ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

R Kavita RaoSubscribe to R Kavita Rao

A Confused Taxation Narrative

The Union Budget 2018–19 was presented against the background of a slippage in the fiscal deficit levels. The government has reiterated its commitment towards fiscal consolidation. In this context, an attempt is made to understand the tax revenue numbers for 2017–18 and 2018–19. The analysis suggests potential shortfall in the revenues budgeted for 2018–19.

Estimating Unaccounted Income in India

An alternative methodology to measure the scale of unaccounted income in India (shadow economy) using transport as the universal input is developed. Based on input –output tables and National Accounts Statistics, annual demand for road freight transport is estimated. Correspondingly, annual supply of road freight transport is obtained based on availability of diesel for road freight transport, stock of goods carriages, average freight transport capacity per vehicle, average annual distance travel, and average fuel efficiency per vehicle. The mismatch of supply and demand is broadly considered the unaccounted for portion of the gross domestic product. The methodology is tested for two successive input–output tables and three consecutive financial years. Since the analysis is based on assumptions, a comparative static analysis is carried out to check the sensitivity of estimates to changes in the assumptions.

New Assumptions, New Estimates

The report of the Ministry of Finance Committee, headed by the chief economic adviser, on revenue neutral rates for the goods and services tax provides a new set of estimates. Based on a different set of assumptions, the report suggests that moderate rates of tax are feasible. While this is an attractive conclusion, it is important to scrutinise the assumptions it rests on.

Policy Options for including Petroleum, Natural Gas and Electricity in the Goods and Services Tax

This study analyses the impact of keeping crude petroleum, natural gas, motor spirit (gasoline/petrol), high-speed diesel (diesel), aviation turbine fuel and electricity out of the value-added tax scheme. Specifically, the paper finds that keeping these items out of the input tax credit mechanism (either partially or fully) would result in cascading. Through an input-output framework, this study proposes some alternatives to the proposed design of the Goods and Services Tax and assesses the implications for cascading and prices. It captures the degree of cascading across 48 sectors under different scenarios and explores alternative policy options to phase out under-recoveries of oil marketing companies on account of sales of diesel and petrol under the administered pricing mechanism.

Income Tax Changes

The Union Budget for 2014-15 offered a number of concessions to income taxpayers. But in the interest of rational tax policy reforms, two questions we need to ask are: does changing the exemption threshold for personal income tax affect collections and does a change in savings incentives infl uence saving behaviour?

Revenue Foregone Estimates

For delivering benefi ts to a citizen of the country, the government can choose to adopt an expenditure programme or it can provide a tax concession or exemption. While the former is captured in detail in the budget-making exercise, the latter is not. This is the genesis of the attempts to measure the impact of tax provisions. In India, the government has been publishing a revenue foregone statement since the 2006-07 Union Budget. While there is some discussion on the revenue foregone statement as highlighting the giveaways by the government, this article draws attention to the limitations with the data presented - both in terms of provisions that are included and those that are excluded.

Taxes and Death Are Inevitable, but GAAR Is Avoidable

The report of the committee to review the introduction to the General Anti-Avoidance Rules gives the impression that it fi rst decided on a postponement and then looked for a rationale for the recommended delay. While the report makes a strong case for protecting the interests of foreign investors, it does not clarify how their interests align with those of India. For some reason, the report does not seem to refl ect on the interests of India or even if it does, it assumes that a tax policy which has been drafted in India goes against the interests of India and Indians!

Direct Taxes Code and Taxation of Agricultural Income

Given the pressures on government expenditure and the need to generate additional revenues without generating too many distortions, it is important to bring back to the discussion table the need to deal with taxation of agricultural incomes. The issue has been discussed at length by a number of reports on taxation as well as in the literature on tax policy in India. This paper seeks to reignite this debate at two levels: one by asking for a more comprehensive taxation of incomes, implying thereby taxation of agricultural incomes as well. The second is the need to use current legislation to ensure that the exemption base of agricultural income from taxation is kept as narrow as possible as against expanding it.

Goods and Services Tax: The 13th Finance Commission and the Way Forward

The Thirteenth Finance Commission was required to look into the revenue impact of the introduction of the goods and services tax. Its report, based on the recommendations of a task force constituted to study the issue, recommends a highly uniform and centralised format that does not adequately recognise a tax reform exercise in a multi-level fiscal system that involves compromises and trade-offs. While several flaws can be pointed out in its design, developments that have taken place before and since the report was submitted have to a large extent rendered the commission's recommendations irrelevant. All this underlines the need for a model that goes beyond uniform rates of tax and allows states to vary beyond a floor, with a fixed classification of commodities and services, so that they can choose an appropriate rate to ensure that their revenue requirements are met.

Goods and Services Tax in India:An Assessment of the Base

One of the most contentious issues in the discussions surrounding goods and services tax is the likely and feasible rates at which the new regime can be implemented. There have been a number of attempts at estimating the size of the tax base and the corresponding revenue neutral rate. The latest in the series is the report of the Task Force on gst of the Thirteenth Finance Commission. Most of these exercises throw up incredibly low revenue neutral rates resulting in apprehensions about the validity of these estimates and the consequent revenue risk. This paper seeks to estimate the base for the proposed gst on conservative assumptions to arrive at a more realistic estimate of the revenue neutral rates across states.

Direct Taxes Code: Need for Greater Reflection

A new tax code that overhauls the complexities that have emerged in the Income Tax Act of 1961 has been long overdue. The draft Direct Taxes Code put out by the Finance Ministry for discussion and comment does just that in a number of areas. At the same time questions must be posed of the sweeping reduction in rates and restructuring of slabs in income tax, which are likely to rob the exchequer of a significant amount of income. Questions must also be asked of the proposed taxation of not-for-profit organisations.

Reforms in Andhra Pradesh

The methodology adopted in an earlier set of papers in the EPW to assess the impact of economic reforms in Andhra Pradesh was not rigorous enough to justify the conclusions. This paper looks at the sensitivity of the average growth rate computations to the choice of periods, which indicates the reasons for the inadequacy of the form of analysis presented to understand growth dynamics and suggests an alternative approach, especially in the context of inter-sectoral linkages.

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