What to Read in Indian Express Editorial( Topic and Syllabus wise)

Editorial 1: A nudge to business

Context:

Recently GST Council has restructured the GST rates to two slabs of 5% and 18%, and the special tax of 40% on luxury and sin goods. This tax restructuring will led to loss of Rs.48,000crores in GST revenue. But, this must be seen as long-term revenue growth measures against short-term collection maximization.

Rationalizing GST tax structure:

• The four-slab consumer goods structure (5%, 12%, 18% and 28%) is restructured into a more streamlined rate slab of 5 percent and 18 percent. There are special rates of 40% fr select few goods.
• Out of the 506 goods listed in recommendations of GST council, about 90% of categories have seen tax reductions. About 52 goods have seen rate increase, while most goods are moved into 5% slab from the now-eliminated 12 percent bracket. Also, 52 daily use essential items have been granted complete tax exemptions, making these goods more affordable.
• New 40 percent slab for select sin and luxury goods replaces the previous 28 percent plus cess structure. This is based on the principle that luxury consumption should bear a higher tax burden. This reinforces progressive taxation principles.
• Coal, lignite, and peat have been moved to 18 percent from the previous 5 percent. The compensation cess on them is now removed.  This will help the struggling power distribution companies.

Revenue implications of GST rate rationalization:

• GST collections are expected to drop from Rs.20.2 lakh crore to Rs.19.7 lakh crore according to data of FY2024. This means there will be loss of Rs.48, 000 crore from GST revenue.
• It reduces the effective tax rate from 11.64 percent to 11.43 percent in the short term.
• In the long-term, GST revenues are expected to increase according the classic economic logic embodied in” Laffer Curve”.  This principle holds that lower tax rates can generate higher tax collections due to higher tax compliance and increased economic activity.
• Higher revenue collection will depend on whether the businesses actually pass the tax changes on to consumers.
• It also depends on how consumers respond to change in the prices of consumer goods.  This refers to the elasticity of demand. For example, some products such soft drinks and tobacco, which are moved to 40 percent tax bracket, show inelastic demand. This means consumer do not rapidly reduce it demand even when there is sudden increase in the prices of these goods.
• This tax rationalization also aims at reducing tax gap. Tax gapis defined as the difference between actual and potential revenue collections. It has kept the tax effort at 70 percent for over a decade. This represents untapped potential.
• Latest tax rationalization reduces this tax gap by reducing compliance burden and increasing voluntary participation in formal economy.
• There are expectations of higher fiscal deficit due to the lower tax revenues from GST ,and higher expenditure to support exports affected by potential trade disruption.
• The shortfall in GST collections is expected to stabilize in long-term.

Non-tax measures adopted by GST council in recent meeting:

• The GST Appellate Tribunal (GSAT)has been operationalised. This will provide business with a dedicated platform for appeals, ending years of procedural uncertainty. This may trigger more classification disputes involving streamlined tax structure and higher sin taxes. Also, businesses may face burden due to unused input tax credit caused by inverted duty structure.
• The threshold limit on low-value exports consignments has been removed. It allows Indian intermediaries to claim export benefits when supplies shift to foreign client. This benefits small exporters by making Indian goods more competitive in international market.
• Low –risk businesses with monthly output tax liability under Rs.2.5 lakh are provided with voluntary simplified registration scheme.  This aims to bring small businesses into formal tax structure.
• The rationalize rate structure aims to harness demographic dividend by discouraging younger population from consuming ultra-processed food, social  media and online gaming by increasing tax rates on these goods and services.
• India needs to carefully and meticulously coordinate to implement these reduced rates. Even small glitches in its implementation may have cascading effect on all businesses causing disruptions.

Way Forward:

According to study by the OECD and IMF, countries which adopt simple GST tax regime have short-term revenue decrease, followed by sustained economic growth due to increased economic activity and increased compliance.  Its smooth implementation will involve robust training for tax officials, resolution of technical glitches, and increased communication with business.

 

Editorial 2: Graft and gag: Why social media ban triggered Nepal’s GenZ

Context:

Recent protests in Nepal were triggered by the government’s social media ban. Police lathi charge has resulted in the death of 19 persons and the capital “Kathmandu” has been put under curfew. While the ban on social media was a trigger, the unrest was caused by simmering discontent due to factors such as corruption.

Ban on social media:

• Following the Supreme Court order, Government sought to regulate social media companies. The government order gave deadlines for the companies to resister with the authorities, designate the grievance readressal officer, and agree to remove posts flagged by the government. This order was designed to tackle the menace of cyber crimes, fake news, and misleading content.
• Major social media giants such as Google, Face book, Instagram and YouTube failed to register by the deadline. So, they were banned.
• Platforms such as TikTok, Nimbuzz have registered with the government.
• Government cited the reason that the platforms which not comply with the law of the land, should be banned. The banned social media platforms may resume their operations as soon as they comply with the orders.
• The activists have criticized the government of state surveillance, censoring criticism and curb press freedom.
• Tourism is the major economic activity in land-locked Nepal. Many businesses rely on social media. The social media ban will reduce the tourism business. Also,  it may impact expats who use social media to stay in touch with their families and country.

Reasons for recent protests:

• Widespread corruption and lack of accountability of politicians are the reasons for the recent protests.
• Younger members o f prominent families were often criticized as “Nepo Babies” for their entrenched privileges and lavish lifestyles.
• The social media ban has increased youth’s frustration and disappointment due to increased political corruption and distressed economic condition.
• The government is drafting a bill to regulate social media by making certain posts offence, mandating social media to delete “objectionable posts” marked by the government and reveal the details of users uploading such posts.
• Fear of new laws imposing further restrictions on social media have also triggered the ban on social media.

Political corruption and lack of accountability:

• After Nepal became republic in 2008, political power lies with the handful of political leaders who form alliances to capture power. These leaders are accused of corruption and extortion charges.
• Protests had broken out in March too, with demands of returning to monarchy system as Republican form of government has bred corruption and anarchy.
• These leaders accused of corruption are granted immunity against investigation as the actions which lead to corruption are designated as the “policy decisions” taken by the cabinet. This shields the leaders of corruption charges in the court.

Way forward:

Government should consult with all the stakeholders including social media platforms, students, to reframe the laws which promote free speech and expression. These laws should also empower government to act against illegal use of social media, fake news. Social media is a reality today. It must be used and regulated judiciously to maximize its benefits and minimize the problems caused by its misuse.