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Dwindling effect of Covid-19 on India's Economy.


effect of Covid-19 on India's Economy.

On March 11 2020, the World Health Organization declared Covid-19 a Pandemic, and it marked a major shift in our lives and India's plans for FY 2020-21. India along with most of the world has been forced under a Lockdown. International Monetary Fund (IMF) predicts that Global Economy shall reduce by 3 %. Furthermore, India's GDP growth was estimated to be a struggling 0-1% by the IMF.


The Trickel-Down effect of Covid-19.

An Economics think-tank estimates that for each month a country is under lockdown, it looses 1.5-2% of its GDP. To add fuel to the fire, India's GDP growth was already lower than expected. Major cash cow sectors like Infrastructure and Automotive were gasping for air since November 2019. A report published by Deloitte estimated that these sectors could face a negative growth rate in double figures.

Since the lion's share of commerce activities is halted, the monthly GST Revenue Collection has taken a Mike Tyson uppercut. India's GST Collection was around the ballpark figure of INR 1,00,000 Crore per month in Jan and Feb 2020. But since March it has seen a dip in the numbers. The GST Revenue Collection for the month of April is said to be 40% less than usual.

As India's fuel demand came to a complete stop, so did the Revenue for State Governments from the sale of fuel. Adding to the woes, what could have been an opportunity for State Governments to earn extra revenue through cess and due to the drop in crude oil prices was also shut by Covid-19. Apart from that sale of sin goods such as Cigarettes and Alcohol was also banned until recently. All these basically translates into State Governments steadily going bankrupt.


What are the tools at Government's disposal to bring India Inc on track?

We are already witnessing the Government hiking taxes on Liquor and Fuel by historic margins. According to RBI the state excise duty on alcohol accounts for 10-15 percent of tax revenue for most states and State Governments collects more than INR 40,000 crore per year from the sale of tobacco products. In similar lines, Petrol and Diesel prices are also most likely going to be hiked in the coming months. But merely increasing excise on sin goods and fuel isn't going to work. It isn't Alladin's famous phrase that opened the magic cave. We need something else...

Apart from the reliefs given by the Government in terms of extending the date for Revised ITR for FY 2018-19 and making Tax-Saving Investments, major relaxations are also given on the TDS front. It was announced that the late deposit fee for TDS i.e 12% is reduced to 9%. This relaxation should provide the Government with much-needed Revenue and also ease the burden on taxpayers.

Renowned Economist and ex-RBI Governor, Dr Raghuram Rajan believes that 'Monetization' in the form of a big Economic Stimulus can act as a Ventilator for India. But, anyone with decent medical knowledge will tell you that a ventilator is merely a short term solution. For people to be really healthy, they should be able to breathe through their own lungs. Ergo, we must look at other ways in which Economic Growth can be stimulated. But to keep India buoyant Economists estimate that a stimulus Package of INR 15 Lakh Crore should suffice.

One far fetched speculation is the legalization of Gambling. Fun Fact- A report from Doha-based non-profit International Centre for Sport Security estimated India's illegal gambling market is worth nearly INR 10 lakh Crore. Imagine the Tax Revenue that could be generated from a legalized yet monitored gambling industry. Undoubtedly Tax Revenues from legalized gambling could be a major economic boost for the Economy.

Heard the phrase...' Every Cloud has a silver lining'? Well that could be the case here as more and more countries are considering an inward-looking economic policy. That's what Union Minister Nitin Gadkari meant while he announced an 'Import Substitution' policy being formulated. He announced it during the conference for representatives of the Association of Lady Entrepreneurs of India. Meaning that India could become increasingly self-reliant than before, hence boosting employment and consumption.

To wrap it up, it's still unclear what the Government's course of action might be. Hence, it is important for us to keep our spirits high. In words of Ratan Tata- "In past, difficult times like these became the flagpoles of innovation and creativity that could not have been believed to exist"

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States in Dire Straits


Byte on while staying informed about the latest tax updates.

States in Dire Straits

Hey,

Food for thought... India witnessed a liquor sale of hundreds of crore across states on Monday and Tuesday...Do think India should still rank 49 on the poverty index?


This Week’s Dose-

  • States in dire straits
  • Will alcohol walk the ‘Tobacco Tax Path’ in times of Covid-19
  • Petrol and diesel - a HISTORIC increase in excise
  • Deadlines - ‘EXTENDED’

States in dire straits


What is happening?

The state finances have been dwindling. India has been under lockdown since March 25. Sale of liquor and tobacco has been shut since then. 

The states have not been able to receive revenue from liquor cess. This is a major source of revenue for state governments across the country. Karnataka, for example, is looking at an offset of INR 2600 crore losses it suffered from excise revenue lockdown.

Another major source of revenue for states is petrol and diesel which comprises 20 - 30 percent of revenue for state governments. Movement of vehicles, inter state transport, etc have been shut down due to the pandemic. This had a rollover effect on the sector leading to 60 percent drop in sales.

The cash starved states of India...do they have the means to boost revenue collections?

The brighter side

In the past state governments had lobbied hard to keep liquor and auto fuel prices out of Goods and Services Tax (GST) as they could have a tab on revenue collection from these sources. Hence State Governments can boost their revenue during times of economic and financial crisis.

What are we looking at

The financial health of states, which was already deteriorating due to the economic slowdown, worsened due to the national lockdown. Revenue gaps, borrowing limits and the risk of falling fund transfers from the central government is giving a sense of helplessness amid the pandemic.

Punjab FM, Manpreet Singh Badal in a webinar hosted by the Gulati Institute of Finance and Taxation (GIFT) Kerala, cautioned that the combined fiscal deficit of central & state governments this FY could touch 10% of GDP. And this would exclude any extra spending to fight back the pandemic.

The economy has been brought to a grinding halt...


Will alcohol walk the ‘Tobacco Tax Path’ in times of Covid-19


Booze flows, chaos follows

Massive rush was seen outside liquor stores which opened for the first time since the lockdown. Serpentine queues were witnessed, social distancing norms were flouted. The decision to reopen the liquor shops was made keeping in mind to reboot the economy. States saw sales worth hundreds of crore in just 2 days. States like Uttar Pradesh, Haryana and Karnataka saw the maximum sale.

Special ‘corona’ fee

The liquor industry contributes an estimated INR 2.5 trillion a year to state governments by way of excise duty and in some states as value added tax. Bulk of their tax outgo goes to state governments as liquor is a state subject.

State governments seem to have gained in terms of revenue. There has been a hike in the prices and tax everywhere. Delhi has imposed a 70 percent ‘corona fee’ on all categories of liquor. Andhra Pradesh on Tuesday hiked the prices of liquor by 50 percent, a day after imposing a 25 percent increase. This takes the overall hike in liquor price in the southern state to 75 percent. Karnataka government to impose a 5 - 15 percent "special Covid tax" on alcoholic beverages on the lines of Delhi and Andhra Pradesh.

The Tax Path...

Utility of goods has been a key criteria guiding indirect tax policies of central and state governments. Thus, polluting fossil fuels like petrol and diesel, sin goods like liquor cancer causing tobacco & cars with high displacement engines considered to be luxury have attracted high taxes. Sports utility vehicles, tobacco and aerated drinks are on the highest GST slab of 28 percent, which also attract a cess. Liquor, which is outside GST, is subjected to state excise duties heavily. 

Looking at the recent developments, alcohol might be traversing the Tobacco Tax Path...


Petrol and diesel - a HISTORIC increase in excise


Petrol and diesel - a HISTORIC increase in excise

On Tuesday, the Government raised excise duty levels on petrol and diesel prices by 30 percent, taking up the retail prices of auto fuel to almost 70 percent. This was aimed at soaking up the benefits of a sharp fall in crude prices. Sadly the consumers won’t be impacted as state run oil companies were asked to adjust the impact against their hefty margin.

Let’s do the Math

As fuel prices are out of GST, raising duties is easier for both centre and states.

With a rise in VAT on petrol and diesel, the state tax rate on the two has risen to INR 16.44 and INR 16.26 respectively. The increase in excise duty further jacked up the prices by INR 10 and INR 13. So the total tax component (centre and state in Delhi) is INR 49.42 on petrol and INR 48.09 on diesel. Compare this with the base price of the two products - which is INR 17.96 a litre for petrol and just INR 18.49 a litre for diesel. Together with central and state taxes, freight and dealers commission, the price of petrol on Wednesday was at INR 71.26 a litre while diesel's selling price was INR 69.39 a litre.

The tax load is clearly visible now…


Deadlines - ‘EXTENDED’


Finally!
Ministry of Finance announced the due date to file GSTR-9 (Annual Return) and GSTR-9C (Reconciliation Statement) for the Financial Year 2018-2019 has been extended to September 30, 2020 via notification number 41/2020- Central Tax.

File your GST return online.


Crazy Tax Stories!


Johnstown, Pennsylvania was devastated by a flood that killed nearly 2,000 people in the late 19th century, and in 1936 another flood damaged the town. That led to the state of Pennsylvania passing a tax on alcohol, the proceeds of which would be used to rebuild the city. By 1942, enough money was raised to rebuild Johnstown, yet the tax exists to this day, and brings in around $200 million a year for Pennsylvania.


Byte of the Day


"I think of lotteries as a tax on the mathematically challenged."

- Roger Jones



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May The F.O.R.C.E. 'not' Be With You

Byte on while staying informed about the latest tax updates.


Hey,

Just in case you missed it, a 1.9 kilometre wide ‘potentially hazardous’ asteroid safely flies past Earth. The entire Earth missed it too. Whew!!


This Week’s Dose-

  • Radical Ideas of 1970 are lurking in the air
  • Will India reconsider ‘Google Tax’?
  • Ever wondered how much is India's TOTAL EXPENDITURE?

Radical Ideas of 1970 are lurking in the air



On April 25…

A list of ideas were presented by 50 IRS (Indian Revenue Services) officers or the “Task Force”. These recommendations were presented with a view to revive the economy after COVID-19 and recorded in a 44-page document titled ‘FORCE’ or ‘Fiscal Options & Response to Covid Epidemic’.

A taste of IRS’ ‘Force’,

- levy a 55% tax (including cess) for taxpayers having income above INR 1 crore

- additional one-time cess of 4% for taxpayers having income above INR 10 lakh

- increase the ‘equalization levy’ or ‘Google Tax’ from 2 percent to 3 percent 

- direct cash transfer of INR 3000 to 5000 to the 12 crore most economically disadvantaged households

Ideas of the 1970!

The document proposes the opposite of what might be needed. With the rise in extreme circumstances, radical ideas in taxation have found its way in India.

Suggestions in the document are 1974 ideas returning in 2020. The document is suggesting a 55 percent tax (including cess) on people earning over INR 1 crore. This draconian tax rate was removed during the economic reforms of 1991. The document suggests an additional tax for MNCs, a surcharge on inheritance by overseas Indians and additional tax on gig money.

The liquidity in the hands of individuals is decreasing by the day. There has been a sharp decline in consumption and the revenue generated by the government might not cater to the needs of a country with a population of nearly 1.4 billion.

Around the world, Governments have been implementing tax incentive policies, tax breaks and tax holidays. India should aim at implementing a more predictable tax-regime.

May the F.O.R.C.E. ‘not’ be with you

The CBDT has rejected the report calling it “a violation of extant Conduct Rules.” The department further said “It is reiterated that the impugned report does not reflect the official views of CBDT/Ministry of Finance in any manner.”


Will India reconsider ‘Google Tax’?


The story in brief

India has her eyes on the more profitable digital and e-commerce economy. The 6% ‘equalisation levy’ or the so called ‘Google Tax’ was first imposed in 2016 to tax companies such as Facebook, Google and Netfliix on their online advertising. This year India expanded its scope to all overseas e-commerce transactions originating from India . From April 1, the Government levied an ‘equalization levy’ for e-commerce companies at 2 percent.

560 million internet users!

India has the second largest number of internet users in the world at 560 million. It is a critical market where a number of companies have deeply invested. The digital industry across the world was caught off-guard. A lot of companies have been battling the fallout due to coronavirus. The USA Chamber of Commerce along with 8 other lobbying groups from Asia, Europe and Australia have urged India to delay its ‘new’ digital tax.

What are we looking at? 

This tax seems to be aimed at foreign companies which have a significant local client base in India. Such companies had been billing the clients through their offshore units while effectively escaping the country’s tax system. India's data localisation plan, issues with cross-border data flow, norms around intellectual property rights and India favoring local digital products might create several trade barrier flags.

"The timeframe within which this expansive new measure was approved and entered into force allowed for neither the dialogue nor the significant structural changes that would be necessary (for companies to comply)," said the letter.


Ever wondered how much is India's TOTAL EXPENDITURE?


India’s Total Expenditure was over 23 lakh crore for the F.Y. 2018-2019. Ever wondered what are the areas of expenditure for India? Here is the breakup of a few important expenditures.



Crazy Tax Story

In 1660, England placed a tax on fireplaces. The tax led to people covering their fireplaces with bricks to conceal them and avoid paying the tax. It was repealed in 1689.

Now we know where the idea for brick-fireplaces comes from.


Byte of the Day

"The only thing that hurts more than paying an income tax is not having to pay an income tax."

  -Thomas Dewar

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Rejected - CBDT to IRS


Rejected - CBDT to IRS

What is FORCE?

On April 25 a list of ideas were presented by 50 IRS (Indian Revenue Services) officers or the “Task Force”.

These recommendations were presented with a view to revive the economy after COVID-19 and recorded in a 44-page document titled ‘FORCE’ or ‘Fiscal Options & Response to Covid Epidemic’. The document was presented to the Prime Minister’s Office (PMO), Union Finance Ministry and the Central Board of Direct Taxes (CBDT). The paper delves into several steps the officers think are needed to revive the economy. It also talks about raising additional revenue without burdening the common man.

“The government needs to spend considerably more to revive the economy and it needs to raise additional revenue, but in ways that must not burden the already distressed common man,” the paper says. “In times like these, the so-called ‘super-rich’ have a higher obligation towards ensuring the larger public good.”

A lot of radical ideas of the 1970s are lurking in the air...

Tax the rich!

“The Government should commit itself to the fact that the additional revenue raised through taxing the wealthy will only and only be utilized for these 5-10 projects or schemes (mentioned in the paper),” the paper argued.

The paper recommends raising the income tax slab rate to 40 percent for taxpayers having income above INR 1 crore. It also emphasizes the re-introduction of wealth tax for those with a net worth of INR 5 crore or above.

An additional one-time cess of 4 percent should be levied on those with a taxable income of more than INR 10 lakh. The “Task Force” estimated that an extra revenue of INR 15,000 crore to INR 18,000 crore could be generated using this.

Mobilisation of CSR funds for COVID-19 relief by extending tax incentives was also emphasized. Corporates should be allowed to treat the salaries paid to their non-managerial staff as a part of their obligation under CSR. This is an effort to guarantee continued wages during non-working days during this crisis.

The paper also suggests a new tax-saving scheme, a Covid-19 savings certificate, in order to mobilize funds.

Increase ‘equalization levy’ for E-Commerce firms...

The coronavirus economy has proved to be largely a digital/online/e-commerce one. India can tap the more profitable economies by imposing higher tax rates on companies such as Netflix, Amazon Prime, Google and many more. The equalisation levy can be increased from 2 percent to 3 percent for major e-commerce companies. 

On March 23, India had taken a tough call of increasing the equalization levy to 2 percent. This had received enough push back and deferment  from major tech heavyweights like Google and Facebook.

Benefits for poor...

The paper also suggests DBT or Direct benefit Transfer to the poor. It states, on the expenditure front, a direct cash transfer to the 12 crore most economically disadvantaged households. The transfer should range between INR 3,000 to INR 5,000 for a period of 6 months.

If envisioned and implemented in a targeted fashion, the scheme holds tremendous promise and achieves ‘three-prized’ objectives - provision of income, support to the unemployed, creation of public infrastructure and investment in human capital.

Healthcare sector to drive the economy...

The healthcare sector has an immense scope of growth owing to the present circumstances. The sector must incorporate the manufacturing of pharmaceuticals, medical grade masks, vests, gowns. The focus should be on the building of testing labs, ventilators, hospitals and primary health centres.

On a taxation point of view, a complete tax holiday or tax break to be proposed for the next 3 years for all corporate, businesses and firms operating in healthcare sectors.

Steps to boost ‘consumption

The Task Force has incorporated a list of recommendations to increase the disposable income and boost the consumption.

  • Allowing the short-term capital loss suffered by retail investors to be set off from their salary. Hence saving them from any tax liability on the money lost. These losses are majorly suffered due to the recent stock market slump.
  • Any allowances or bonuses given to employees with an annual pay of less than INR 10 lakh should not be taxable.
  • Allow the deferral of tax payment by individuals who have lost their jobs for 6 months or more or until they find a new job.
  • Provide increased deduction on interests over the purchase of houses, automobiles, and other electronic items which are ‘made in India’.
  • Inclusion of a tax moratorium for MSMEs. This sector is bound to be the worst-hit by the crisis and it has a tax liability of INR 5 to 10 crore for one year.

Radical ideas of 1970

The document proposes the opposite of what might be needed. With the rise in extreme circumstances, radical steps in taxation have found its way in India. 

Suggestions in the document are similar to the policies of the 1970s.  These are 1974 ideas returning in 2020. The document is suggesting a 55 percent tax (including cess) on people earning over INR 1 crore. This draconian tax rate was removed during the economic reforms of 1991. It suggests an additional tax for MNCs, a surcharge on inheritance by overseas Indians and additional tax on gig money.

The liquidity in the hands of individuals is decreasing by the day. There has been a sharp decline in consumption and the revenue generated by the government might not cater to the needs of a country with a population of nearly 1.4 billion.

Around the world, Governments have been implementing tax incentive policies, tax breaks and tax holidays. Efforts are being for more liberal tax policies. India should aim at implementing a more predictable tax-regime. 

The Spurn

The CBDT had rejected the report calling it “a violation of extant Conduct Rules.”

“There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation. It is unequivocally stated that CBDT never asked the IRS Association or these officers to prepare such a report," the Income Tax Department said on Twitter. The CBDT also stated that no permission was given to the officers before going public with their personal views and suggestions.

The department further said “It is reiterated that the impugned report does not reflect the official views of CBDT/Ministry of Finance in any manner.”

“There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation. It is unequivocally stated that CBDT never asked the IRS Association or these officers to prepare such a report," the Income Tax Department said on Twitter. The CBDT also stated that no permission was given to the officers before going public with their personal views and suggestions.

The department further said “It is reiterated that the impugned report does not reflect the official views of CBDT/Ministry of Finance in any manner.”

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Carpe Diem - Seize The Refund

Byte on while staying informed about the latest tax updates.

Hey,

Here’s a food for thought - in 1705, Russian Emperor Peter the Great placed a tax on beards, hoping to force men to adopt the clean-shaven look that was common in Western Europe - isn't this strange?


This Week’s Dose-

  • Ever wondered how much is India's TAX REVENUE?
  • Risk Management Process - emails from ITD. Should you PANIC?
  • Some things never change in India - startups left FUMING
  • On a mission to simplify taxes - launching Quicko’s Tax compliance Tools and Calculators

Ever wondered how much is India's Tax Revenue?

India's total Tax Revenue was over 13 lakh crore for the F.Y. 2018-2019. Ever wondered what are the sources of tax inflow for India? Here is the breakup of all the tax sources.

tax revenue india fy 2018-19

Risk Management Process - emails from ITD. Should you PANIC?

A much appreciated move.

I-T Department announced tax refunds worth INR 5 lakh crore amidst the Covid 19 crisis. Income tax refund worth INR 5,204 Cr. has already been issued, another INR 7,760  Cr. will be issued at the earliest. This might prove as a major relief to thousands of taxpayers.

“Risk Management Process”

A number of taxpayers claiming refund have been getting emails by the I-T Department saying, “Your Income Tax Return has been selected under risk management process wherein your confirmation is required on the claim of refund...”

The ITD is trying to…

Confirm 2 things -

  • First, the amount of claim for the refund is correct
  • Second, the bank details are correct so that the amount is not credited to an incorrect bank account

Hence this is not a notice by the tax department and nothing to panic about.

Keep in mind

These details need to be confirmed within a period of 30 days. It can be said that the Government will process refunds as and when the taxpayer confirms the details.

The earlier you act upon this, the faster your refund process gets.

Track your ITR Refund Status here.


Some things never change in India - startups left FUMING

The gist of it.

The Angel-tax issue resurfaces. I-T Department starts adjusting refunds against outstanding amounts. To make matters worse, tax issues are already pending in the courts. Also, the Government had revoked angel tax for Indian startups last year.

A new twist...

The ITD will adjust the refund amount against the pending angel tax dues (which is under dispute in the courts).

Most startups have filed an appeal against the pending-angel-tax issue with the income tax appellate tribunal. But cases have not been moved for a long time. The situation in concern can be termed as quasi-judicial, since the government cannot intervene directly. Hence it has been futile to raise the issue with the ministry of finance. And since government officials are only semi-functional, nothing has been happening with the pending cases. To add on to the mess, finance minister Nirmala Sitharaman had it very clear that the pending will be resolved.

Add on the crisis

This unexpected development comes when the entire India-startup ecosystem is badly crippled with the recession triggered by the Covid-19 pandemic. One of the longest economic slowdowns has turned into a recession. Startups have been facing a historic funding crisis. And most of them have been reporting huge losses.

Do you think when it comes to friendly policies, the government is all talk and no action?


On a mission to simplify taxes - Tax compliance Tools and Calculators

Tax Compliance Tools & Calculators.

Just Launched Tax Compliance Tools & Calculators.

You can now  track ITR Refund status, PAN card Application status, GST Refund status online without hassle.

Visit our tools and calculator page here.


Byte of the Day

"Next to being shot at and missed, nothing is quite as satisfying as an income tax refund."

- F.J. Raymond
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