Direct tax receipts cross half the target

India’s net direct tax collections till October 8 in the financial year 2022­23 have risen to ₹7.45 lakh crore, more than half of the Budget targets, the Union Finance Ministry said on Sunday.

• It is an increase of 16.3% over the tax inflows during the corresponding period a year ago
• Based on provisional data, net personal income tax collections grew 17.35%, rising faster than corporate income tax collections that were up 16.29% net of refunds.
•  Securities Transaction Tax (STT) collections combined with personal income tax receipts, grew at a more moderate 16.25%.
• Gross direct tax collections reached ₹8.98 lakh crore by Saturday, 23.8% more than in the corresponding period of 2021-­22.
• Gross revenues from direct taxes were at ₹8,36,225 crore on September 17, reflecting a 30.2% growth

Direct Tax

• A direct tax is one that is levied directly on the taxpayer and paid directly to the government by those who are subjected to it.
• The Central Board of Direct Taxes is responsible for levying and collecting direct taxes as well as formulating other direct tax policies.
• A taxpayer pays a government a direct tax for a variety of reasons, such as real property tax, personal property tax, income tax or asset taxes, Gift Tax, Capital Gains Tax, and so on.
• Direct Tax is one of the two main sources of revenue for the government. The indirect tax is the other.
• Every fiscal year, direct taxes account for roughly half of the government’s revenue.
• To increase revenue, the government sets direct tax collection targets for each fiscal year.

Examples of Direct Tax

Income Tax

• Individuals, Hindu undivided families, unregistered businesses, and other groups of persons are all subject to income tax.
• The nature of income tax in India is progressive.
• Income from all sources is combined together and taxed according to the individual’s income tax slabs.
• Different rates of income tax are charged based on the amount of net income. For instance, an income tax of 10% is charged if net taxable income is between Rs 5 to 7.5 lakhs.
• Where the total income exceeds Rs 50 lakh but does not exceed Rs 1 crore, there is a 10% surcharge on income tax.
• Note: Agricultural Income is not taxed

Corporation Tax

• It is a tax placed on the profits of corporations and business firms. It is also called Corporate tax.
• A firm is recognized as a separate entity for tax reasons and hence must pay a separate tax from its owner’s personal income tax.
• Companies that are registered in India under the Companies Act 1956, both public and private, are subject to pay corporate tax.
• As of January 2022, the COrporation tax is at a rate of 22 percent for all domestic companies.

Minimum Alternate Tax

• The concept of Minimum Alternate Tax (MAT) was introduced to ensure that companies with large profits and substantial dividends to shareholders who were not contributing to the government through corporate tax by taking advantage of the various incentives and exemptions provided in the Income-tax Act paid a fixed percentage of book profit as minimum alternate tax.
• As a result, the government charges a Minimum Alternate Tax, or MAT, on these businesses as an advance tax. As a result, businesses are required to pay at least a certain amount of tax.
• According to the Income Tax Act, if a company’s taxable income is less than a particular percentage of its booked profits, that portion of the book profits is automatically considered taxable income, and tax is due.
• As of January 2022, MAT is at a rate of 15 per cent.

Capital Gain Tax

• A capital gain is any profit or gains derived from the sale of a capital asset.
• Profits from the sale of capital are subject to taxation.
• Land, buildings, houses, jewelry, patents, and copyrights are examples of capital assets.
• Short-term capital asset — A short-term capital asset is an asset that is held for less than 36 months.
• Long-term capital asset — A long-term capital asset is one that has been held for more than 36 months.
• From FY 2017-18 onwards, the 36-month requirement for immovable property (land, building, and house property) has been decreased to 24 months.
• For example, if you sell a house property after owning it for 24 months, any income you receive will be considered as long-term capital gain if you sell it after March 31, 2017.
• However, transportable goods such as jewelry and debt-oriented mutual funds are exempt from this adjustment. If held for more than 36 months, they will be classified as a long-term capital asset.
• The Capital Gains are charged differently for short-term and long-term gains based on the income gained.

Securities Transaction Tax

• Securities transaction tax is a tax on gains made on the domestic stock exchange on securities such as equities, options, and futures.
• It is a direct tax levied and collected by the central government.
• P. Chidambaram, the former Finance Minister, proposed the Securities Transaction Tax (STT) in 2004.

Commodities Transaction Tax

• The commodity transaction tax is charged on the buyer and seller of exchange-traded non-agricultural commodity derivatives in India.
• It is calculated based on the contract’s size.
• Non-farm items such as metals (gold, silver, and copper) and energy products are among the commodities covered by CTT (crude oil and natural gas).

Alternate Minimum Tax

• What Minimum Alternate Tax (MAT) is to corporations, Alternate Minimum Tax (AMT) is to limited liability partnerships.
• Other types of commercial organizations, such as partnership businesses, sole proprietorships, and associations of persons, are not subject to this tax.

Estate Duty

• It was first introduced in 1953. It is imposed on all of a person’s property when he or she dies.
• The deceased person’s entire estate is considered his riches and is subject to taxation.
• Since 1985, the tax has been discontinued.

Wealth Tax

• It was first introduced in 1957.
• It was imposed on individuals, joint Hindu families, and businesses who had an excess of net worth.
• Wef 2015, the tax was abolished.

Gift Tax

• It was first introduced in 1958.
• All donations were subject to the gift tax, with the exception of those made by charitable institutions’ government and private enterprises.
• Since 1998, the tax has been discontinued.

Fringe Benefits Tax

• Many corporations provide various bonuses to their employees and keep them beneath their input cost in order to lower the profit on booked entries.
• As a result, profit is reduced, resulting in lower government taxation.
• To counter this, the government enacted the Fringe Benefits Tax (FBT), which is essentially a tax that an employer must pay in lieu of the benefits provided to his or her employees.
• It was an attempt to impose a tax on all benefits that were evading the tax.
• In India’s 2009 Union budget, the fringe benefits tax was repealed.

Difference Between Direct and Indirect Taxes

Parameter	Direct Tax	Indirect Tax
Meaning	Levied directly on the individuals or corporations.	Levied on one entity but is passed on to the final consumer
Incidence	The incidence and impact of the direct tax fall on the same person.	The incidence and impact of the tax fall on different persons.
Nature	Progressive	Regressive
Administrative Cost	Higher	Lower
Tax Evasion	Possible	Not possible
Examples	Income Tax, Wealth Tax, Corporation Tax.	Excise duty, VAT, entertainment tax, Customs Duty, GST

Advantages of Direct Tax

• Economic Balance: The government creates tax bands depending on an individual’s wages and age to achieve economic and social balance. The tax rate is set according to the country’s economic position. Individuals are excused in order to balance economic disparities.
• Ensures equality: Individuals and businesses with larger profits must pay higher taxes to the government in order for the government to assist the poor and vulnerable in society. This maintains economic equilibrium.
• Gives Certainty: The direct tax provides both the government and the taxpayers with a sense of certainty because the amount of tax that must be paid and collected is known to both the taxpayer and the government.
• Addresses inflation issues: During periods of high inflation, the government raises taxes in order to limit the demand for goods and services, resulting in a fall in inflation.
• Makes Government Accountable: Individuals are aware of the need to pay taxes. As a result, he or she is aware of his or her rights and is engaged in the government’s use of taxes. This ensures that the government is held accountable.

Disadvantages of Direct Tax

• Can be easily evaded: Not everyone is eager to pay their taxes. To avoid paying taxes, some are willing to file a fraudulent tax return. Without being held accountable to the law of the state, these people can easily conceal their earnings.
• Tax slabs are arbitrary: Taxes are set arbitrarily by the Finance Minister if they are progressive. It places a significant burden on the poor if it is proportional.
• Obstructs growth: High taxes disincentivize people from saving and investing, causing the country’s economy to suffer. It obstructs the growth of businesses and industries, causing them harm.
• Inconvenience: A direct tax has the significant disadvantage of pinching the taxpayer. When a lump sum is taken from his pocket, he feels a sense of his hard-earned money taken away. As a result, paying direct taxes is quite inconvenient.

Conclusion

The government’s revenue is currently being hit hard by the coronavirus-driven economic crisis, causing it to raise its borrowings. To mitigate the damage, the government must take proactive efforts to lessen the burden on taxpayers, allowing them to stimulate demand and participate in the economy’s growth and development. This, combined with the Vivad Se Vishwas scheme, which establishes a direct tax dispute resolution process, will facilitate the ease of doing business and the country’s economic progress.

UN adopts new carbon emissions goal

A United Nations organization adopted a long-term aspirational goal of making carbon emissions from air travel net zero by 2050 in response to growing pressure for airlines to reduce their pollution. Several major environmental groups praised the move, saying it could boost the production of sustainable aviation fuel. But they cautioned that it will be difficult to push countries to follow up with policies that actually reduce emissions.

• Aviation is a relatively small contributor to overall climate-changing emissions, but its share is expected to grow.
• More people are expected to travel on planes in the coming years, and aviation lacks cleaner alternatives such as electric power that are widely available for cars and trucks.
• This decision in Montreal occurred during a meeting attended by representatives of nearly 200 nations that belong to the UN’s International Civil Aviation Organization, or ICAO.
• The decision capped nearly a decade of negotiations and occurred as aviation comes under more pressure to help meet conditions of the 2015 Paris Agreement on climate, which aims to cap the rise in global temperature. Crucially, the ICAO agreement does not set targets for individual countries or airlines.
• Now is the time for countries to act by establishing policies that support achievement of a 2050 net-zero goal for aviation with measurable progress in the interim.
• Environmentalists said reaching net zero will require greater use of so-called sustainable aviation fuel that is not made from fossil fuels because large electric- or hydrogen-powered planes are decades away. Countries could even impose limits on flights.

Net Zero Emissions: Background

• Contribution: Aviation sector is currently responsible for 2.5 percent to three percent of global CO2 emissions.
• Future prospects: More people are expected to travel on planes in the coming years, and aviation lacks cleaner alternatives such as electric power that are rapidly becoming widely available for cars and trucks.
• Previous steps taken to reduce carbon footprint: In 2021, International Air Transport Association (IATA) approved a resolution stating that the global air transport industry would achieve carbon-neutral status by 2050.
  • UK was one of the first countries to include aviation emission in their climate targets in 2021 and helped launch the International Aviation Climate Ambition Coalition at COP26.
  • European Union has proposed higher taxes on fossil fuels including jet fuel.

Net Zero Emissions by 2050: Highlights of the Agreement

• Ambitious Target: U.N.’s International Civil Aviation Organization adopted an aspirational goal of reaching Net Zero Emissions by 2050.
  • It is an agreement on a collective long-term aspirational goal (LTAG) of Net Zero Carbon Emissions by 2050.
• Reservation on Agreement: Only four countries, including China, have expressed reservations. China is the main contributor to the growth in aviation sector.
  • Aviation sector is in line with conditions of the 2015 Paris Agreement on climate, which aims to cap the rise in global temperature.
• Non-binding: Resolution does not set targets for individual countries or airlines.
• Carbon Offsetting: Airlines can use the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) scheme.
  • Under the scheme, airlines would agree a baseline year and all future emissions above the level would have to be offset.
• Aviation emission levels: Aviation emissions will need to peak and start decreasing as soon as 2025, with richer countries taking the lead.

Net Zero Emissions by 2050

Net Zero Emissions: Significance

• SDG by 2030: The agreement could encourage the production of more sustainable aviation fuel.
  • Sustainable aviation fuels (SAFs) will have to be brought to market immediately to achieve Net Zero Emissions by 2050.
• Push to renewables: Resolution gradually pushes for switching from kerosene-based jet fuel to fuels made from fats, grease, plants or renewables.
• Coordination And Cooperation: Collaboration across the major players and institutions to support the transition to net-zero aviation.
• Funding: Achieving carbon-neutral growth through 2030 would require $40 billion to $50 billion in funding annually, and about $175 billion would be required through 2050.
• Carbon Offset system: Offsetting allows companies or individuals to buy carbon credits from schemes such as forestry plantations to cancel out carbon emissions from activities like flying.

Net Zero Emissions: International Civil Aviation Organization (ICAO)

• It is a UN specialized agency, established by States in 1944 to manage the administration and governance of the Convention on International Civil Aviation (Chicago Convention).
• There are 193 Member States who have signed the agreement.
• Objective: To reach consensus on international civil aviation Standards and Recommended Practices (SARPs) and policies in support of a safe, efficient, secure, economically sustainable and environmentally responsible civil aviation sector.

Net Zero Emissions: Way Forward

• Role of Individual Country: Countries have to act by establishing policies that support achievement of a 2050 Net Zero Emissions goal for aviation with measurable progress in the interim.
• Tough measures: Tougher measures have to be imposed, including limits on flights. This will have to be implemented at least until large electric- or hydrogen-powered planes are feasible.
• Other steps to be taken: Supporting R&D for new pathways to market, de-risking private investments for infrastructure, and stimulating demand through measures that appropriately factor in the cost of jet fuels’ CO2 emissions.

States in MGNREGS attendance app

At least three States—Tamil Nadu, Odisha, and Assam—are pushing for making it universal, though the majority of the States still have reservations about it, five months after the Union government’s order making it necessary to record attendance of Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) workers through a government mobile application, National Mobile Monitoring System (NMMS), at work sites where 20 or more people are employed.

• Only eight States were found to have reported usage of the app at 90% or more workplaces, according to statistics released by the Union Rural Development Ministry in September.
• Assam (93.42%), Odisha (92%), Tamil Nadu (93%), Karnataka (92%), Kerala (91.5%), Tripura (91%), Uttarakhand (91%) and Puducherry (99%) are the states with the highest percentages. Despite the increasing utilisation, there were only 774 work sites in Puducherry in September.
• There are still numerous flaws for which the employee is ultimately penalised. According to Ministry data, the app is only used 50% or less frequently in nine States and Union Territories.
• The states in question are Jammu and Kashmir, Andhra Pradesh, Arunachal Pradesh, Sikkim, Uttar Pradesh, West Bengal, Goa, Nagaland, and Andaman & Nicobar. Goa and Nagaland have no utilisation at all.
• Only 21.48% of the more than 92,000 work sites in Andhra Pradesh, which has one of the largest MGNREGS workforces, used the NMMS app to record attendance in September. This figure was 9.56 percent in August.
• Only 50.19% of the 1.3 lakh labour locations in Uttar Pradesh, another State that receives a sizeable portion of the total MGNREGS national funding, had their muster rolls filled up using the app in September.
• Bihar is another illustration, where there was a substantial decline in app usage from 75.15% in August to 54.26% in September.

About NMMS app

• National Mobile Monitoring Software (NMMS) App  was launched by the Minister of Rural Development on May, 21 2021.
• The National Mobile Monitoring App is applicable for the Mahatma Gandhi NREGA workers for all the States/ Union Territories.
• This app is aimed at bringing more transparency and ensure proper monitoring of the schemes.
•  The main feature of the app is the real-time, photographed, geo-tagged attendance of every worker to be taken once in each half of the day.
• The app helps in increasing citizen oversight of the programme.

Issues with the use of the app

• While such an app may be useful in monitoring the attendance of workers who have fixed work timings, in most States, NREGA wages are calculated based on the amount of work done each day, and workers do not need to commit to fixed hours.
• Disproportionately affects women: NREGA has historically had a higher proportion of women workers (54.7% in FY 2021-22) and has been pivotal in changing working conditions for women in rural areas.
• Due to the traditional burden of household chores and care work on women, the app is likely to disproportionately affect women workers.
• Lack of stable network: There are challenges of implementation with the NMMS as well.
• A stable network is a must for real-time monitoring; unfortunately, it remains patchy in much of rural India.
• NREGA Mates impacted: The app has adversely impacted NREGA Mates as well.
• The role of a Mate was conceptualised as an opportunity to empower local women to manage attendance and work measurement in their panchayat.
• To be a Mate, one needs to have a smartphone.
• This new condition disqualifies thousands of women who do not own smartphones from becoming Mates.
• Erosion of transparency:  The app claims to “increase citizen oversight” by “bringing more transparency and ensuring proper monitoring of the schemes, besides potentially enabling processing payments faster”.
• With no physical attendance records signed by workers anymore, workers have no proof of their attendance and work done.
• No clarity provided on corruption: While ostensibly the NMMS’s focus on real-time, geo-tagged attendance could be one way of addressing this corruption, the MoRD has not provided much clarity on either the magnitude of this corruption or the manner in which the NMMS addresses it.
• No parameters: There are no parameters established to assess the app’s performance, either on transparency, or on quicker processed payments.

Way forward

• Social audits: Social audits are citizen-centric institutions, where the citizens of the panchayat have a direct role and say in how NREGA functions in their panchayat.
• Audits have worked well in the past, allowing the local rights holders to be invested in decisions, and hold the administration accountable themselves.

Conclusion

The NMMS has very clear problems that will make it increasingly difficult for workers to continue working under NREGA, eroding the right to work that underwrites the NREGA Act.

The US use ‘FDPR’ for China’s tech sector

A little-known rule that enables US regulators to extend their technology export control powers far beyond America’s borders to transactions between foreign countries and China. The provision called the foreign direct product rule, or FDPR, was first introduced in 1959 to control trading of US technologies.

More about the rule

1. It essentially says that if a product was made using American technology, the US government has the power to stop it from being sold – including products made in a foreign country.
2. On 7 October 2022, US officials applied the rule to China’s advanced computing and supercomputer industry to stop it from obtaining advanced computing chips.
3. The rule took center stage in August 2020, when it was used against China telecom company Huawei Technologies Co Ltd.
4. American officials had tried to cut off Huawei’s supply of semiconductors but found that companies were still shipping to Huawei chips made in factories outside the United States.
5. The United States had already placed a number of Chinese supercomputing companies on a restricted entity list, cutting them off from buying US chips. But those companies started to design their own chips and seek to have them manufactured – a strategy that the US actions were designed to thwart.
6. The latest move would ban any semiconductor manufacturing firm that uses American tools – which most do – from selling advanced chips to China.
7. They will have to develop their own manufacturing technologies, and they’ll have to develop their own processor technologies to replace the missing US or Western technologies that they’re using today.

Pilot launch of e-rupee for specific use

The Reserve Bank of India (RBI) indicated that it will soon commence limited pilot launches of e-rupee (e`), or Central Bank Digital Currency (CBDC) or digital rupee, for specific use cases. It has hinted at two broad categories for the use of e-rupee — retail and wholesale — taking the payment system in the country to a new level where the common people and businesses will be able to use the digital currency seamlessly for various transactions.

What’s RBI’s plan?

1. The central bank said that the development of CBDC could provide the public a risk-free virtual currency that will give them legitimate benefits without the risks of dealing in private virtual currencies.
2. The approach for issuance of CBDC will be governed by two basic considerations — to create a digital rupee that is as close as possible to a paper currency and to manage the process of introducing digital rupee in a seamless manner.
3. The central bank also feels that it is desirable for CBDCs to have offline capabilities to make it a more attractive and accessible medium of payment for a wide category of users.
4. E-rupee is the same as a fiat currency and is exchangeable one-to-one with the fiat currency.  Only its form is different.
5. It can be accepted as a medium of payment, legal tender and a safe store of value. The digital rupee would appear as liability on a central bank’s balance sheet.

What are the types of e-rupee?

1. Based on the usage and the functions performed by the digital rupee and considering the different levels of accessibility, CBDC can be demarcated into two broad categories — general purpose (retail) (CBDC-R) and wholesale (CBDC-W), the RBI’s concept note says.
2. Retail CBDC is an electronic version of cash primarily meant for retail transactions. It will be potentially available for use by all — private sector, non-financial consumers and businesses — and can provide access to safe money for payment and settlement as it is a direct liability of the central bank.
3. Wholesale CBDC is designed for restricted access to select financial institutions.
4. It has the potential to transform the settlement systems for financial transactions undertaken by banks in the government securities (G-Sec) segment, inter-bank market and capital market more efficiently and securely in terms of operational costs, use of collateral and liquidity management.

What are the forms of CBDC?

1. The central bank says e-rupee, or CBDC, can be structured as token-based or account-based.
2. A token-based CBDC would be a bearer instrument like banknotes, meaning whosoever holds the tokens at a given point in time would be presumed to own them.
3. In a token-based CBDC, the person receiving a token will verify that his ownership of the token is genuine. A token-based CBDC is viewed as a preferred mode for CBDC-R as it would be closer to physical cash.
4. An account-based system would require maintenance of record of balances and transactions of all holders of the CBDC and indicate the ownership of the monetary balances.
5. In this case, an intermediary will verify the identity of an account holder. This system can be considered for CBDC-W, the RBI said.