UPSC GK: Is there a case of bringing petrol, diesel under GST? (ECONOMICS)

With the prices of automobile fuels surging, Minister for Petroleum and Natural Gas Dharmendra Pradhan said in Bhubaneswar Monday that bringing petroleum products under the ambit of the Goods and Service Tax (GST) was being considered by the government as part of a “holistic strategy” to address the issue. Transport Minister Nitin Gadkari, too, favours such a move — and Maharashtra Chief Minister Devendra Fadnavis has said that his state was fine with petroleum products being brought under a single rate countrywide, and that a Task Force was working on it. Chief Economic Advisor Arvind Subramanian had earlier this year made out a case for bringing petroleum products under GST.

The trigger for all this is rising oil prices — the benchmark Brent crude crossed the $80 per barrel mark earlier this month — and the daily revision of prices of petrol and diesel.

How will this help?

When India moved to the GST regime last July, petroleum products were excluded, along with alcohol, real estate and power. In the current structure, both the central and state governments levy a tax on petrol, diesel, crude, and natural gas. The Centre charges excise duty, while each state has its own Value Added Tax (VAT). Added to these are the dealer commissions, all of which inflates the price that consumers pay at the retail pumps. (On Tuesday, petrol was Rs 86.24 per litre in Mumbai, Rs 81.43 in Chennai, Rs 81.06 in Kolkata, and Rs 78.43 in Delhi.)

Bringing petroleum products under GST would mean a single rate — 18% or 28% — in place of excise duty and state VAT, and lower pump prices. It will take the political heat off the government, and is likely to lead to lower transport costs for industry, with benefits in terms of boosting production and competitiveness. It will also be in keeping with the idea of a ‘single nation, single tax’, which is aimed at improving production and employment while taxing consumption.

Because these products are excluded from GST, many firms are at a disadvantage: they cannot set off inputs costs like transport, logistics, services, spares, or claim input tax credit. They miss out on productivity gains as well.

But there’s a flip side

For both the federal and state governments, petroleum products, like alcohol, are huge revenue earners. The Centre mopped up Rs 1.60 lakh crore in excise duty from petroleum products in FY18, and Rs 2.42 lakh crore in FY17, even as global oil prices fell from 2014-15 through 2016-17. Between 2013-14 and 2016-17, the central government collected Rs 2,79,005 crore in excise duties alone — a windfall that helped it show a better fiscal position. Similarly, states earned Rs 1.66 lakh crore in VAT on these products in FY18; Maharashtra, for example, currently makes close to Rs 22,000 crore.

Revenue considerations, therefore, are likely to drive the decision on bringing petroleum products under GST. The decision will have to be taken by the GST Council, in which states have a major say.

Even if they agree to having petrol, diesel and other products under GST, they will still have the autonomy to levy an additional or top-up tax, which can vary across states. This surcharge can be in the nature of a “sin tax” — a way for states to discourage consumption of certain products like liquor or tobacco — and to reduce vehicular pollution.

Even the Centre will have reasons to worry — not only because of the huge revenue petroleum products bring, but also because it is committed to compensating states for any shortfall in revenues for five years.

There are other considerations, too. The decision will have to take into account larger questions such as those of equity, given the consumer profile of those buying fuel for personal vehicles, and the issue of an efficient public transport system.

Credit: Indian Express Explained (http://indianexpress.com/article/explained/auto-fuels-under-gst-petrol-price-hike-diesel-5196291/)  

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GK: Understanding e-way bill (ECONOMY)

What is an e-way bill?

An electronic way bill or ‘e-way bill’ system offers the technological framework to track intra-state as well as inter-state movements of goods of value exceeding Rs 50,000, for sales beyond 10 km in the new Goods and Services Tax (GST) regime. Under the e-way bill system, there will be no need for a separate transit pass for every state — one e-way bill will be valid throughout the country for the movement of goods.

According to notified e-way bill rules, every registered supplier will require prior online registration on the e-way bill portal for the movement of these goods. The rules also specify that the permits would be valid for one day for the movement of goods for 100 km, and in the same proportion for following days. Tax officials will have the power to scrutinise the e-way bill at any point during transit to check tax evasion.

Any supplier/recipient/transporter can generate an e-way bill. Once this is generated, there will be no need to fill the requisite information in the GST return, as there will be an automated filing of GSTR-1 (which records the details of sales made by a seller to a buyer). A unique e-way bill number (EBN) as well as a QR code will be generated for tracking. Digital facilities via SMS/Android apps will also be provided for the generation of e-way bills. The National Informatics Centre (NIC) has developed a separate portal for the e-way bill.

What is the current status at the state-level over the e-way bill?

Ten states have started trial runs of the e-way bill system. Karnataka implemented the system in September 2017, followed by Rajasthan, Uttarakhand and Kerala. Six more states — Haryana, Bihar, Maharashtra, Gujarat, Sikkim and Jharkhand — started trial runs for e-way bills on Tuesday.

Do any exemptions apply to e-way bills?

The GST Council exempted 154 items of common use, such as meat, fish, curd, vegetables and some cereals, human blood, LPG for households and kerosene for the Public Distribution System (PDS). The system will not be applicable on goods being transported by non-motorised conveyance, and where goods are transported from the port, airport, air cargo complex and land Customs stations to an inland container depot or a container freight station for Customs clearance.

Are there concerns from industry?

Trade and industry have raised concerns about the system being a possible route for the re-emergence of supply chain bottlenecks, and discretionary power to tax officials. The industry views the e-way bill as a system that will check tax evasion to some extent, but may not be able to stop it completely. Also, it adds another layer of compliances for GST payers and, in case of technical glitches, may result in supply chain bottlenecks.

The government has highlighted the powers provided to transporters in the e-way bill rules to report detention of vehicles beyond 30 minutes on the portal. Also, the e-way bill rules facilitate online reporting of inspection and verification of documents.

Potential Benefits?

Logistical speed-breakers cost the Indian economy an extra $45 billion or 4.3 per cent of GDP every year, a McKinsey report says. The LPI Survey by World Bank in 2014 put logistics costs at 14 per cent of the total value of goods in India, while it is only 6-8 per cent in other major countries. The GST E-way bill combination was expected to trim logistics costs by 20 per cent.

Therefore, any change in the system that brings about even small benefits is to be welcomed.

Source: https://www.thehindubusinessline.com/opinion/columns/slate/e-way-bills-gst-goods-transport-explained/article22799543.ece

http://indianexpress.com/article/explained/e-way-bill-an-electronic-system-to-track-goods-movement-a-way-to-plug-leaks-under-the-gst-framework-5029103/

Indian Federalism: From ‘Unitary bias’ to ‘Being Cooperative’

Indian Federalism: From ‘Unitary bias’ 

to ‘Being Cooperative’

By Avinash Agarwal

UPSC GENERAL STUDIES: Paper II (Issues related to Federalism)

Table of Content

Design of Indian Federation

* Manifestation of unitary bias

* International Comparison

Constitutional Provisions

Why we designed our federation with a unitary bias?

Steps taken to encourage the federal character of our polity

Word on ISC

* Meetings

* Mandate

* Present Day Relevance of ISC

* Comparison with NITI Aayog’s Governing Council

* ISC Going Ahead

Cooperative Federalism

* Economic Empowerment of States

* Example from the Power Sector

* But all is not well on Administrative Front

* Hand-holding Required

Design of Indian Federation

The Indian nation is a federation with a unitary bias.

Manifestation of unitary bias: The peculiar phrase “unitary bias” arises because residuary powers—the power to legislate on matters not enumerated in the central, state or concurrent list of subjects—is given to the centre under Article 248.

International Comparison: This is unlike the constitutions in many other federations such as the United States, Germany and Australia where such power is conferred on the states.

Constitutional Provisions

Part XI of the Constitution (Articles 245 through 263) deals with centre-state relations. It covers legislative and administrative relations between states.

The financial relationship between the centre and states is covered in the next chapter of the Indian Constitution, including Article 280 that deals with the mandate for setting up a periodic Finance Commission.

Why we designed our federation with a unitary bias?

* Concerns about disunity (especially after the events that led up to the partition)

* Need for Uniform Development

* Prevailing Constitutional Design

* Minority Protection

* Interest of Princely States

(Note: B.R. Ambedkar once described India and its states as “one integral whole, its people a single people living under a single imperium derived from a single source”.

It was a necessary sentiment at a time when a newly independent and partitioned nation was trying to frame a coherent idea of itself.

But the political and economic context has changed drastically since then. The relationship between the centre and the states has failed to keep pace with its evolution.

The pertinent question is that does India still need a unitary bias? Or its interest will be better served by unshackling the states from Centre’s grip?)

Steps taken to encourage the federal character of our polity:

A National Development Council was set up in 1952 and a National Integration Council was similarly set up in 1962.

Annual conferences were held between the centre and state chief ministers on finance, labour, food and other functional areas.

The first constitutional body—called the Inter-State Council (ISC)—was set up in 1990 following the initial recommendation of the First Administrative Reforms Commission (1969), which was endorsed by the Sarkaria Commission on centre-state relations (1988).

Word on ISC

Meetings: The ISC has met 10 times since it was established. Eight of the 10 meetings have been held during non-Congress governments. It met this year (2016), for the 11 time, after a gap of 10 years.

Mandate: The ISC’s mandate is to investigate and discuss matters in which states and the Union have a common interest and to make recommendations on such matters particularly with respect to coordination of policy and implementation.

Present Day Relevance of ISC: The ISC is the only multilateral centre-state forum that operates directly within the framework of the Constitution (Article 263 (b) and (c)) where topics like the GST and contemporary issues like disaster management, terrorism and internal security can be taken up.

Comparison with NITI Aayog’s Governing Council: ISC has a similar composition, including the prime minister, chosen cabinet ministers and chief ministers—that could address centre-state issues. But the ISC has constitutional backing, as against the NITI Aayog which only has an executive mandate. This puts the states on more solid footing—an essential ingredient in building the atmosphere of cooperation needed for calibrating centre-state relations.

ISC Going ahead:

* The ISC should be further strengthened to become the critical forum for not merely administrative but also political and legislative give and take between the centre and states.

* It should function in such a manner that it reflects the equal status of states and the centre.

* It should meet once a year.

* Even though the ISC’s mandate is very broad, its aspiration has generally been limited to discussing affirmative action, welfare subjects and administrative efficiency and coordination.

Along with another constitutionally sanctioned entity—the Finance Commission (FC)—the ISC should be the body that puts the “federation” back in the definition of the Indian nation. Together, the FC and the ISC should operationalize again Part XI and XII of the Constitution that ensure appropriate financial devolution and political decentralization.

Cooperative Federalism

Punchhi Commission report on centre-state relations introduced the term ‘Cooperative Federalism’.

PM Modi on the eve of Republic Day in 2012 (then he was the CM of Gujarat) blogged thus: “It is high time the Centre realizes that giving to the states what rightfully belongs to them will not weaken the Centre. The states must co-ordinate with the Union Government and not remain subservient to it. Co-operative and not coercive federalism must be the norm in our country.” 

Economic Empowerment of States: In the past two years, the government has taken many steps to economically empower states and make them key stakeholders in India’s development agenda.

The Fourteenth Finance Commission had favoured giving states more untied funds along with greater fiscal responsibility in implementing centrally sponsored schemes. To this effect, it increased the states’ share in central taxes to 42% from 32%. In addition, the centre also decided to bring down the number of centrally sponsored schemes to less than 30 from more than 72 at present, giving states more flexibility in modifying the schemes to meet their individual requirements. This leaves the decision of how to utilize these funds to the state governments.

Effectively, the FFC had sowed the seeds of cooperative federalism as states have been accorded unprecedented fiscal freedom. For the first time, public expenditure is now decisively in the jurisdiction of states. Consequently, states are now greater stakeholders.

Example from the Power Sector: In the power sector, the Modi government framed policies by seeking views from states first rather than asking states to adopt a centrally designed scheme. One example is the turnaround scheme for state-run power distribution companies, the Ujwal Discom Assurance Yojana.

But all is not well on administrative front: But there has also been a sharp increase in the number of conflicts between the Centre and the states, especially those ruled by other parties. Example: Arunachal Pradesh, Uttarakhand, Delhi.

Electoral promise of cooperative federalism was caught in the tension between the push towards decentralized governance necessary for economic growth and the desire to conquer power in the states which the ruling party does not control.

The return of President’s rule as a political weapon is totally in contradiction with the federalism promises.

Hand-holding Required: N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy, said that the centre has given states more fiscal responsibility with spending powers by giving them more untied funds. However, it has stopped there, he said, pointing out how some states still lack the capacity to effectively utilize these funds.

“The central government needs to handhold states which lack capacity to utilize funds to meet their development needs. The central government has given them the right through higher allocation of funds but not fixed responsibility on them,” he said.

There is a lot of ambiguity on how centrally sponsored schemes are going to be implemented at the state level.

India’s true potential will be achieved only when both the centre and the states are strong.

Goods and Services Tax - An Introduction

Goods and Services Tax - An Introduction

 UPSC GENERAL STUDIES PAPER III: Mobilization of Resources; Government Budgeting

(Note: This is the first part of a two part series on GST.) 

Table of Content

What is GST?

Why do we need GST?

GST and Centre-State Financial Relations

GST Bill

GST Council

Advantages of GST

• ·         For Business and Industry
• ·         For Central and State Governments
• ·         For the Consumer

Implementation of GST

What is GST?

• GST stands for "Goods and Services Tax", and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level.

• GST is a value-added tax levied at all points in the supply chain with credit allowed for any tax paid on input acquired for use in making the supply.

• It will replace all indirect taxes levied on goods and services by the Indian Central and State governments.

• GST will lead to 'One Nation, One Tax', empower States and increase their revenues.

Owing to its capacity to raise revenue in a most transparent and neutral manner, 150 countries have adopted the GST.

Why do we need GST?

• The present structure of Indirect Taxes is very complex in India. There are so many types of taxes that are levied by the Central and State Governments on Goods & Services.

• We have to pay ‘Entertainment Tax’ for watching a movie. We have to pay Value Added Tax (VAT) on purchasing goods & services. And there are Excise duties, Import Duties, Luxury Tax, Central Sales Tax, Service Tax.

• As of today some of these taxes are levied by the Central Government and some are by the State governments. How nice will it be if there is only one unified tax rate instead of all these taxes?

• There are separate laws for separate levy. For e.g. Central Excise Act, 1944, respective State VAT laws. Tax compliance is complex because of multiplicity of laws and their provisions to be followed.

• GST REGIME: There will be only one such law because GST shall subsume various taxes as specified above. In GST tax compliance would be easier as only one law subsuming other taxes need to be followed.

• There are separate rates. For e.g. Excise 12.36 % and Service Tax 14%.

• GST REGIME: There will be one CGST rate and a uniform rate of SGST across all states.

• Under present scenario, tax burden on tax payer is high.

• GST REGIME: Under GST, tax burden is expected to reduce since all taxes are integrated which make it possible the burden to be split equitably between manufacturing and service.

• Current Scenario – Taxable at the place of Manufacture/Sale of goods, Rendering of services

• GST REGIME – Taxable at the place of Consumption, a destination based tax

An illustration of how GST will result in final prices coming down:

	Raw Material	Manufacturer	Wholesaler	Retailer
Non GST (Price to customer= 208.23)	100 (10%tax=10)	100+30(VA)=130 (10% tax =    13) Total Cost=  143	143+20=163 (10%tax=16.3) Total Cost=179.3	179.3+10=189.3 (10%tax=18.93) Total Cost=208.23
GST Price to customer=160+3+2+1= 166)	100 (10%tax=10)	100+30(VA)=130 (10% tax   =13-10*=3) Total Cost=130	130+20=150 (10%tax =15-13*=2) Total Cost=150	150+10=160 (10% tax= 16-15*=1) Total Cost=160

Note: https://youtu.be/MmCuowi9BA4 (For further understanding of how we arrived at the above table, you may follow the above link.)

GST and Centre-State Financial Relations

Arrangement at Present

• 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 the sale of goods.

• In the 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 counterbalances excise duties, sales tax, State VAT and other taxes levied on the like domestic product.

• Introduction of the GST would require amendments in the Constitution so as to concurrently empower the Centre and the States to levy and collect GST.

GST Bill

• The power to make laws in respect of supplies in the course of inter-state trade or commerce will be vested only in the Union Government. States will have the right to levy GST on intra-state transactions, including on services.
• The Centre will levy IGST on inter-state supply of goods and services. Import of goods will be subject to basic customs duty and IGST.
• Central taxes such as Central Excise duty, Additional Excise duty, Service tax, Additional Custom duty and Special Additional duty as well as state-level taxes such as VAT or sales tax, Central Sales tax, Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi will subsume in GST.
• Petroleum and petroleum products, i.e., crude, high speed diesel, motor spirit, aviation turbine fuel and natural gas, shall be subject to GST - date to be notified by the GST Council.
• Provision will be made for removing imposition of entry tax /Octroi across India.
• Entertainment tax, imposed by states on movie, theatre, etc., will be subsumed in GST, but taxes on entertainment at panchayat, municipality or district level will continue.
• GST may be levied on the sale of newspapers and advertisements. This would mean substantial incremental revenues for the Government.
• Stamp duties, typically imposed on legal agreements by states, will continue to be levied.
• Administration of GST will be the responsibility of the GST Council. 

A GST Council

• GST Council will be the apex policy making body for GST consisting of representatives from the Centre as well as State will be formed within 60 days of the enactment of the Bill.
• The Council will make recommendations to the Union and the States on model Goods & Service tax laws, rates including floor rates with bands of goods & service tax, Place of Supply rules and any other matter relating to GST as the Council may decide.

Advantages of GST

The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India.

GST has been envisaged as an efficient tax system, neutral in its application and distributionally attractive. The advantages of GST are:

For Business and Industry

Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.

Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty an ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.

Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.

Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.

Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services.

This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.

For Central and State Governments

Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all indirect taxes of the Centre and State levied so far.

Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage built mechanism in the design of GST that would incentivize tax compliance by traders.

Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.

For the Consumer

Single and transparent tax proportionate to the value goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes.

Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.

Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit

Implementation of GST 

For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders.

(Note: In the next part we will be focusing on the challenges that governments in India are going to face in implementing the GST, and what measures can be taken to smoothen the process.)