Sikkim - Hypertense Taxpayers?

A few days ago, an old friend, a physician, shared a graph that got me puzzled.

It showed an NHFS-5 graph plotting percentage of men with diabetes and hypertension across Indian states. While he was concerned about Kerala being represented as a large dot far ahead of all the other states on these two ailments, it was a smaller green dot caught my attention - Sikkim.

How did this tiny north-eastern Himalayan state full of people who always seemed so healthy, relaxed and friendly top the charts for hypertension in India? 

Maybe I was being nostalgic about a trek in Sikkim more than a decade ago, of endless bowls of Thukpa washed down with Dansberg beer. That was a business trip to the main hospital in Gangtok, and these lifestyle diseases certainly did not figure prominently then. What had changed over the years? - was this something to do with the diet? 

Another graph presents a different different picture. This one maps a state-wise per-capita collection of the Goods and Services Tax (GST), and the big surprise here is that Sikkim was the leading state with an average contribution of INR32,568 from each of its ~ 600,000 citizens!

Perhaps this is a pointer to the rapid industrialisation that has taken place in Sikkim over the past decades, with all its attendant health problems. Or maybe there is no correlation at all between these two unrelated  indicators.

One thing is for sure - the numbers need to be examined more closely.

Young India - Unsatisfied, Unscrupulous, Unstoppable

"Where you stand depends on where you sit" - Mile's Law

Over the past two weeks I have come across two views on where India is headed, both seem to contradict each other but at the same time, pointing to a common direction while reiterating Mile's Law.

The first was an Explained session organised by the Indian Express at New Delhi where Manish Sabharwal, the chairman of TeamLease spoke of great business opportunities in the India, while the second one was book by Snigdha Poonam titled, "Dreamers".

Sabharwal was amazingly optimistic and eloquent on the direction in which India was headed. Where most liberals saw clouds of doom and gloom, he saw opportunties etched in the sliver linings. Sample these facts and figures -

- Good Times Ahead: 50% of India's labor force is engaged in agriculture which contributes just 13% of GDP, while 0.7% of the workforce is into ITES which contributes 9% of GDP! With more than 600 international companies setting up captive IT centres in India, the workforce of 3.5 million in ITES is set to double over the next 10 years.
- "Cascading Regime Change": We are already seeing the synergystic impact of recent reforms (GST + RERA + DeMo). Before GST there were only 7 million enterprises registered for indirect tax. Now there are 10.5 million -- a 50% increase in just eight months!

Sabharwal's optimism as the leader of one of the largest employers in India contrasted with that of the journalist Snigdha Poonam who saw the great mismatch between aspirations of millions of young Indians, and harsh ground realities.

If you saw a pop-up on your screen warning you of an IRS investigation in USA or a virus in your laptop/PC/mobile, chances are that you are about to be scammed by an Indian. It seems there are hundreds of call centers in the obscure byelanes of urban India, using desperate job-seekers to con the most vulnerable people across the world --  elderly pensioners, single mothers struggling to make ends meet and all those who are already intimidated by technology.

According to Poonam: "Like it or not, young India is what it is - unsatisfied, unscrupulous, unstoppable. Few young Indians had a clear sense of right and wrong: fewer gave a damn about it. 

The idea of personal benefit over public good isn't owned by them, however. It is at the core of India's value system. Sure, some young Indians will cheat their way to their dreams, but they don't see how they are different from anyone in the news - politicians, businessmen, celebreties..."

Sabharwal's TeamLease claims to have hired someone for every 5 minutes in the last few years and provided employment to more than 1.2 million since 2002. And yet, he also admits that his hiring funnel is very narrow - out of every hundred applicants, less than 5 are hired, trained and placed in various companies.

So there you are - the desperation and angst Poonam sees in the 95 who got rejected is quite different from the optimism of those who did. The way you look at the future depends completely on where you stand.

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LINKS & REFERENCES:

* Explained by Indian Express - http://indianexpress.com/article/explained/manish-sabharwal-problem-is-wages-not-jobs-minimum-salary-unemployment-indian-gdp-5106348/

* Reviews: http://www.openthemagazine.com/article/books/hope-against-hope

https://www.hindustantimes.com/mumbai-news/thane-call-centre-scam-mastermind-who-gifted-girlfriend-rs-2-5-cr-audi-arrested-in-mumbai/story-kiKLnuAVy6gNVlkPhHYEAM.html

GST Explained by the Revenue Secretary

In less than a months' time, the tax system in India will take a radical shift to a comprehensive Goods and Services Tax (GST) model. In most countries, GST is understood as a single indirect, comprehensive, broad-based consumption tax. In Singapore the GST rate is a flat 7% while in Australia, it is 10%. Other countries have a graded VAT system with different tax slabs.

The Indian model GST is going to be unique - and seems rather confusing. From 1 July 2017, we are going to have a GST with five different slabs, ranging from 0% to 28%. The norms for reporting and compliance too seems quite formidable. This impression is getting reinforced by 'expert analysis' on YouTube and the social media.

This was the background and context to a recent meeting organised by the Indian Express, to bring Dr. H. Ardhia, the Revenue Secretary himself, to interact with the pubic. It was a decidedly anxious audience  of about 400 people who assembled at IIC on 6 June, 2017.

It was a packed hall, ringed with people who could not find vacant seats. The two empty chairs on the stage were taken up Vishwanathan from IE, and Dr. Ardhia, who was described as a PhD in Yoga!

First came the big picture: The long legacy of Indirect Taxes (Customs, Excise Duty, Service Tax, VAT, Stamp Duty, Entertainment Tax, etc.,), how the division of responsibilities between the central and state governments had resulted in various inefficiencies, and how steps were taken to gradually move from VAT to a nation-wide, common GST system.

The total tax collection for FY 2015-16 was INR 14600 billion (Rs 14.60 lakh crore), of which indirect tax revenues was Rs 7.11 lakh crore and direct tax collection came in at Rs 7.48 lakh crore. In India, the ratio of direct vs. indirect taxes was 35:65 - just the opposite of what it ought to be, and the sheer absurdity of the fact that in a country of 1.2 billion people there are only 2.4 million people who earned an annual income of over INR 1 million!

A substantial part of the session was set aside for answering questions from the audience. Surprisingly there were hardly any long-winded queries - most of them were short and sharp, with matching responses from Dr. Ardhia, with a dose of good humor. At the same time, it was a bit disconcerting to note from the responses, that the Revenue-Secretary too was not entirely clear on how the government would cope with various interpretations of the GST Act 2017.

Starting from 1 June 2017, we are sure too see many months - and perhaps years - of GST-related turbulence and turmoil.

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LINKS

* Taxes to be subsumed in GST - http://www.gstindia.com/gst-knowledge-series-5-taxes-to-be-subsumed-in-gst/

* (2017) - Dept of Revenue - collection during current year - http://www.dor.gov.in/revenue_ctc
- 2011-12 Corporate tax 3.2 LCr -- Income Tax 1.7 LCr = Total 4.9 Lcr
- Customs 1.44 LCr -- Central Excise 1.4 LCr -- Service Tax 0.97 LCr = Total 3.9 LCr

* E&Y on GST Compliance - http://www.ey.com/in/en/services/ey-goods-and-services-tax-gst

* Global VAT / GST Rates - http://www.vatlive.com/vat-rates/international-vat-and-gst-rates/

* (2016) - Tax collection in 2015-16 exceeds target by Rs 5,000 crore - http://timesofindia.indiatimes.com/business/india-business/Tax-collection-in-2015-16-exceeds-target-by-Rs-5000-crore/articleshow/51718111.cms

* State Tax Revenues - https://en.wikipedia.org/wiki/States_of_India_by_tax_revenues
- Total for all states, 30,331 billion (30L cr)
- Top five - WBengal (4518b), AP+Telengana, UP, TN, Karnataka
- Kerala is at no.9 at INR 1382b

* (2017) Budget Explained -- http://indianexpress.com/article/explained/budget-union-2017-tax-fiscal-deficit-expenditure-revenue-breaking-down-the-budget-4503206/

* Revenue Secretary - http://www.dor.gov.in/revenue_secretary
- Dr. Hasmukh Adhia

GST in India: For Better or Worse?

Apple has started manufacturing iPhones in India. According to a WSJ report, the the iPhone SE series is being produced by Wistron, near Bangalore. Since the locally manufactured or assembled products will not attract import duties, it seems the prices are going to about USD 100 lower than imported phones.

Import duties and taxes make a big difference to a companys' fortunes. India's tax system is often cited as one of the top reasons why global manufacturers prefer to stay away from India. For instance, JCCII, a body representing Japanese corporate's, puts out every year "Suggestions to the Government of India". These suggestion have remained more or less unchanged for many years, and it is always complaints about the tax system that tops the lists.

In the latest 2016 list too, JCCII's tax-related suggestions include -

• Removal of Permanent Establishment (PE) taxation
• Easing of Transfer Pricing assessments by classifying Japanese Trading Companies (Sogo Sosha), not as traders but as Service Providers
• Exemption from Minimum Alternate Tax (MAT) in the SEZs
• Exemption from Dividend Distribution Tax (DDT) paid to foreign shareholders
• Exemption of Service Tax on exports from India

In other words, the Japanese companies are saying, "If you don't let us take our profits home, we will not be able to invest more in India". In the official cover note JCCII also says, "While we await...the all-important GST bill, our concerns on the Tax system...remain."

So is the GST going to really improve our tax system and east of doing business? Much of what I have read so far has been gung-ho about GST, and about how it is going bind the whole country into one large happy market for goods and services.

An interesting contrarian view is held by Aravind Datar, who is quite convinced that GST, in its present form, is only going to worsen the ease-of-doing-business scenario in India. Here is the video -



The critical points are -

* More Laws, More Confusion: As of today, 29 states in India have their own VAT / Sales Tax laws, and separate laws for Service Tax and Excise Duty (total 32 laws). When GST is adopted by all the states we will have 29 StateGSTs (SGSTs), one Central Service Tax (CST) and one Inter-State GST (IGST). In all, 31 laws instead of 32.

* Lack of Checks and Balances: The GST Council can make only recommendations, which cannot be enforced. The state governments are free to make GST laws as they please (as per the 101 Amendment, Article 246A, and the Supreme Court judgement of 11 Dec., 2016)

* Cumbersome Reporting Requirements: Service providers currently file their returns twice a year. Now they will have to file 49 returns every year! (3 returns per month online - 10, 15, 30th + 12 TDS returns + 1 annual returns = 49)

* Discouraging Economies of Scale: Any company earning more than INR 2 million will have to file returns. So this will only encourage those who want to stay below that threshold, as in the old "License Permit Raj" days.

* Enormous potential for tax evasion, and tax-related harassment: Unlike other countries which have one single GST rate (eg. Singapore - 7%), we are going to have slabs - 0%, 5%, 10%, 28%. This encourages ambiguity, and the discretionary powers of tax officers.

* More Ambiguity, Not Less: Lack of clarity on General Anti Avoidance Rules (GAAR) and Place of Effective Management (POEM) is sure to discourage manufacturers and FDI investors.

Datar is a great communicator and his speeches, articles and arguments are quite convincing. Is there anybody in the establishment who has come up with a point-wise rebuttal of the concerns raised by him?

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LINKS:

* (2017) WSJ - https://www.wsj.com/articles/apple-assembles-first-iphones-in-india-1495016276

* JCCII's Suggestions to GoI (2016) - http://www.jccii.in/Docs/0333_2016_suggestions_jccii_summary_english.pdf

* Aravind Datar on GST - https://www.youtube.com/watch?v=xGmJyxugA2E

* (2015) Aravind Datar, IE - GST's Seven Deadly Defects - http://indianexpress.com/article/opinion/columns/gsts-seven-deadly-defects/