Note4Students
From UPSC perspective, the following things are important :
Prelims level: Pillar One
Mains level: Paper 3- OECD formula for digital tax and its implications for India
Context
Over the past four years, 137 countries have engaged intensively with the OECD to find a solution to the tax challenges arising from digitalisation. Like any international agreement, finding a middle ground has been difficult and a series of compromises have been made.
What makes it difficult to tax the digital economy?
- Operation across the border: The unique feature of the digital economy is that firms can operate seamlessly across borders and users and their data contribute to their profits.
- However, this made it harder to tax such an economy.
- It was not clear how profits were to be pinned down to any jurisdiction.
- Political issues: Taxing digital economy became a political issue because the largest technology firms are tax residents of developed countries and redefining digital presence as the basis of taxation would potentially allow large markets like India more right to tax.
- Developing vs. developed countries: Developing countries wanted that profits from digital operations should be fractionally apportioned to markets while developed countries believe that a fraction of residual profit, mainly arising from marketing functions, should be taxed in markets.
Equalisation levy and DST issue
- The divergence in developed and developing countries as explained above compelled countries to implement unilateral measures.
- India was the first country to implement a gross equalisation levy on turnover.
- This is not covered by tax treaties.
- So, while the income tax act does not apply to the levy, credit is available for the tax paid by the company in its home country.
- Similarly, several other countries have announced or implemented a digital services tax (DST).
- In 2021, India expanded the scope of the equalisation levy.
- The US initiated the US Trade Representative investigations which found DST to be discriminatory, and then announced retaliatory tariffs.
Two-pillar approach and issues with its adoption
- The DSTs encouraged the US to actively participate in finding a consensus-based solution.
- As talks progressed, the OECD announced that the issue of allocation of taxing rights would be actively considered and adopted a two-pillar approach.
- Pillar One approach: The first pillar was to define the rules for taxing digital companies.
- Sovereignty issue: Pillar One was to go beyond digital companies and apply to large companies with annual revenue over € 20 billion. To ensure certainty to taxpayers, the solution will require excessive global coordination.
- Whether this will undermine sovereignty, remains to be seen.
- Therefore, it is important to consider if the consensus approach is worth pursuing.
- EL may still apply to companies not covered by OECD proposal: In fact, the EL may apply to companies that are not covered by the OECD proposal, leaving one to wonder whether it will truly address the tax challenges from digitalisation.
- Complications: Corporations that argue in favour of simplicity must also consider the potential benefits from an EL like tax that sets aside the complications of attributing profits to complex functions.
- The OECD approach creates a fiction of reallocation, where the profits reallocated through Pillar One could in fact be compensated for by taxing back global profits taxed below 15 per cent.
Conclusion
As per Pillar One proposal, DSTs will be removed once the OECD approach is ratified in 2023. It is imperative therefore that countries assess the price of compromise.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NITI Aayog
Mains level: Read the attached story
The government has appointed Suman K. Bery as the vice-chairman of the NITI Aayog following the resignation of Rajiv Kumar.
What is NITI Aayog?
- The NITI Aayog serves as the apex public policy think tank of the GoI.
- It was established in 2015, by the NDA government, to replace the Planning Commission which followed a top-down model.
- It advises both the centre and states on social and economic issues.
- It is neither a constitutional body nor a statutory body but the outcome of an executive resolution. It was not created by the act of parliament.
Composition of NITI Aayog
- The Prime Minister of India is the chairperson/chairman of the NITI Aayog.
- The PM appoints one Vice-Chairperson, who holds the rank of a cabinet minister.
- It includes the Chief Ministers of all the states and Union territories.
- It has Regional Councils for looking after contingencies in regional areas. It is convened and chaired by the Prime Minister of India and includes concerned chief ministers and Lt. Governors.
- The Prime Minister nominates Personalities with skilled knowledge, who are experts in particular domains as special invitees.
- There are full-time members who hold the rank of ministers.
- There is a maximum of two Part-time members who are invited from leading organisations, universities, and research centres.
- The Prime Minister also appoints one Chief Executive Officer (CEO) who holds the rank of a Secretary.
Aims, Agenda, and Objectives of NITI Aayog
The purpose with which NITI Aayog was formed in place of the Planning Commission was a far-sighted vision. It was important to boost the development of India in the emerging global scenario. The objectives are:
- To generate a platform for national development, sectors and strategies with the collaboration of states and centre.
- To boost the factor of cooperative federalism between the centre and the states. For national development, it is necessary for both wings to work in synergy.
- To develop such mechanisms which work at the ground root level for progressive growth. A nation develops when its regions and states develop.
- To work on long term policies and strategies for long-term development. To set up a system for monitoring progress so that it can be used for analysing and improving methods.
- To provide a platform for resolving inter-departmental issues amicably.
- To make it a platform where the programmes, strategies, and schemes can be monitored on a day to day basis, and it could be understood which sector needs more resources to develop.
- To upgrade technological advancements in such a manner that focus can be made on iNITIatives and programmes.
- To ensure India’s level and ranking at the worldwide level and to make India an actively participating nation.
- To progress from food security towards nutrition and standardised meals and focus on agricultural production.
- To make use of more technology to avoid misadventures and corruption in governance.
- To make the working system more transparent and accountable.
NITI Aayog – Seven Pillars of Effective Governance
- NITI Aayog works on principles like Antyodaya (upliftment of poor), inclusion (to include all sections under one head), people participation, and so on.
- NITI Aayog is a body that follows seven pillars of governance. They are:
- To look after pro-people agenda so that the aspirations and desires of no one are compromised.
- To respond and work on the needs of citizens.
- Make citizens of the nation involve and participate in various streams.
- To empower women in all fields, be it social, technical, economic, or other.
- To include all sects and classes under one head. To give special attention to marginalised and minority groups.
- To provide equal opportunity for the young generation.
- To make the working of government more accountable and transparent. It will ensure less chance of corruption and malpractices.
Also read:
[Burning Issue] Niti Ayog – A critical Analysis
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Phone Tapping
Mains level: Read the attached story
A lady IPS officer is facing an FIR in Mumbai for allegedly tapping the phones of a Rajya Sabha MP in Maharashtra.
How are phones tapped in India?
- In the era of fixed-line phones, mechanical exchanges would link circuits together to route the audio signal from the call.
- When exchanges went digital, tapping was done through a computer.
- Today, when most conversations happen through mobile phones, authorities make a request to the service provider.
- The service provider is bound by law to record the conversations on the given number and provide these in real time through a connected computer.
Who can tap phones?
- The State Police have the powers to tap phones.
- Ten Central agencies are authorised to do so: Intelligence Bureau, CBI, Enforcement Directorate, Narcotics Control Bureau, Central Board of Direct Taxes, Directorate of Revenue Intelligence, National Investigation Agency, R&AW, Directorate of Signal Intelligence, and the Delhi Police Commissioner.
- Tapping by any other agency would be considered illegal.
What laws govern this?
- Phone tapping in India is governed by The Indian Telegraph Act, 1885.
- Section 5(2) says that “on the occurrence of any public emergency, or in the interest of the public safety”, phone tapping can be done by the Centre or states.
- It can be done in the interest of “public safety”, “sovereignty and integrity of India, the security of the State, friendly relations with foreign States or public order or for preventing incitement to the commission of an offence”.
- There is an exception for the press: “press messages intended to be published in India of correspondents accredited to the Central Government or a State Government shall not be intercepted or detained, unless their transmission has been prohibited under this sub-section”.
- The competent authority must record reasons for tapping in writing.
Who authorises phone tapping?
- Rule 419A of the Indian Telegraph (Amendment) Rules, 2007, says phone tapping orders “shall not be issued except by an order made by the Secretary to the GoI in the Ministry of Home Affairs.
- It can be authorised by the Secretary to the State Government in-charge of the Home Department in the case of a State Government.
- The order has to be conveyed to the service provider in writing; only then can the tapping begin.
What happens in an emergency?
- In unavoidable circumstances, such an order may be issued by an officer, not below the rank of a Joint Secretary to the GoI, who has been authorised by the Union Home Secretary, or the State Home Secretary.
- In remote areas or for operational reasons, if it is not feasible to get prior directions, a call can be intercepted with the prior approval of the head or the second senior-most officer of the authorised law enforcement agency at the central level, and by authorised officers, not below the rank of Inspector General of Police, at the state level.
- The order has to be communicated within three days to the competent authority, who has to approve or disapprove it within seven working days.
- If the confirmation from the competent authority is not received within the stipulated seven days, such interception shall cease.
- For example, during the 26/11 attacks in Mumbai, the authorities had no time to follow the complete procedure, and so a mail was sent to the service provider by the Intelligence Bureau.
What are the checks against misuse?
- The law is clear that interception must be ordered only if there is no other way of getting the information.
- The directions for interception remain in force, unless revoked earlier, for a period not exceeding 60 days.
- They may be renewed, but not beyond a total of 180 days.
- Any order issued by the competent authority has to contain reasons, and a copy is to be forwarded to a review committee within seven working days.
- At the Centre, the committee is headed by the Cabinet Secretary with the Law and Telecom Secretaries as members.
- In states, it is headed by the Chief Secretary with the Law and Home Secretaries as members.
- The committee is expected to meet at least once in two months to review all interception requests.
What if misuse occurs?
- When the Review Committee is of the opinion that the directions are not in accordance with the provisions referred to above it may set aside the directions.
- It may order for destruction of the copies of the intercepted message or class of messages.
- Under the rules, records pertaining to such directions shall be destroyed every six months unless these are, or are likely to be, required for functional requirements.
- Service providers too are required to destroy records pertaining to directions for interception within two months of discontinuance of the interception.
Is the process transparent?
- There are multiple provisions aimed at keeping the process transparent.
- Directions for interception are to specify the name and designation of the officer or the authority to whom the intercepted call is to be disclosed.
- The directions have to be conveyed to designated officers of the service providers in writing by an officer not below the rank of SP or Additional SP or equivalent.
- The officer is expected to maintain records with details of the intercepted call.
- The designated nodal officers of the service providers are supposed to issue acknowledgment letters to the security/law enforcement agency within two hours on receipt of an intimation.
- They are to forward every 15 days a list of interception authorisations received to the nodal officers of the security and law enforcement agencies for confirmation of authenticity.
- It makes the service providers responsible for actions of their employees.
- In case of unauthorised interception, the service provider may be fined or even lose its licence.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Currency Swap
Mains level: Economic crisis in Sri Lanka
India has extended the duration of a $400 million currency swap facility with Sri Lanka which it had concluded with the island nation in January this year.
What are Currency Swaps?
- A currency swap, also known as a cross-currency swap, is an off-balance sheet transaction in which two parties exchange principal and interest in different currencies.
- Currency swaps are used to obtain foreign currency loans at a better interest rate than could be got by borrowing directly in a foreign market.
Practice question for mains:
Q. What are Currency Swaps? Discuss the efficacy of Currency Swap Agreements for enhancing bilateral cooperation in Indian context.
How does it work?
- In a swap arrangement, RBI would provide dollars to a Lankan central bank, which, at the same time, provides the equivalent funds in its currency to the RBI, based on the market exchange rate at the time of the transaction.
- The parties agree to swap back these quantities of their two currencies at a specified date in the future, which could be the next day or even three months later, using the same exchange rate as in the first transaction.
- These swap operations carry no exchange rate or other market risks, as transaction terms are set in advance.
Why does one need dollars?
- FPIs investors look for safer investments but the current global uncertainty over COVID outbreak has led to a shortfall everywhere in the global markets.
- This has pulled down foreign exchange reserves of many small and developing countries.
- This means that the government and the RBI cannot lower their guard on the management of the economy and the external account.
Benefits of currency swap
- The absence of an exchange rate risk is the major benefit of such a facility.
- This facility provides the flexibility to use these reserves at any time in order to maintain an appropriate level of balance of payments or short-term liquidity.
- Swaps agreements between governments also have supplementary objectives like the promotion of bilateral trade, maintaining the value of foreign exchange reserves with the central bank and ensuring financial stability (protecting the health of the banking system).
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NRI vs OCI
Mains level: Voting rights for OCI
Chief Election Commissioner, during a recent visit to South Africa and Mauritius, urged Non-Resident Indians (NRIs) to register as overseas electors and told them that a proposal on postal ballots for NRIs was being contemplated by the Election Commission of India.
Why in news now?
- CECs interactions with NRIs came after Union Law Minister informed the Lok Sabha in March that the government was exploring the possibility of allowing online voting for NRIs.
- The ECI had written to the Law Ministry in 2020 proposing that NRIs be allowed to vote through postal ballots, following which the matter has been under consideration by the government.
- The ECI at present allows NRIs to register as overseas electors as long as they have not acquired the citizenship of another country.
- They have to reach their respective polling booths to cast their votes in person on voting day.
Classification of Overseas Indians
Overseas Indians, officially known as Non-resident Indians (NRIs) or Persons of Indian Origin (PIOs), are people of Indian birth, descent or origin who live outside the Republic of India:
(A) Non-Resident Indian (NRI)
- Strictly asserting non-resident refers only to the tax status of a person who, as per section 6 of the Income-tax Act of 1961, has not resided in India for a specified period for the purposes of the Act.
- The rates of income tax are different for persons who are “resident in India” and for NRIs.
(B) Person of Indian Origin (PIO)
Person of Indian Origin (PIO) means a foreign citizen (except a national of Pakistan, Afghanistan, Bangladesh, China, Iran, Bhutan, Sri Lanka and/or Nepal), who:
- at any time held an Indian passport OR
- either of their parents/grandparents/great-grandparents were born and permanently resident in India as defined in GoI Act, 1935 and other territories that became part of India thereafter provided neither was at any time a citizen of any of the aforesaid countries OR
- is a spouse of a citizen of India or a PIO.
(C) Overseas Citizenship of India (OCI)
- After multiple efforts by leaders across the Indian political spectrum, a pseudo-citizenship scheme was established, the “Overseas Citizenship of India”, commonly referred to as the OCI card.
- The Constitution of India does not permit full dual citizenship.
- The OCI card is effectively a long-term visa, with restrictions on voting rights and government jobs.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Features of UPI
Mains level: Success of UPI payment system
Tourists or migrants to the United Arab Emirates (UAE) with Indian bank accounts will be able to make UPI payments at shops, retail establishments and other merchants in the gulf nation.
What is UPI?
- Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank transactions.
- The interface is regulated by the Reserve Bank of India (RBI) and works by instantly transferring funds between two bank accounts on a mobile platform.
How does the service work?
- The NPCI and UAE’s Mashreq Bank’s NEOPAY have partnered for this service
- It will be mandatory for users to have a bank account in India with UPI enabled on it.
- The users will also need an application, like BHIM, to make UPI payments.
Will UPI be accepted everywhere in the UAE?
- Payments using UPI will only be accepted at those merchants and shops which have NEOPAY terminals.
Does NPCI have other such international arrangements?
- NPCI’s international arm NIPL have several such arrangements with international financial services providers for its products, including UPI and RuPay cards.
- Globally, UPI is accepted in Bhutan and Nepal, and is likely to go live in Singapore later this year.
- In Singapore, a project to link UPI with the city-state’s instant payment system PayNow is being undertaken by the RBI and the Monetary Authority of Singapore.
- The linkage is targeted for operationalization by July this year.
Back2Basics: Bharat Interface for Money (BHIM)
- BHIM is an Indian mobile payment App developed by the National Payments Corporation of India (NPCI), based on the Unified Payments Interface (UPI).
- Named after B. R. Ambedkar and launched on 30 December 2016 it is intended to facilitate e-payments directly through banks and encourage cashless transactions.
- The application supports all Indian banks which use UPI, which is built over the Immediate Payment Service (IMPS) infrastructure and allows the user to instantly transfer money between bank accounts of any two parties.
- It can be used on all mobile devices.
Answer this PYQ in the comment box:
Q. With reference to digital payments, consider the following statements:
- BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
- While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.
Which of the statements given above is/ are correct? (CSP 2018)
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Post your answers here.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: OEGL
Mains level: India-UK defence ties
In the backdrop of the rapid geopolitical turmoil, PM Modi and his British counterpart Boris Johnson agreed on a new and expanded India-UK defence partnership and vowed to seal an ambitious free trade agreement by the end of the year.
What is the news?
- The UK is creating an Open General Export Licence (OGEL) for India to reduce bureaucracy and slashing delivery times for defence procurement.
- It will partner with India on new fighter jet technology as well as in the maritime sphere to detect and respond to threats.
What is OGEL?
- The open General Licence is a type of license that is used for the export license that is issued by the government for domestic suppliers.
- The items that are to be exported in India are categorised into three types. They are prohibited items, restricted items, and freely importable items. These classifications are made based on the nature and use of the products.
- The application processing and grant of OEGL will be taken care of by the Department of Defence Production. The process will vary for each case.
- The primary aim of the OEGL is to give a boost to the defence exports of India. This will also improve the ease of doing business and imports and exports.
- The countries allowed under the OGELs are: Belgium, France, Germany, Japan, South Africa, Spain, Sweden, UK, USA, Canada, Italy, Poland and Mexico.
Items to be exported
- The items permitted under OGEL includes components of ammunition & fuse setting device without energetic and explosive material; firing control & related alerting and warning equipment & related system; and body protective items.
- Complete aircraft or complete unmanned aerial vehicles (UAVs) and any components specially designed or modified for UAVs are excluded under this license.
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