Indian economy

Meghalaya Goods and Service Tax:

The Meghalaya government introduced in the state assembly, the Meghalaya Goods and Services Tax Bill, 2017.  GST will abolish all the taxation related disputes between the States and this will make Indian economy more strong. It was the highest tax reforms of state and centre as well.

The Meghalaya government demanded the following amendments —

• The GST Council accepted that green arecanut will be tax-free while processed arecanut or ‘supari’ will be taxed at 5 per cent only. So is also the case with dry fish in which the Council has agreed to bring down the tax from 12 per cent to 5 per cent
• The other issues Meghalaya government had demanded was the reduction from Rs 50,000 to Rs 10,000 where a purchaser is not required to give his details in the invoice.

Goods and Services Tax (GST) is a comprehensive indirect tax on manufacture, sale, and consumption of goods and services throughout India. GST would replace respective taxes levied by the central and state governments.

What is GST?

• It is a destination-based taxation system.
• It has been established by the 101st Constitutional Amendment Act.
• It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make India a unified market.
• It is a single tax on supply of Goods and Services in its entire product cycle or life cycle i.e. from manufacturer to the consumer.
• It is calculated only in the “Value addition” at any stage of a goods or services.
• The final consumer will pay only his part of the tax and not the entire supply chain which was the case earlier.
• There is a provision of GST Council to decide upon any matter related to GST whose chairman in the finance minister of India.

What taxes at center and state level are incorporated into the GST?

At the State Level

• State Value Added Tax/Sales Tax
• Entertainment Tax (Other than the tax levied by the local bodies)
• Octroi and Entry Tax
• Purchase Tax
• Luxury Tax
• Taxes on lottery, betting, and gambling

At the Central level

• Central Excise Duty
• Additional Excise Duty
• Service Tax
• Additional Customs Duty (Countervailing Duty)
• Special Additional Duty of Customs

Benefits of GST

For Central and State Governments

• Simple and Easy to administer: Because multiple indirect taxes at the central and state levels are being replaced by a single tax “GST”. Moreover, backed with a robust end to end IT system, it would be easier to administer.
• Better control on leakage: Because of better tax compliance, reduction of rent seeking, transparency in taxation due to IT use, an inbuilt mechanism in the design of GST that would incentivize tax compliance by traders.
• Higher revenue efficiency: Since the cost of collection will decrease along with an increase in the ease of compliance, it will lead to higher tax revenue.

For the Consumer

• The single and transparent tax will provide a lowering of inflation.
• Relief in overall tax burden.
• Tax democracy that is luxury items will be taxed more and basic goods will be tax-free.

For the Business Class

• Ease of doing business will increase due to easy tax compliance.
• Uniformity of tax rate and structure, therefore, better future business decision making and investments by the corporates.
• Removal of cascading effects of taxes.
• Reduction in transactional cost will lead to improved competitiveness.
• Gain to the manufacturer and exporters.
• It is expected to raise the country GDP by 2% points.

GST Council

• It is the 1st Federal Institution of India, as per the Finance minister.
• It will approve all decision related to taxation in the country.
• It consists of Centre, 29 states, Delhi and Puducherry.
• Centre has 1/3rd voting rights and states have 2/3rd voting rights.
• Decisions are taken after a majority in the council.

Supporting Laws to implement GST

For the implementation of GST, apart from the Constitution Amendment Act, some other statutes are also necessary. Recently 5 supporting laws to the GST were recommended by the council. 4 for the bills should be passed by the parliament, while the 5th one should be passed by respective state legislatures. The details are given below.

• The Central Goods and Services Tax Bill 2017 (The CGST Bill).
• The Integrated Goods and Services Tax Bill 2017 (The IGST Bill).
• The Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill).
• The Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill).
• And a state GST will be passed by the respective state legislative assemblies.
• Tax slabs are decided as 0%, 5%, 12%, 18%, 28% along with categories of exempted and zero rated goods for different types of goods and services.
• Further, a cess would be levied on certain goods such as luxury cars, aerated drinks, pan masala and tobacco products, over and above the rate of 28% for payment of compensation to the States.
• However, which goods and services fall into which bracket is still an enormous task to be completed by the GST council.
• Highest tax slab is pegged at 40%.

DEMONETIZATION AND CASHLESS ECONOMY

What is Demonetization?

• It is a financial step where in a currency unit’s status as a legal tender is declared invalid.
• This is usually done when old currency notes are to be replaced with the news ones.
• The 500 and 1000 rupee notes seized to be a legal tender from 8 November, 2016.

A brief past

• Demonetisation was earlier done in 1978 When the government demonetised Rs. 1000, Rs. 5000 and Rs. 10000 notes.
• This was done under the High Denomination Bank Note (Demonetisation) Act, 1978.
• The difference between 1978 and 2016 Demonetisation is that the currency in circulation (of the higher denomination) is higher in 2016 than was in 1978.
• The current demonitization has been done by government under section 26(2) of the Reserve Bank of India Act.

 

Implications of Demonetization

• A parallel black economy would collapse.
• Of the Rs 17 lakh crore of total currency in circulation in the country, black money is estimated at mind-boggling Rs 3 lakh crore.
• Counterfeit currency: Death blow to the counterfeit Indian currency syndicate operating both inside and outside the country.
• On Employment: a large part of the Indian economy is still outside the banking system. So, the cash shortage will hurt the informal sector that does most of its transactions in cash.
• On elections: It will reduce the Vote-for-Note politics making elections more clean and transparent.
• On Economy:
• First, it will bring more borrowings to the exchequer, improve inflation outlook and increase India’s gross domestic product (GDP).
• Second, it will revive investment opportunities and give a fillip to infrastructure and the manufacturing sector.
• Third, it will help reduce interest rates and lower income tax rate.
• Real estate cleansing: An unexpected dip in land and property prices.
• On Higher Education: will become more reachable as the black money from ‘high capitation fees’ is discouraged.
• On security:
• Terror financing: Terror financing is sourced through counterfeit currency and hawala transactions.
• Kashmir unrest: The four-month-long unrest in Kashmir valley is on a backburner
• North-East insurgency and Maoists: Black money is the oxygen for Maoists collected through donations, levy and extortions. The illicit money is used to purchase arms and ammunition

Economic Reforms:

The basic objective of economic reforms was to improve productivity growth and competitiveness in the Indian manufacturing sector. These reforms were aimed at making Indian manufacturing sector more efficient and technologically up to date, with the expectation that these changes would enable Indian manufacturing sector to achieve higher and sustainable growth. The government started to deregulate the Indian economy with a liberalization programme, focused on the investment pattern, trade policies, the financial sector, taxation and public enterprises.

In recent times, Industrialization has become the catch word of the midtwentieth century and industrial development of the under developed countries or developing countries like India. One of the great world crusades of our times, the Less Developed Countries (LDCs) hope to find in it a solution their problems of poverty, insecurity, overpopulation, backwardness, illiteracy etc. They consider it a panacea for all the evils of their social and economic life. In fact, the essence of economic development of an LDC like India consists essentially in the growth of industrialization.

Realizing the importance of industrialization, once Pt. Jawaharlal Nehru rightly remarked, “Real progress must ultimately depend on industrialization”. His vision was to see India in the group of developed nations of the world and industrialization was the only key to restructure the economy and to achieve sustained growth. Indian economy is a basically an agriculture based economy. It has been evident from the experience of the most of advanced countries that growth based upon agriculture sector will not be sustainable growth.

After studying such behavior of terms of trade they made their belief that for the agriculture based economies terms of trade would always become unfavorable in long run because;

1. a) The income elasticity of export-goods of agricultural countries is low, while the income elasticity of import-goods is very high. As in case of domestic demand, the demand for agricultural products in other countries, in particular advance countries, is very low. In fact, developed countries have surpluses in agriculture products for exports. As against this, the demand for the import of manufactured goods by LDCs is very intense; and
2. b) With the advancement of technology, input-output coefficients are declining and most of primary products which were used as raw material are replaced by the industrial cheaper raw material.

On the other hand, if we develop only tertiary sector and ignore industrial sector then there may be tendency of inflation in the economy and this inflation may lead to deceleration economic growth. Therefore, industrialization is the only method to achieve sustained economic growth. Moreover, economic history demonstrates that to eliminate a country’s techno-economic backwardness it is necessary to develop the industrial sector and then to diversify it over a wide range of area and activities. Industrialization is a process of economic organization characterized by rapid setting up of industries and has invariably been the accompaniment of economic development. Nevertheless, economic development should not be treated synonymous with industrialization because industrialization is only a part of the whole process of economic development.

Some of the major initiatives taken by the government to promote Meghalaya as an investment destination are:

• Under budget 2016-17, the state government proposed allocation of US$ 1.98 million for various art and cultural programs for the development, augmentation and preservation of cultural heritage of the state.
• Under budget 2016-17, the state government proposed an allocation of US$ 103.42 million for development of education sector in the state.
• Under the annual budget 2015-16, an investment of US$ 0.29 million has been approved by the Meghalaya State Medicinal Plants Board to increase the production of medicinal plants.
• The state government has also proposed an outlay of US$ 32.13 million to improve power supply in the state and associated services, power losses in urban areas, etc., under the Restructured Accelerated Power Development and Reforms Programme.
• An investment of US$ 3.98 million was proposed to be invested for the development of roads and bridges in the state and US$ 54.66 million was proposed for the improvement of the agriculture sector of the state under the 12th Five Year Plan (2012-2017).
• The state is focusing on developing water harvesting and distribution infrastructure to increase the level of mechanisation in the horticulture sector.
• Hydroelectric power projects with a total capacity of 687 MW have been proposed to be set up in Meghalaya. All these projects are projected to be operational by 2016-17.
• The state government is inviting investments in this area through the PPP mode. Independent power producers (IPPs) are also being invited to develop hydro projects in Meghalaya; this provides immense potential for investment.