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Daily Current Affairs 05.08.2021 (A grand tax bargain in danger of coming apart, Tigray’s woes, The doubted scientist and her vaccine revolution)

Daily Current Affairs 05.08.2021 (A grand tax bargain in danger of coming apart, Tigray’s woes, The doubted scientist and her vaccine revolution)

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1.A grand tax bargain in danger of coming apart

A Goods and Services Tax version 2.0 may have to be designed soon given the flaws in the existing structure,

After four years, the promise of the Goods and Services Tax (GST) remains substantially unrealised. It is a far cry from the attempted avoidance of cascading and continues to be a not very transparent multi-rate system with associated difficulties in computing and assessing tax liability, tax burden and tax incidence. States have less headroom in handling GST collection shortfall after surrendering their fiscal autonomy. When the period of five years of compensation ends in 2022, will we see a continued flawed system or a freshly minted GST 2.0, given the asymmetry of the power equations between the States and the Centre?

The tax base of GST does not appear to be expanding as the recent uptick has reversed last month. The GST is strongly co-related to overall GDP. Revenue collection of the GST is dependent on the nominal growth rate of Gross Value Added (GVA) in the economy. Since inception, GVA per quarter has been between ₹40-lakh crore to ₹47-lakh crore and GST revenue has not been higher than ₹2.7-lakh crore to ₹3.1-lakh crore. The Tax to Gross value addition is only about 5% to 6.5% though GVA growth was much higher. Obviously, a very large segment is covered by exemption, composition schemes, evasion and lower tax rate.

Centre holds the cards

The fundamental weakness of the GST is its political architecture which is asymmetrically loaded in favour of the Centre. Disputes between States and between the Centre and the States are inevitable in a mosaic arrangement. But in the current structure, no particular body is tasked to adjudicate this though the original Constitution (115th Amendment) Bill 2011 (GST Bill) had a provision for such an institution. In the voting, the central government has one-third vote and States have two-thirds of total votes (with equal voting rights regardless of size and stake). With the support of a dozen small States whose total GST collection is not more than 5% of the total — and their Budget is mostly underwritten by the central government — the game is hugely in the Centre’s favour. With equal value for each States’ voting, larger and mid-sized States feel shortchanged.

Severe fiscal strain is expected when the 14% compensation comes to an end as the median growth rate of subsumed taxes is only 11%, and in many States between 5% to 10%. The median subsumed tax buoyancy is below unity. This means with 1% growth, there will be a 0.75% growth of tax. The contraction of GST revenue across the country means that the compensation amount will be higher and the clamour for a continuance of compensation scheme is inevitable.

Issues with tax structure

The second problem is the design flaws in the tax structure. Nearly 45% to 50% of commodity value is outside the purview of the GST, such as petrol and petroleum products. In addition, States which export or have inter-State transfers or mineral and fossil fuel extractions are not getting revenue as the origin States and need a compensation mechanism. The pre-existing threshold level of VAT has been tweaked too often which has led to an evaporation of tax base incentivising, enabling evasion and mis-reporting. Most trading and retail establishments, (however small) are out of the fold of the GST. At the retail level, irrespective of whether Input Tax Credit (ITC) is required or not, the burden can be passed off to the consumer. As a result, the loss could be as high as one third.

Third, exemptions from registration and taxation of the GST have further eroded the GST tax base compared to the tax base of the pre-existing VAT. Exemptions are purely distortionary and also provide a good chance to remain under the radar, thereby directly increasing evasion or misclassification. Theoretically, exemptions at the final stages reduce tax realisation. As multiple rates are charged at different stages, it goes against the lessons of GST history. This tax works well with a single uniform tax rate for all commodities and services at all stages, inputs and outputs alike. While most countries have a single rate, India stands out and is among the five countries to have four rates/slabs.

Exclusion as another issue

The fourth is that of exclusion. Petroleum products remaining outside the purview of GST has helped the Centre to increase cesses and decrease central excise, in what would otherwise have been shareable with the States. Now, States will be keen on including petrol and diesel under the GST as their share of tax goes up in the process, even if there is a special rate fixed for it.

In April 2017, cess and surcharge formed 56% and 35% of the excise duty on petrol and diesel, respectively. Now, their share has increased to 91% and 85%, respectively, and the shareable central excise has reduced by ₹6.5 a litre, making it ₹2.98 for petrol and ₹4.83 for diesel. Equity requires that petrol and diesel be brought under the GST. Apart from the complexity it creates in record keeping and ‘granting ITC’, in the present form it also leads to a cascading which the GST avowedly tried to avoid (https://bit.ly/3xiIhYp).

Fifth, compliance with GST return (GSTR-1) filing stipulation and the resultant tax information is not up to date. The gap in filing GSTR-1 was 33% in 2019-20 and has been increasing. As per GSTR-3B, the effective tax rate is as low as 6.5% when GSTR-1 shows an average 15% tax rate. Fraudulent claims of Input Tax Credit (ITC) because of a lack of timely reconciliation are quite high though it has come down by two thirds. Tax evasion, estimated by a National Institute of Public Finance and Policy’s paper, is at least 5% in minor States and plus 3% in the major States.

These policy gaps with regard to a higher threshold (when in sales tax, it was lower) exemption level and multiple tax rates have led to a base erosion. Policy gaps along with compliance gaps do need to be addressed. Without proper tax information, infrastructure and base, the States would go in for selective tax enforcement. In the long run, voluntary compliance will suffer and equity in taxation will be violated. Finally, the grand bargain will come apart. Given all these problems, a version 2.0 of GST may have to be designed sooner rather than later.

2.Tigray’s woes

Ethiopia should end the blockade of the north and engage in talks with the TPLF

When Ethiopian Prime Minister Abiy Ahmed sent troops to Tigray, the country’s northern-most region, in November 2020, he promised it would be a short campaign against the Tigray People’s Liberation Front (TPLF). Seven months later, when Ethiopia declared a unilateral ceasefire and withdrew, Mr. Abiy was indirectly accepting defeat. Government troops are now facing serious allegations of war crimes as bodies wash up in a river in Sudan that borders Ethiopia. The federal troops had initially ousted the TPLF from Mekele, the Tigrayan capital, and established a parallel government. But the TPLF retreated to the mountains, and then struck back. In June, it recaptured Mekele, forcing the federal troops to pull back. At least in defeat, Mr. Abiy could have accepted his mistakes and sought a settlement. But instead, he announced a blockade on Tigray, with even international aid deliveries stopped. The UN says at least 3,50,000 people are facing a “severe food crisis” in the region. The TPLF says it will not stop fighting unless the government lifts the blockade and pulls back all opposing troops. The conflict has already spilled over into the Amhara and Afar regions, threatening the very regional make-up of ethnically divided Ethiopia. An influx of refugees has raised tensions with neighbouring Sudan.

Mr. Abiy, a Nobel Prize winner, went to war in Tigray as part of an ambitious plan to rewrite the country’s power balance. Since Ethiopia embraced democracy in 1995, the TPLF, which led the resistance against the military dictatorship, the ‘Derg’, had played a key role in the ruling coalition, the Ethiopian People’s Revolutionary Democratic Front (EPRDF). Mr. Abiy, an Oromo, rose to power in 2018 amid growing ethnic tensions and protests as the EPRDF’s nominee. He ended the war with Eritrea, released political prisoners and promised more freedoms. But he also moved to end the TPLF’s clout in Addis Ababa, which led to a split in the EPRDF. He formed a different coalition, the Prosperity Party, and retained power, by cutting the TPLF off federal government networks. When a defiant TPLF challenged the government, he declared war on Tigray. He may have hoped that the federal troops could oust the TPLF from power and establish order quickly. But he seemed to have overlooked Ethiopia’s complex history of ethnic relations and the TPLF’s guerrilla warfare. The war may have helped him politically — his coalition won a huge majority in the delayed June Parliamentary elections which were held in all regions except in Tigray — but it has pushed Tigray into an endless rebellion and shaken up the country’s ethnic balance. It is time for Mr. Abiy to act like a statesman. He should stop the collective punishment of the Tigrayan people, end the blockade and be ready for talks with the TPLF for a mutually agreeable cessation of all hostilities.

Why in News

The Ethiopian prime minister Abiy Ahmed has vowed to continue the military operation in the Tigray region amid concerns it could descend into civil conflict.

Key Points

  • Military Operation: Abiy has declared war on the country’s Tigray region, which is ruled by the powerful Tigray People’s Liberation Front (TPLF), in response to its attack on a federal military base in Tigray.
  • Background:
    • After becoming Ethiopia’s Prime Minister in April 2018, Abiy Ahmed reached out to the political opposition, ushered democratic reforms, lifted curbs on the media and made peace with Eritrea – moves that won him the Nobel Peace Prize in 2019.
      • Eritrea is a sworn enemy of the TPLF, which shares a long border with the Tigray region.
    • He also removed TPLF from senior government positions. His push to concentrate more power in the hands of the government alienated the TPLF further.
      • Abiy has formed a new political coalition, the Prosperity Party, all constituents of the Ethiopian People’s Revolutionary Democratic Front (EPRDF), except the TPLF, joined the new platform.
    • When the federal government postponed the general elections in August to 2021 citing the coronavirus pandemic, Tigray politicians accused him of a power grab and held elections, in September, in the region, in defiance of the government.
    • Rising tensions led to an attack on the military base.
  • Tigray People’s Liberation Front:
    • It is a militia-turned-party, which was part of the coalition that brought an end to the military dictatorship in 1991.
      • TPLF leader Meles Zenawi took over as the interim President in 1991 and became the first elected Prime Minister in 1995.
      • He is largely seen as the architect of the country’s ethno-federal system and remained in power till 2012.
    • It had played a dominant role in the country’s ruling coalition, the Ethiopian People’s Revolutionary Democratic Front (EPRDF – put together by Zenawi).
      • Though the EPRDF contains regional political parties such as the Amhara Democratic Party, the Oromo Democratic Party and the Southern Ethiopian People’s Democratic Movement, the TPLF remained the dominant political force.
        • The Tigray people make up roughly 6% of the population, while the Oromos have a 34% share and the Amharas 27%. The Oromos have alleged marginalisation and called for better representation.
      • Over the years, the government led by the EPRDF, was accused of being increasingly authoritarian and there were frequent mass protests in the regions.
      • In 2018, the EPRDF chose Abiy, a former military intelligence officer, to lead the government amid growing protests and a political deadlock.
  • Abiy’s Stand: Abiy, the country’s first Oromo leader, claimed that his actions are not driven by ethnic calculations but rather aimed at addressing the historic power imbalance in the country and making peace with the neighbours.
  • Implications:
    • TPLF has fired rockets into Eritrea from Tigray, threatening a wider regional war in the Horn of Africa.
      • Horn of Africa houses the countries of Djibouti, Eritrea, Ethiopia and Somalia.
    • Rebels also fired rockets into the neighbouring Amhara region. Even if Abiy is serious about keeping the operation short, it could spill out of control given the underlying complexities of the conflict. The TPLF has thousands of fighters under their command.
    • Also, the Tigray region shares a border with Sudan. The TPLF enjoyed good relations with Sudan’s ousted dictator Omar Bashir.
      • Sudan has an unresolved border dispute with Ethiopia. If Sudan’s new rulers keep the old links with the TPLF active and the border open for the rebels, the conflict could go on.
      • Earlier this year, in the midst of Ethiopia’s long-standing conflict with Egypt over the construction of the Grand Ethiopian Renaissance Dam over the Blue Nile, Sudan had already found itself forcefully involved in the spat.
    • There have also been reports of atrocities targeting civilians by both sides. Many have even fled to Sudan.

India-Ethiopia Relations

  • Ethiopia is one of the largest recipients of long term concessional credit from India in Africa.
    • Lines of Credit worth more than USD1 billion have been sanctioned to Ethiopia for sectors such as rural electrification, sugar industry and railways.
  • Tele-Education and Tele-Medicine services under the Pan African e-network Project was launched in Addis Ababa in July 2007.
    • The Tele-Education project has been replicated by the Ethiopian side and linkages established between the Addis Ababa University and the Indian Institutes of Technology at Delhi and Kanpur.
  • Bilateral trade between Ethiopia and India stood at USD 1.28 billion in 2018-19, out of which Indian exports to Ethiopia were USD 1.23 billion and imports were USD 55.01 million.
    • There are more than 586 Indian companies in Ethiopia employing more than 55,000 people with licensed investment of over USD 4 billion.
    • About 58.7% of Indian investments are in the manufacturing sector, followed by agriculture (15.6%).
  • Indian Mission has been celebrating the International Day of Yoga in Addis Ababa. Mission held Gandhi@150 celebrations in Addis Ababa (Oct 2020).

3.The doubted scientist and her vaccine revolution

Katalin Kariko’s once-derided idea led to the genesis of two vaccines to fight COVID-19 and more

As the world continues to grapple with the COVID-19 pandemic, it is becoming increasingly apparent to every country that rapid mass vaccination is the only sure way to stop the virus in its tracks. Yet, as we debate issues like vaccine inequality and vaccine nationalism, we tend somewhat to neglect the science bit, the creation of the vaccines, which happens to be the only positive element in the discourse about the pandemic. Indeed, the speed with which the vaccines to fight COVID-19 have been invented and tested is unparalleled in the history of medical science. And one interesting fact about this stunning feat of science is that several women have led it from the front.

These women of science have emerged as role models in a field of human endeavour that is still perceived as ‘masculine’ and is dominated by men in leading positions. Sarah Gilbert at the University of Oxford led the creation of AstraZeneca’s Vaxzevria (known in India as Covishield). In the same league we have K. Sumathy, who steered the team behind Bharat Biotech’s Covaxin. Hanneke Schuitemaker, a Dutch virologist, guided the development of Janssen by Johnson & Johnson. Elena Smolyarchuk at Sechenov University led the study for Sputnik V.

A bold idea

However, the scientist who should be feted the most for her work on developing vaccines to fight COVID-19 is Katalin Kariko, a Hungarian-origin biochemist working in the U.S. Dr. Kariko has not only led the creation of the Pfizer-BioNTech vaccine, which is one of the most effective, but in doing so, she has also invented and perfected a new technique involving a molecule called the mRNA. This has revolutionised biotechnology, paving the way for unheard-of miracles in drug development.

The mRNA (messenger-Ribonucleic Acid) is a molecule naturally manufactured by animal cells that gives signals to cells about which proteins to make. That is, it carries to the cells vital genetic information upon which protein synthesis, one of the most critical physiological functions, thoroughly depends. Yet, no one before Dr. Kariko thought mRNA could be modified in labs to harness their code-carrying ability for triggering the manufacture of specific proteins by cells — proteins that would generate precise antibodies needed to fight particular antigens or disease-causing micro-organisms.

This idea, of tweaking the ‘message’ in the mRNA for customised signalling to cells, was simple and logical, like many breakthrough ideas in science. But it was also stunningly bold. In effect, Dr. Kariko was aiming to play God with a cellular function so foundational that it has always been taken for granted. Expectedly, her idea was treated by the whole scientific community in the U.S. as odd and improbable. It was repeatedly rejected by funding bodies, and Dr. Kariko struggled to get a grant or even a lab to work consistently on the mRNA.

Two chance encounters

Yet, she held on to her idea, working on it sporadically in shared labs, while surviving on a low-end, insecure job at the University of Pennsylvania. And this — the lack of grants or a solid professional position — meant more rejections and more isolation. Dr. Kariko was at the point of giving up when a chance encounter at a photocopy centre one morning in 1998 changed her decision. Dr. Drew Weissman, an influential biotechnologist working at UPenn, was moderately impressed by Dr. Kariko’s idea and agreed to share his lab and other resources with her.

It was here that Dr. Kariko honed the technology to modify the mRNA and tested it on mice. After an initial hiccup, she was successful. The modified mRNA was able to trigger targeted protein synthesis in mice with no negative side effects. Yet — such is the hold of convention and status on the scientific establishment — there was hardly any excitement around the invention. Dr. Kariko remained where she was and what she was until another chance meeting at a conference with Uğur Şahin, the CEO of BioNTech. Dr. Kariko, an academic, became the vice-president of BioNTech RNA Pharmaceuticals, using her technology to manufacture an influenza vaccine.

And then COVID-19 hit the world. In February 2020, when the virus was still mostly confined to China, her employer seemed to sense it was going to be much worse. He and Dr. Kariko decided to start working on a vaccine against the novel pathogen using the mRNA technology. By then BioNTech had partnered with Pfizer, and Dr. Kariko’s work led to the development of their vaccine against COVID-19. Moderna later used the same technology to develop their vaccine. Thus, Dr. Kariko’s once-derided idea led to the genesis of two of the most effective anti-COVID-19 vaccines, in the process establishing an epoch-making new technology in biomedicine.

Lessons from the invention

Dr. Kariko’s brilliance as an innovator underscores the point that women can be as good as men in science — a point that should have been well-established by now, but which is hardly the accepted view among people even in the Western world. Her revolutionary invention, one hopes, would go some way in negating sexist assumptions about women in science, not many of whom achieve such spectacular success but all of whom contribute to the collective endeavour of human science. Dr. Kariko’s career, moreover, should have a lesson for all systems of power everywhere — that when some idea challenges the norms or conventions of a system, it is the system that needs to stretch itself in order to give it a chance. Entrenched conventionality is the bane of all human endeavours, and especially of science, which is synonymous with progress.

When Dr. Kariko was invited to a vaccination site for health workers at UPenn, in December 2020, the otherwise emotionally stable woman was moved by the sight of the big crowd waiting to get a shot of her vaccine. And when the doctors broke into spontaneous clapping as she and Dr. Weissman walked past them in a hall, she gave in and “cried a bit” in joy, she told Gina Kolata of The New York Times. Her life’s dream, which she had been chasing since she was 22, was finally realised, and a long saga of doubt, implied insult, and unrewarded toil had come to an end. I believe Dr. Kariko deserves the Nobel Prize in Medicine for her revolutionary idea and her incredible hard work. Hers is an idea that has opened up the scope for endless possibilities in drug development.

4.No fundamental right to strike

Essential workers should not resort to strike

Recently, the Minister of Defence introduced the Essential Defence Services Bill, 2021, in the Lok Sabha to provide for the maintenance of essential defence services so as “to secure the security of nation and the life and property of the public at large” and prevent staff of the government-owned ordnance factories from going on strike. The Bill seeks to empower the government to declare services mentioned in it as “essential defence services” and prohibit strikes and lockouts in any industrial establishment or unit engaged in such services. The Minister, however, assured the Ordnance Factory Board (OFB) employees that their service conditions will not be affected.

Rules and rights    

This is not for the first time that strikes by government employees are being made explicitly illegal by the government. The Madhya Pradesh (and Chhattisgarh) Civil Services Rules, 1965, prohibit demonstrations and strikes by government servants and direct the competent authorities to treat the durations as unauthorised absence. A strike under this rule includes “total or partial cessation of work”, a pen-down strike, a traffic jam, or any such activity resulting in cessation or retardation of work. Other States too have similar provisions.

Under Article 33 of the Constitution, Parliament, by law, can restrict or abrogate the rights of the members of the armed forces or the forces charged with the maintenance of public order so as to ensure the proper discharge of their duties and maintenance of discipline among them. Thus, for the armed forces and the police, where discipline is the most important prerequisite, even the fundamental right to form an association can be restricted under Article 19(4) in the interest of public order and other considerations.

The Supreme Court in Delhi Police v. Union of India (1986) upheld the restrictions to form association by the members of the non-gazetted police force after the Police Forces (Restriction of Rights) Act, 1966, and the Rules as amended by Amendment Rules, 1970, came into effect. While the right to freedom of association is fundamental, recognition of such association is not a fundamental right. Parliament can by law regulate the working of such associations by imposing conditions and restrictions on their functions, the court held.

In T.K. Rangarajan v. Government of Tamil Nadu (2003), the Supreme Court held that the employees have no fundamental right to resort to strike. Further, there is prohibition to go on strike under the Tamil Nadu Government Servants’ Conduct Rules, 1973. Also, there is no moral or equitable justification to go on strike. The court said that government employees cannot hold the society to ransom by going on strike. In this case, about two lakh employees, who had gone on strike, were dismissed by the State government.

Grievance redressal

A police havildar was convicted of contempt of court by the sub-divisional officer, Gaya. The Gaya police, thereupon, gave notice of strike unless redress was given to the havildar and the sub-divisional officer punished. Though an inquiry was ordered immediately, the strike commenced on March 24, 1947. When some representatives of policemen met Gandhi at Jehanabad on the March 28, he told them that their strike was ill-advised. They were not mere wage-earners but the members of an essential service. They should immediately and unconditionally call off the strike. In his speech on March 27, Gandhi said that “the police… should never go on strike. Theirs was an essential service and they should render that service, irrespective of their pay. There were several other effective and honourable means of getting grievances redressed…”

There is no fundamental right to strike under Article 19(1)(a) of the Constitution. Strikes cannot be justified on any equitable ground. Strike as a weapon is mostly misused which results in chaos. Though the employees of OFB have threatened to go on strike, Parliament, which has the right to restrict even the fundamental rights of the armed forces, is well within its right to expressly prohibit resorting to strike.

Article 33 in The Constitution Of India 1949

33. Power of Parliament to modify the rights conferred by this Part in their application etc Parliament may, by law, determine to what extent any of the rights conferred by this Part shall, in their application to,

a.the members of the Armed Forces; or

 b. the members of the Forces charged with the maintenance of public order; or

c. persons employed in any bureau or other organisation established by the State for purposes of intelligence or counter intelligence; or

d. persons employed in, or in connection with, the telecommunication systems set up for the purposes of any Force, bureau or organisation referred to in clauses (a) to (c), be restricted or abrogated so as to ensure the proper discharge of their duties and the maintenance of discipline among them

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