Professional Documents
Culture Documents
Yojana November 2016 1
Yojana November 2016 1
Insights into
Yojana: November 2016
WWW.INSIGHTSONINDIA.COM
Insights into Yojana: November 2016
Table of Contents
www.insightsonindia.com Page 2
Insights into Yojana: November 2016
Questions
1) Why GST is seen as one of the biggest taxation reforms often called as big bang reform. How will
it help in economic growth? Explain
www.insightsonindia.com Page 3
Insights into Yojana: November 2016
www.insightsonindia.com Page 4
Insights into Yojana: November 2016
www.insightsonindia.com Page 5
Insights into Yojana: November 2016
The 14th Finance Commission has recommended devolution of 42% of the sharable / divisible
pool of Central Tax Revenue to States every year.
Questions
1) The GST can be a big boon if it has right kind of rate and legislation. Explain.
2) What is goods and services tax (GST)? Discuss salient features and benefits of passed GST bill.
Ans: a
Ans: c
www.insightsonindia.com Page 6
Insights into Yojana: November 2016
www.insightsonindia.com Page 7
Insights into Yojana: November 2016
The IMF in its recent World Economic Outlook had said that the advent of GST would boost Indias
medium term growth prospects.
IMF report said, GST and the elimination of poorly targeted subsidies are needed to widen the
revenue base and expand the fiscal envelop to support investment in infrastructure, education
and healthcare.
As per various estimates, GST will boost revenue collections by plugging leakages and evasion and
will have the potential to boost the countrys GDP by as much as 2%.
Questions
1) Recently, the Union government mopped up black money from the economy by giving taxpayers
amnesty to declare undisclosed past income by paying tax on it at an effective, slightly high rate
of 45 per cent. Do you think measures like this are addressing root cause of black money?
Critically comment.
Ans: a
Ans: b
Ans: d
www.insightsonindia.com Page 8
Insights into Yojana: November 2016
www.insightsonindia.com Page 9
Insights into Yojana: November 2016
Revising DTAAs
Tax evaders have often exploited loopholes in the existing tax treaties with low or zero tax
jurisdictions like Mauritius, Singapore and Cyprus, ensuring complete tax avoidance.
This ensures that unaccounted money kept overseas is routed back to India disguised as foreign
capital.
While Double Taxation Avoidance Agreements (DTAA) is aimed to ensure that taxpayers do not
face the burden of double taxation in both countries, evaders have managed to avoid taxes in both
countries.
The government is on a spree to revise the DTAA with these countries and gain taxation rights over
capital gains, which currently rests with these low or no tax jurisdictions.
India has revised DTAA with Mauritius and Cyprus and is close to amending the pact with
Singapore.
Mauritius and Singapore are the top two FDI sources in India, making up for about half of total
direct investments into the country.
General Anti Avoidance Rule (GAAR) being rolled out from April 1, 2017 is a set of rules designed
to give Indian authorities the right to scrutinize and tax transactions which they believe are
structures solely to avoid taxes.
India amended the DTAA with Mauritius allowing New Delhi to impose capital gains tax on shares.
India has DTAA with 82 nations, including all popular tax havens countries.
Cyprus has also agreed to give India taxation rights over shares in return for removal from the
blacklist.
Way Forward
With all major economies of the world uniting against the cause of eradication of black money,
seen from Base Erosion and Profit Sharing (BEPS) and multilateral information exchange pacts, it
will become very difficult to carry out tax evasion.
While the efforts using technology are in the right direction, the focus must be on discouraging cash
transactions and encouraging card payment in the economy
Questions
1) Critically assess efforts made during last two years to tackle the generation of black incomes and
to bring black money back to India.
www.insightsonindia.com Page 10
Insights into Yojana: November 2016
www.insightsonindia.com Page 11
Insights into Yojana: November 2016
need of buffer stocks and warehousing costs as well. A single taxation system could
eliminate this roadblock for them.
There will be more transparency in the system as the customers would know exactly how
much taxes they are being charged and on what base.
GST also removes the custom duties applicable on exports. Our competitiveness in foreign
markets would increase on account of lower cost of transaction.
Because the GST would be applied on imports, the negative protection favouring imports
and disfavouring domestic manufacturing would be eliminated.
Reduction in compliance costs No multiple records keeping for a variety of taxes so
lesser investment of resources and manpower in maintaining records.
Sectoral Impact
Real Estate Sector
The real estate sector has strong economic multiplier effects through backward and forward
linkages.
Construction is the second largest employment generator in the country after agriculture
and accounts for a significant proportion of the GDP.
Under the current indirect tax regime, the real estate industry has been embroiled in
disputes due to ambiguity in provisions as well as multiple taxation.
Sale of under construction property attracts multiple taxes under the current regime,
leading to cascading of taxes and higher tax cost burden on house purchases.
The GST is likely to result in transparency in the real estate sector, which will significantly
reduce tax evasion through more efficient transaction-tracking methods, and improved
enforcement and compliance.
Health Care Sector
One of the major concerns is the current inverted duty structure that adversely affects
domestic manufacturers, cost of inputs being higher than output. This discourages
investment in this industry.
GST may either remove the inverted duty structure or allow refund of accumulated credit.
GST is expected to have a positive effect on pharmaceutical sector since 8 different taxes
are levied in the pharmaceutical industry at the moment. A consolidation of all these into
one tax would ease doing business.
GST will also result in operational efficiency by streamlining the supply chain which can
alone add 2% to Indias pharmaceutical market size.
Banking and Financial Services
In India most of the banking and financial services are exposed to service tax, at the rate of
14.5%, while GST is expected to be 18% to 20%. Thus services are likely to be costlier.
Due to GST, financial service providers may be required to adhere to compliances across
multiple states instead of the current single, centralised registration compliances.
As GST is a destination based tax, it might be a challenge to determine the destination of
certain services. This may lead to difficulty in determining state GST, central GST or inter-
state GST on B2B and B2C transactions.
Imposing GST on banking and financial services may become a challenge and India, if
successful, will chart a new course, which could become a model for the rest of the world.
www.insightsonindia.com Page 12
Insights into Yojana: November 2016
Questions
1) How will GST impact Indias international trade and its trade strategy? Examine.
2) Goods and services tax, which will facilitate the movement of commodities and lead to
expansion of economic activity, is one of the boldest reforms in post-Independence India.
Discuss why GST is hailed as a boldest reform.
3) Discuss how GST differs from the current regimes, how it will work?
Ans: C
The Bill seeks to establish a GST Council tasked with optimising tax collection for goods and services
by the State and Centre. The Council will consist of the Union Finance Minister (as Chairman), the
Union Minister of State in charge of revenue or Finance, and the Minister in charge of Finance or
Taxation or any other, nominated by each State government.
www.insightsonindia.com Page 13
Insights into Yojana: November 2016
Operational Issues
The main challenge is the setting of revenue-neutral rate (RNR) and the threshold limit in the GST.
Ensure that through RNR the revenues of the government remain the same despite of giving tax
credits.
Similarly, fixing an appropriate threshold limit to ensure that there is no taxing burden on small
businessmen.
Challenges include the rolling out of IT platform for implementing GST and sorting out
administrative arrangements.
Effective tax litigation system has to be evolved before implementation of GST.
Improvement in banking system, providing extensive training to tax administration staff,
safeguarding the interests of the less developed states are few of the other key challenges.
Ensuring high speed IT connectivity across states with huge geographical disparity in such a short
time is going to be a challenge.
The entire tax administration needs capacity building to handle the GST.
www.insightsonindia.com Page 14
Insights into Yojana: November 2016
Questions
1) Should GST be growth-oriented or should it be revenue-neutral? Critically analyse.
2) It is argued that the roll-out of a nationwide GST also raises some concerns, which need to be
acknowledged and resolved in due course of time. What are these concerns? Analyse.
3) The Committee on Possible Tax rates under GST recommended a Revenue Neutral Rate (RNR).
What is RNR?
1. It refers to that single rate , which preserves revenue at desired (current) levels
2. It is the rate at which the resulting income equals expenditure (both capital and revenue)
3. It is the rate at which there would be minimal difference among states in overall tax
earnings
4. Both 2 and 3
Ans: a
a. 1 only
b. 1 and 2 only
c. 2 and 3 only
d. 1, 2 and 3
Ans: b
Securities Transaction Tax (STT) is a type of financial transaction tax levied in India on transactions
done on the domestic stock exchanges. The rates of STT are prescribed by the Central / Union Government
through its Budget from time to time. In tax parlance, this is categorised as a direct tax.
www.insightsonindia.com Page 15
Insights into Yojana: November 2016
www.insightsonindia.com Page 16
Insights into Yojana: November 2016
GST will break the inter-state barriers across the states and will develop a common national market
making the manufacturing sector more competitive in India and world as well.
Government has taken initiatives to create a litigation-free, investors-friendly environment to make
India a hub of global manufacturing.
Government has made provisions for start-ups, new manufacturing companies and small sectors
with tax deductions.
To reduce cost and improve competitiveness among domestic manufacturing industries,
government has reduced custom and excise duties on certain inputs to make Make in India
scheme attractive along with reinstating the exemption of MAT for non-resident investors.
Conclusion
Manufacturing sector can be strengthened through fiscal interventions like tax concession, tax
reduction on the manufacturing process, especially on import of technology and R&D.
Policy paradigm is the need of the hour and the initiatives undertaken by the government depends
upon the outcome and their effectiveness rely on how the government monitor and implement the
schemes meant for overall development of the nation and manufacturing sector in particular.
Questions
1) It is argued that GST will make manufacturing efficient and boost the ease of doing business.
Examine how.
2) Do you think that GST broadens the tax base, sharpen the competitive edge of Indian exports
by several tax distortions and create a unified national market by removing inter-state barriers
to trade?
3) The process, formation and functioning of the GST Council has been approved by which
authority?
(a) The Parliament
(b) The Union Cabinet
(c) Ministry of Finance
(d) The President
Ans: b
As per the amended Constitution, the President, within 60 days of the commencement of Article
279A (1), shall constitute the GST Council. But regarding the approval for its process, formation and
functioning, it is the Union Cabinet which is responsible.
Ans: b
www.insightsonindia.com Page 17
Insights into Yojana: November 2016
GST may have one unintended consequence: turning Indias constitution from being described as
Federal with a Unitary Bias to a Constitution for the Union with a Federal Bias.
With VAT states remained staunchly independent in their taxation policy, led by their own fiscal
imperatives and VAT was often supplemented by a variety of taxes, leading to India being described
as one of the biggest taxed nations.
The ability of raising higher taxes gave states the ability to raise larger resources to address
problems unique to them.
Many states had implemented wide ranging social sector reforms on the back of cash generated
from its taxation programme.
Even more than states, it would be municipal bodies which could levy many taxes independently.
The Mumbai Corporations huge income from Octroi duty will be financially challenged and their
power to tax would be virtually decimated with the roll out of GST.
Urban local bodies will have to deal with a huge fiscal gap once local Octroi and other entry taxes
are scrapped.
GST effectively transfers the power of taxation to an unelected body.
GST Council takes the power of deciding tax rates from both the union parliament and state
legislatures and will be the supreme body in determining tax rates.
State executive and legislature will have little say over what taxes can be raised in their respective
states.
Conclusion
The world has not yet totally embraced GST as a panacea for its fiscal ills.
Unites States has not yet agreed to usher in any form of GST. Possibly because of the federal nature
of its constitution.
In Canada the provinces have the power over direct taxes, while the federal government has the
power to tax indirect taxes, which is why the GST did not entail any impact on the state powers.
It is yet to be seen how the Indian polity will respond to the challenge to the implementation of
GST.
Questions
1) Recently, many committees such as GST council, monetary policy committee have been set up to
take important decisions concerning Indian economy. Do you think these new institutional
arrangements are good for India? Discuss.
www.insightsonindia.com Page 18
Insights into Yojana: November 2016
2) In the light of the GST Council meeting, critically examine if GST is going to be good for cooperative federalism
or not.
3) Will the implementation of GST erode states autonomy? Examine the implications of GST for Indias
federalism.
4) In the light of GST and Fourteenth Finance Commission, it is said that India is seeing fiscal centralization and
fiscal decentralization at the same time. Elaborate. Also examine the opportunities this situation has created.
5) Explain the rationale behind introducing Goods and Services Tax (GST). It is said that GST is good for business but
a drawback for federalism. Examine why.
6) A joint sitting of the Parliament CANNOT be convened by the President to pass which of the
following bills?
a. Goods and Services Tax Bill
b. Bill on ratification of India-Bangladesh Land boundary Agreement
c. Both (a) and (b)
d. None
Ans: C
7) Which of the following statement about Double Taxation Avoidance Agreement are correct?
a. India recently amended its Double Taxation Avoidance Agreement (DTAA) with Mauritius to
plug certain loopholes.
b. India has DTAAs with more than eighty countries.
c. DTAAs are intended to make a country an attractive investment destination by providing
relief on dual taxation.
d. A large number of foreign institutional investors who trade on the Indian stock markets
operate from Singapore and the second being Mauritius.
1. 1 and 2
2. 2 and 3
3. 1, 3 and 4
4. All of the above
Ans: 4
www.insightsonindia.com Page 19
Insights into Yojana: November 2016
Project SAKSHAM
Project SAKSHAM is a new Indirect tax network of the Central Board of Excise and Customs
(CBEC) pertaining to systems integration.
www.insightsonindia.com Page 20
Insights into Yojana: November 2016
The project is expected to help in the implementation of GST, extension of the Indian Customs
Single Window Interface for Facilitating Trade (SWIFT) and will also facilitate taxpayer-friendly
initiatives under Digital India and Ease of Doing Business of CBEC.
Questions
1) In which of the following ways will the execution of Project SAKSHAM help?
(a) Implementation of the Goods and Services Tax.
(b) Enabling Nigerian officers to become effective and competent in counter-terror operations.
(c) Revival of sick Central Public Sector Enterprises.
(d) Improve Indias ranking in the Global Competitiveness Index within the next 2 years so as to
find itself in the top ten.
Ans: a
2) Which of the following statements are correct?
1. National Centre for Antarctic and Ocean Research (NCAOR), Goa, under the Ministry of
Earth Sciences has established a high altitude research station in Himalaya called HIMANSH
2. HIMANSH is situated above 13,500 ft (> 4000 m) at a remote region in Spiti, Himachal
Pradesh.
a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 nor 2
Ans: c
3) Which of the following statements about Venture Capital Fund for Scheduled Castes are
Incorrect?
1. It is a Social Sector Initiative to be implemented nationally in order to promote
entrepreneurship amongst the SCs
2. It enhances direct and indirect employment generation for SC population in India.
3. While selecting the SC entrepreneurs, women SC entrepreneurs would be preferred.
a. 1 only
b. 1 and 2
c. All of the above
d. None of the above
Ans: d
This measure will help to tackle the difficulties faced by poor in accessing LPG.
www.insightsonindia.com Page 21
Insights into Yojana: November 2016
www.insightsonindia.com Page 22