Daily Current Affairs 06.09.2020 (GST, 13th Amendment of Srilanka, SFF)

Daily Current Affairs 06.09.2020 (GST, 13th Amendment of Srilanka, SFF)

1. What is the GST compensation due to States?

The 41st meeting of the GST Council was held on August 27 with the singular agenda of finding a solution to the question of how best to ensure that the compensation payable to the States as part of the implementation of the Goods and Services Tax continues to be paid. The background for the meeting was the fact that the Centre and the States were cognisant of the substantial impact on GST collections from the last fiscal year’s economic slowdown and more recently the lockdowns and COVID-19-related curbs that have severely shrunk the economy. At the meeting, Finance Minister Nirmala Sitharaman stated that the GST Compensation Fund was projected to face a shortfall of about 2.35 lakh crore at the end of the current financial year and suggested two borrowing options that the States could choose from to bridge the shortfall.

What is the GST compensation?

The Constitution (One Hundred and First Amendment) Act, 2016, was the law which created the mechanism for levying a nationwide GST. Written into this law was a provision to compensate the States for loss of revenue arising out of implementation of the GST. The adoption of the GST was made possible by the States ceding almost all their powers to impose local-level indirect taxes and agreeing to let the prevailing multiplicity of imposts be subsumed under the GST. While the States would receive the SGST (State GST) component of the GST, and a share of the IGST (Integrated GST), it was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is set to end in 2022. This corpus in turn is funded through a compensation cess that is levied on so-called ‘demerit’ goods. The computation of the shortfall — the mechanism for which is spelt out in Section 7 of the GST (Compensation to States) Act, 2017 — is done annually by projecting a revenue assumption based on 14% compounded growth from the base year’s (2015-2016) revenue and calculating the difference between that figure and the actual GST collections in that year. For the 2020-21 fiscal year, the revenue shortfall has been anticipated at ₹3 lakh crore, with the Compensation Fund expected to have only about ₹65,000 crore through cess accruals and balance to pay the compensation to the States.

How are the borrowing options supposed to work?

  • Asserting that it is under no obligation to make good any shortfall in the GST and that it is up to the GST Council to devise a solution, the Union government has proposed that the States borrow directly from the market by issuing debt under a special window coordinated by the Ministry of Finance. The Centre has also contended that of the projected shortfall of about ₹2.35 lakh crore, only ₹97,000 crore is the deficit arising out of GST implementation, with the balance ₹1.38 lakh crore attributable to an ‘act of God’ (the COVID-19 pandemic) that is independent of implementation of the new indirect tax regime.
  • Accordingly, Option 1 entails the States selling debt securities in the market to raise the ₹97,000 crore. The Centre will “endeavour” to keep the interest cost on these borrowings “at or close to” the yield on G-Sec (bonds issued by the Government of India), and in the event of the cost being higher, bear a part of the difference through a subsidy. This additional borrowing by the States will not be accounted for as a part of the State’s debt for purposes of its overall debt calculation, and the repayment of the principal and interest on these borrowings will be done from the Compensation Fund by extending the period of cess collections beyond 2022. Under Option 2, the States can sell debt in the market to raise the entire ₹2.35 lakh crore shortfall but with the terms of the borrowing being far less favourable. Crucially, here the interest cost would have to be borne by them with only the principal being serviced by the Compensation Fund.

Why is there an impasse on this issue?

Several States, including West Bengal, Kerala, Punjab and Tamil Nadu, have rejected the options and made clear that the onus is on the Centre to borrow from the market to make good any shortfall in the Compensation Fund. Tamil Nadu, in a letter to the Prime Minister, stressed that the States had agreed to the implementation of the GST only on the basis of the “unequivocal commitment given by the Government of India to compensate the States for any revenue loss”. Observing that States had not only suffered severe losses in revenue in the wake of the pandemic but had also been at the forefront of the battle to prevent the spread of the disease, Tamil Nadu said any delay in ensuring the compensation payments would compromise essential capital spending by the States to restart the economy effectively. These States dismiss the Centre’s contention that any additional borrowing by it would have deleterious macro-economic consequences and point out thatglobal credit rating agencies essentially monitor the overall general government deficit and borrowing levels.

The Goods and Services Tax (GST)

The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.

Main Features of GST

  • Applicable On supply side: GST is applicable on ‘supply’ of goods or services as against the old concept on the manufacture of goods or on sale of goods or on provision of services.
  • Destination based Taxation: GST is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
  • Dual GST: It is a dual GST with the Centre and the States simultaneously levying tax on a common base. GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).

    • Import of goods or services would be treated as inter-state supplies and would be subject to Integrated Goods & Services Tax (IGST) in addition to the applicable customs duties.
  • GST rates to be mutually decided: CGST, SGST & IGST are levied at rates to be mutually agreed upon by the Centre and the States. The rates are notified on the recommendation of the GST Council.
  • Multiple Rates: Initially GST was levied at four rates viz. 5%, 12%, 16% and 28%. The schedule or list of items that would fall under these multiple slabs are worked out by the GST council.

Legislative Basis Of GST

  • In India, GST Bill was first introduced in 2014 as The Constitution (122nd Amendment) Bill.
  • This got an approval in 2016 and was renumbered in the statute by Rajya Sabha as The Constitution (101st Amendment) Act, 2016. Its provisions:

    • Central GST to cover Excise duty, Service tax etc, State GST to cover VAT, luxury tax etc.
    • Integrated GST to cover inter-state trade. IGST per se is not a tax but a system to coordinate state and union taxes.
    • Article 246A – States have power to tax goods and services.
  • GST Council

    • Article 279A – GST Council to be formed by the President to administer & govern GST. It’s Chairman is Union Finance Minister of India with ministers nominated by the state governments as its members.
    • The council is devised in such a way that the centre will have 1/3rd voting power and the states have 2/3rd.
    • The decisions are taken by 3/4th majority.
  • Reforms Brought About by GST
    • Creation of common national market: By amalgamating a large number of Central and State taxes into a single tax.
    • Mitigation of cascading effect: GST mitigated ill effects of cascading or double taxation in a major way and paved the way for a common national market.
    • Reduction in Tax burden: From the consumers’ point of view, the biggest advantage would be in terms of reduction in the overall tax burden on goods.
    • Making Indian products more competitive: Introduction of GST is making Indian products more competitive in the domestic and international markets owing to the full neutralization of input taxes across the value chain of production.
    • Easier to administer: Because of the transparent and self-policing character of GST, it would be easier to administer.

Advantages of GST

For the Government

  • Create a unified common market: Will help to create a unified common national market for India. It will also give a boost to foreign investment and “Make in India” campaign.
  • Streamline Taxation: Through harmonization of laws, procedures and rates of tax between Centre and States and across States.
  • Increase tax Compliance: Improved environment for compliance as all returns are to be filed online, input credits to be verified online, encouraging more paper trail of transactions at each level of supply chain;
  • Discourage Tax evasion: Uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales.

For Overall Economy

  • Bring about certainty: Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax return, common tax base, common system of classification of goods and services will lend greater certainty to taxation system;
  • Reduce corruption: Greater use of IT will reduce human interface between the taxpayer and the tax administration, which will go a long way in reducing corruption;
  • Boost secondary sector: It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth;
  • Ultimately it will help in poverty eradication by generating more employment and more financial resources.

For the Trade and Industry

  • Simpler tax regime with fewer exemptions.
  • Increased ease of doing business.
  • Reduction in multiplicity of taxes.
  • Elimination of double taxation on certain sectors.
  • More efficient neutralization of taxes especially for exports
  • Making our products more competitive in the international market.
  • Simplified and automated procedures for registration, returns, refunds and tax payments.
  • Decrease in average tax burden on supply of goods or services.

For Consumers

  • Transparent prices: Final price of goods is expected to be transparent due to seamless flow of input tax credit between the manufacturer, retailer and service supplier.
  • Price reduction: Reduction in prices of commodities and goods in long run due to reduction in cascading impact of taxation;
  • Poverty eradication: By generating more employment and more financial resources.

For the States

  • Expansion of the tax base: As states will be able to tax the entire supply chain from manufacturing to retail.
  • More economical empowerment: Power to tax services, which was hitherto with the Central Government only, will boost revenue and give States access to the fastest growing sector of the economy.
  • Enhancing Investments: GST being destination based consumption tax will favour consuming States. Improve the overall investment climate in the country which will naturally benefit the development in the States.
  • Increase Compliance: Largely uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales

Exemptions under GST

  • Custom duty will be still collected along with the levy of IGST on imported goods.
  • Petroleum and tobacco products are currently exempted.
  • Excise duty on liquor, stamp duty and electricity taxes are also exempted.

Challenges Of GST

  • SCGT and CGST input credit cannot be cross utilized.
  • Manufacturing states lose revenue on a bigger scale.
  • High rate to tax to compensate the revenue collected now from multiple taxes i.e High Revenue Neutral Rate.
  • The reduction in the fiscal autonomy of the States.
  • Concerns raised by banks and insurance companies over the need for multiple registrations under GST.
  • The levy of additional cess.
  • The capacity of State tax authorities, so far used to taxing goods and not services, to deal with the latter is an unknown quantity.
  • The success of GST depends on political consensus, technology and the capacity of tax officials to adapt to the new requirements.

2. The 13th Amendment

After theRajapaksas’ win in the November 2019 presidential polls and the August 2020 general election, the spotlight has fallen on two key legislations in Sri Lanka’s Constitution. One, the 19th Amendment, that was passed in 2015 to curb powers of the Executive President, while strengthening Parliament and independent commissions. The Rajapaksa government has already drafted and gazetted the 20th Amendment. The other legislation under sharp focus is the 13th Amendment passed in 1987, which mandates a measure of power devolution to the provincial councils established to govern the island’s nine provinces.

What is the legislation?

It is an outcome of the Indo-Lanka Accord of July 1987, signed by the then Prime Minister Rajiv Gandhi and President J.R. Jayawardene, in an attempt to resolve Sri Lanka’s ethnic conflict that had aggravated into a full-fledged civil war, between the armed forces and the Liberation Tigers of Tamil Eelam, which led the struggle for Tamils’ self-determination and sought a separate state. The 13th Amendment, which led to the creation of Provincial Councils, assured a power sharing arrangement to enable all nine provinces in the country, including Sinhala majority areas, to self-govern. Subjects such as education, health, agriculture, housing, land and police are devolved to the provincial administrations, but because of restrictions on financial powers and overriding powers given to the President, the provincial administrations have not made much headway. In particular, the provisions relating to police and land have never been implemented. Initially, the north and eastern provinces were merged and had a North-Eastern Provincial Council, but the two were de-merged in 2007 following a Supreme Court verdict.

Why is it contentious?

The 13th Amendment carries considerable baggage from the country’s civil war years. It was opposed vociferously by both Sinhala nationalist parties and the LTTE. The former thought it was too much power to share, while the Tigers deemed it too little. A large section of the Sinhala polity, including the leftist-nationalist Janatha Vimukthi Peramuna (JVP) which led an armed insurrection opposing it, saw the Accord and the consequent legislation as an imprint of Indian intervention. Though signed by the powerful President Jayawardene, it was widely perceived as an imposition by a neighbour wielding hegemonic influence. The Tamil polity, especially its dominant nationalist strain, does not find the 13th Amendment sufficient in its ambit or substance. However, some including the Tamil National Alliance (TNA) — which chiefly represented the Tamils of the north and east in Parliament in the post-war era until its setback in the recent polls — see it as an important starting point, something to build upon.

Why is the 13th Amendment significant?

Till date, the 13th Amendment represents the only constitutional provision on the settlement of the long-pending Tamil question. In addition to assuring a measure of devolution, it is considered part of the few significant gains since the 1980s, in the face of growing Sinhala-Buddhist majoritarianism from the time Sri Lanka became independent in 1948.

Who wants it abolished and why?

From influential Cabinet ministers in the current government to state ministers, including a former naval officer who has been assigned the Provincial Councils & Local Government portfolio, many have openly called for the abolition of provincial councils after the new government took charge. They deem the councils “white elephants”, and argue that in a small country the provinces could be effectively controlled by the Centre. The opposition camp also includes those fundamentally opposed to sharing any political power with the Tamil minority. All the same, all political camps that vehemently oppose the system have themselves contested in provincial council elections. The councils have over time also helped national parties strengthen their grassroots presence and organisational structures.

What is the stand of the Rajapaksas?

Neither President Gotabaya Rajapaksa nor Prime Minister Mahinda Rajapaksa has commented on the Amendment so far. During Mr. Mahinda Rajapaksa’s two terms as President, for a decade from 2005, he gave several assurances to implement the 13th Amendment and go even beyond its provisions, popularly referred to as his promise of “13 plus”. The conduct of the historic Northern Provincial Election in 2013 was a welcome step, but his government was reluctant to part with land and police powers. New Delhi’s scepticism about past assurances is also no secret — the U.S. Embassy cables accessed by The Hindu through WikiLeaks in 2011 affirmed this. Prime Minister Narendra Modi has referenced the Amendment more than once, especially during high-level bilateral visits, but observers in Sri Lanka wonder how far India can go on the Tamil question, amid growing geopolitical insecurities.

3. Is COVID-19 setting off a bradykinin storm in the body?

Scientists are still trying to understand the causes for the rapid deterioration in some patients with COVID-19. While the cytokine storm is able to explain certain aspects of what goes wrong, doctors treating patients are often foxed by the severity with which the SARS-CoV-2 virus seems to affect some people. A supercomputer’s recent analysis of data on the contents collected earlier from the lungs of patients with the COVID-19 infection has showed that a phenomenon called a ‘bradykinin storm’ might explain how the virus works in the body, including some of the more puzzling extreme events.

How has this explanation emerged?

This plausible explanation has emerged from the data analytics work that a team of scientists led by Dan Jacobson at the Oak Ridge National Laboratory (ORLN) in the U.S. have been doing employing the super computer Summit. In a paper published in July in eLife, a peer reviewed journal, Michael R. Garvin et al advance the bradykinin hypothesis as a means of explaining some of the more deadly effects the virus has on the human body.

What is the bradykinin hypothesis?

  • Bradykinin is a compound that is related to pain sensation and lowering blood pressure in the human body. According to the researchers, “SARS-CoV-2 uses a human enzyme called ACE2 like a ‘Trojan Horse’ to sneak into the cells of its host. ACE2 lowers blood pressure in the human body and works against another enzyme known as ACE (which has the opposite effect).” The analyses further found that the virus caused the levels of ACE to fall in the lungs, and consequently pushed up the levels of ACE2. As a chain reaction, this increases the levels of the molecule bradykinin in the cells, causing a bradykinin storm. Bradykinin causes the blood vessels to expand and become leaky, leading to swelling of the surrounding tissue.
  • In addition, the levels of a substance called hyaluronic acid, which can absorb more than 1,000 times its own weight in water to form a hydrogel, increased. “In effect, the bradykinin storm-induced leakage of fluid into the lungs combined with the excess hyaluronic acid would likely result in a Jello-like substance that is preventing oxygen uptake and carbon dioxide in the lungs of severely affected COVID-19 patients,” the researchers explain. This rapid accumulation of fluid in the lungs of patients sometimes makes even the most sophisticated intensive care, including ventilators, futile. Meanwhile, The Scientist reported that Frank van de Veerdonk, an infectious disease specialist at the Radboud University Medical Centre in the Netherlands, and his group independently came up with a hypothesis that a dysregulated bradykinin system was leading to leaky blood vessels in the lungs and perhaps causing excess fluid to build up.

Is more confirmation needed?

  • TheScientist brought in Josef Penninger, director of the Life Sciences Institute at the University of British Columbia in Vancouver, to weigh in on this question. “It does make a lot of sense,” he told the magazine. He went on to add that further confirmation was needed, in terms of actually measuring the proteins. The magazine also reported the efforts of van de Veerdonk to set up mass spectrometry to measure kinins in the plasma.

What follows confirmation of this hypothesis?

  • Jacobson and other scientists have advocated targeting the bradykinin pathway to evolve more therapeutic interventions to offset the severe effects of COVID-19. Repurposing of available drugs, subject to the outcome of clinical trials, has also been suggested.

4. Blooded in battle and fighting in the shadows

LAC tensions have tured the spotlight on the elite force that played pivotal roles in the past, from liberating Bangladesh to the Kargil war

In Focus

The SFF was raised on Nov. 14, 1962 — on PM Nehru’s birthday

The outfit, first called Establishment 22, was raised as an elite unit capable of high-altitude warfare, special operations, and fighting behind enemy lines

In 1967, Establishment 22 was expanded and renamed the Special Frontier Force and they finally saw action in the 1971 war

  • On November 14, the elite Special Frontier Force (SFF) will turn 58. For an organisation that has served India for close to six decades and played some pivotal roles in key moments of Indian history, from liberating Bangladesh to fighting in the Kargil war, the SFF has scrupulously stayed out of the headlines. Until recently.
  • The death of an SFF soldier on August 30, who was deployed along the recently tense Line of Actual Control (LAC) that separates India and China, has now shed the spotlight on the SFF and its predominantly Tibetan soldiers. Company Leader Nyima Tenzin was killed in an accidental mine blast when he stepped over a vintage 1962 minefield during patrolling in Ladakh, according to Army sources.
  • His untimely death, and the deployment of the SFF amid the recent tensions with China, has not only brought unexpected attention to the highly trained and elite force, but also emerged as a source of pride for India’s Tibetan community, as underlined by a video from September 4 that showed Tibetans in Shimla gathering, singing, and tying their traditional khatas (white scarves) to a departing convoy as they waved goodbye to SFF personnel headed for the Ladakh front.
  • The limelight is certainly unusual for an elite outfit trained to working in the shadows. And it’s in the shadows where the SFF has mostly operated since its creation in 1962. The SFF’s antecedents, in fact, even predate 1962. This is a story that goes back to the mid-1950s, when Tibetan resistance fighters began crossing over into India starting with the 1956 uprising. More fighters would follow, in the wake of the failed uprising three years later and the Dalai Lama’s exile to India.
  • The 6,000 or so fighters who remained in India would be given a new opportunity in 1962, when then Intelligence Bureau chief B.N. Mullik put forward the idea of setting up a training centre for Tibetan fighters. Prime Minister Jawaharlal Nehru turned to Major General Sujan Singh Uban, who had earlier commanded the 22 Mountain Regiment and was a Second World War veteran.

First challenge

  • The first challenge was finding a base, recalls his son Inspector General (IG) Gurdip Singh Uban (retd), who was then a Second Lieutenant, aged 22, and decided to help out his father. “We hired a taxi from Delhi and drove to Chakrata [Uttarakhand] where my father knew was an old Gurkha training centre that was lying vacant,” he told The Hindu. “It had all the wherewithal — barracks, training grounds, and most importantly, it had training areas such as rock climbing and was at a height of 7,000 feet. And there the story began.”
  • The unit was raised on November 14, 1962 — on Nehru’s birthday. Exactly a week later, China would announce its “unilateral ceasefire”, so the unit would see no action in the war. In any case, they were hardly ready for action.
  • Mr. Uban said his father first called the outfit Establishment 22, named after his old Mountain Regiment that he was particularly fond of. The ‘two-twos’, as they would be known, would be all paratroopers — an elite unit capable of high-altitude warfare, special operations, and fighting behind enemy lines. They would report to the Cabinet Secretariat, and were not part of the Army. A women’s wing was also created. He recalled the passion of the first cohort. “What really struck me was both the anger and shame, of what happened to Tibet and the Dalai Lama, who was a god for them,” he said. “And also their incredible athleticism. I think Tibetans are blessed with genetics, which is why the PLA was always afraid they couldn’t compete with them.”
  • In 1967, Establishment 22 was expanded and renamed the Special Frontier Force. Mr. Uban revealed the story behind the name. “Special, because they were Special Forces [Commandos]. We used the word ‘frontier’ because my family belonged to the Hazara district of the then North West Frontier Province of undivided India,” he recalled, and not because of any intent to limit where they would be deployed.
  • They would finally see action in the 1971 war. They were deployed in the Chittagong Hill Tracts, and fought with extraordinary valour. More than 50 would lay down their lives, a sacrifice that was, given the secrecy of the outfit, never given its due recognition.

Fearless fighters

  • Mr. Uban would follow in his father’s footsteps, also serving as Inspector General of the SFF and leading them in battle, this time in Kargil in 1999 at heights of 14,000 feet in sub-zero temperatures, for which he would receive a letter of commendation from then Prime Minister Atal Bihari Vajpayee. “Having been in battle with the SFF,” he said, “there is one thing I learnt — they are fearless and never, ever hesitate.” Their recent deployment along the LAC has, in a break from the past, brought the SFF into the public attention. “Earlier, the thinking was when you have a secret weapon like this, you don’t flout it,” he said. “This time, it’s a great distinction. Earlier they were used in a covert manner, but now, it’s against China. So we are sending a clear message, even to the people in Tibet.”
  • Jayadeva Ranade, former Additional Secretary in the Cabinet Secretariat, said the SFF has been a force “blooded in battle”, but one that has always operated in the shadows. “The Chinese were not even aware of the SFF for 30-40 years,” he said. “I think this time, the leak was done deliberately to send the signal to Tibetans inside Tibet, that your brethren are fighting for you.”
  • “The PLA has been trying hard to recruit Tibetans in the Army and in militia outfits,” added Tibetologist Claude Arpi. “The message will reach Tibet that the SFF have already taken that step.”
  • Mr. Arpi said the new attention on the SFF holds implications both inside Tibet and for the Tibetan community in India. “Perhaps if Nyima Tenzin’s death had not been reported, we would not have known so much,” he added. “What is interesting for me is how people in the diaspora and refugee community are showing their patriotism, as you saw in the videos from Shimla.”
  • The SFF is now in its third generation, but its story is only beginning. Mr. Arpi said their new position in the limelight might provide the opportunity for the SFF’s warriors to get long overdue recognition from the government. Ultimately, he said, they should be integrated with the Army.
  • They are, as always, eager to serve, as one of their favoured battle songs notes: “The Chinese snatched Tibet from us, and kicked us out from our home; Even then, India kept us like their own… Our young martyrs have no sadness whatsoever; Whether it is Kargil or Bangladesh; We will not lose our strength; Whenever opportunities arise; We will play with our lives.”
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