the unprecedented increase affected by Modi – Government ever since it assumed office, this is small. In May 2014, the CED on petrol was Rs 9.8 per liter whereas on diesel it was Rs 3.8 per liter. As on November 2, 2021, it was Rs 33 per liter on petrol – a cumulative increase of Rs 23.2 per liter. On diesel, it was Rs 32 per liter – higher by Rs 28.2 per liter. The...
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The OECD tax deal is unfair to India
As for distribution of profit for the purpose of taxing rights, the agreement allocates to the ‘source’ country the taxing rights only to the extent of 25 per cent of the profit In July 2021, the G7 meeting of Finance Ministers of advanced economies agreed on a framework to tax multinational companies that stands on two pillars, a global minimum corporate tax 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”. Meanwhile, 136 countries, including India, were involved in the efforts being made by...
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Telecom industry – shun duopoly
In a letter addressed to the department of telecommunication (DoT), the telecom operators including the three major players viz. Airtel, Vodafone Idea or Vi and Reliance Jio have submitted a charter of demands. These include:- (i) reduce the license fee from 3% of adjusted gross revenue (AGR) to 1%, USOF (Universal Service Obligation Fund) contribution from 5% of AGR to 1%, spectrum usage charge (SUC) from 3-6% (depending on when the operator acquired spectrum in respective bands) to a uniform 3% for all operators; (ii) extend the tenure of leased spectrum to operators from 20 years to 40 years; (iii) moratorium of 7-10 years for payments (in addition to 2 years already given); (iv) reduce interest rate on all outstanding...
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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...
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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,...
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