Punjab Tax and Economic Reform - Punjab PCS Exam Notes

Punjab Tax and Economic Reform

Tax is very important very important part of government revenues. But sometimes it is necessary to reform the tax structure keeping eye on current economic conditions. We will learn about Tax and Economic reforms in Punjab in the following paragraphs.

Fiscal Reforms in Punjab

Monetary changes frame a vital piece of any change program and empowers a legislature to execute the improvement situated strategies all the more viably. The most imperative factor in charge of the declining financial execution of Punjab is its gross financial bungle.

Punjab has been under monetary worry since the mid-1980s, when it turned into a income shortfall state. Punjab had the questionable qualification of being among the states with the most astounding financial shortage in the nation toward the start of the change period. Militancy, which went on for over 10 years in the State, was one of the significant reasons for its poor financial condition however not by any means the only reason as announced in the White Paper on State Finances (2002).

It additionally drew out the elements that antagonistically affected the State’s monetary circumstance which incorporate the regularly expanding weight of submitted use – compensation, pay rates, benefits, intrigue installments on mounting open obligation, control sponsorships, misfortune making open endeavors and moderate development of income.

Populism undermines the limit of the administration to raise assets and enhance the efficiency of income. Low water system charges, free power for the ranch area, cancelation of octroi and uneconomic transport charges included to the weight the state exchequer and brought about further decrease in venture on wellbeing, training and other social administrations. The populist approaches in the State have brought about an excessive amount of obligation over the a long time. The GOP has taken all the institutional and sectoral measures recommended by the GOI, Reserve Bank of India and different offices to accomplish monetary adjusts what’s more, reestablish full scale monetary steadiness in the state funds.

According to a current report of the Confederation of Indian Industry (CII) on a relative investigation of State Finances of Northern States, the Gross Fiscal Shortage as an extent of Gross State Domestic Product (GSDP) in Punjab was 3.1 for the normal of 2005-08 and 4 for 2008-09, though it ought not be more noteworthy than 3 percent according to the FRBMA. The income shortage as level of GSDP was 1.8 for 2005-08 and 2.9 out of 2008-09, in spite of the receipt of Non-design Income Deficit Grant from the GOI, though it ought to have been totally wiped out with a specific end goal to meet the Fiscal Responsibility targets.

It is prominent that on one record Punjab has met the FRBMA target, i.e., obligation to GSDP proportion which was 42.6 as the normal for 2005-08 declined to 35.2 percent for 2009-10 (RE); despite the fact that the time allotment of this objective has not been clung to as it was gathered to be accomplished by 31 March, 2007. So, it might be said that Punjab is still having monetary awkward nature regardless of different change allots spelt by the government.

Goods and Services Tax (GST) is a comprehensive indirect tax on manufacture, sale, and consumption of goods and services throughout India. GST would replace respective taxes levied by the central and state governments.

What is GST?

It is a destination-based taxation system.
It has been established by the 101st Constitutional Amendment Act.
It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make India a unified market.
It is a single tax on supply of Goods and Services in its entire product cycle or life cycle i.e. from manufacturer to the consumer.
It is calculated only in the “Value addition” at any stage of a goods or services.
The final consumer will pay only his part of the tax and not the entire supply chain which was the case earlier.
There is a provision of GST Council to decide upon any matter related to GST whose chairman in the finance minister of India.

What taxes at center and state level are incorporated into the GST?

At the State Level

State Value Added Tax/Sales Tax
Entertainment Tax (Other than the tax levied by the local bodies)
Octroi and Entry Tax
Purchase Tax
Luxury Tax
Taxes on lottery, betting, and gambling

At the Central level

Central Excise Duty
Additional Excise Duty
Service Tax
Additional Customs Duty (Countervailing Duty)
Special Additional Duty of Customs

Benefits of GST

For Central and State Governments

Simple and Easy to administer: Because multiple indirect taxes at the central and state levels are being replaced by a single tax “GST”. Moreover, backed with a robust end to end IT system, it would be easier to administer.
Better control on leakage: Because of better tax compliance, reduction of rent seeking, transparency in taxation due to IT use, an inbuilt mechanism in the design of GST that would incentivize tax compliance by traders.
Higher revenue efficiency: Since the cost of collection will decrease along with an increase in the ease of compliance, it will lead to higher tax revenue.

For the Consumer

The single and transparent tax will provide a lowering of inflation.
Relief in overall tax burden.
Tax democracy that is luxury items will be taxed more and basic goods will be tax-free.

For the Business Class

Ease of doing business will increase due to easy tax compliance.
Uniformity of tax rate and structure, therefore, better future business decision making and investments by the corporates.
Removal of cascading effects of taxes.
Reduction in transactional cost will lead to improved competitiveness.
Gain to the manufacturer and exporters.
It is expected to raise the country GDP by 2% points.

GST Council

It is the 1st Federal Institution of India, as per the Finance minister.
It will approve all decision related to taxation in the country.
It consists of Centre, 29 states, Delhi and Puducherry.
Centre has 1/3rd voting rights and states have 2/3rd voting rights.
Decisions are taken after a majority in the council.

Supporting Laws to implement GST

For the implementation of GST, apart from the Constitution Amendment Act, some other statutes are also necessary. Recently 5 supporting laws to the GST were recommended by the council. 4 for the bills should be passed by the parliament, while the 5th one should be passed by respective state legislatures. The details are given below.

The Central Goods and Services Tax Bill 2017 (The CGST Bill).
The Integrated Goods and Services Tax Bill 2017 (The IGST Bill).
The Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill).
The Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill).
And a state GST will be passed by the respective state legislative assemblies.
Tax slabs are decided as 0%, 5%, 12%, 18%, 28% along with categories of exempted and zero rated goods for different types of goods and services.
Further, a cess would be levied on certain goods such as luxury cars, aerated drinks, pan masala and tobacco products, over and above the rate of 28% for payment of compensation to the States.
However, which goods and services fall into which bracket is still an enormous task to be completed by the GST council.
Highest tax slab is pegged at 40%.

DEMONETIZATION AND CASHLESS ECONOMY

What is Demonetization?

It is a financial step where in a currency unit’s status as a legal tender is declared invalid.
This is usually done when old currency notes are to be replaced with the news ones.
The 500 and 1000 rupee notes seized to be a legal tender from 8 November, 2016.

A brief past

Demonetisation was earlier done in 1978 When the government demonetised Rs. 1000, Rs. 5000 and Rs. 10000 notes.
This was done under the High Denomination Bank Note (Demonetisation) Act, 1978.
The difference between 1978 and 2016 Demonetisation is that the currency in circulation (of the higher denomination) is higher in 2016 than was in 1978.
The current demonitization has been done by government under section 26(2) of the Reserve Bank of India Act.

Implications of Demonetization

A parallel black economy would collapse.
Of the Rs 17 lakh crore of total currency in circulation in the country, black money is estimated at mind-boggling Rs 3 lakh crore.
Counterfeit currency: Death blow to the counterfeit Indian currency syndicate operating both inside and outside the country.
On Employment: a large part of the Indian economy is still outside the banking system. So, the cash shortage will hurt the informal sector that does most of its transactions in cash.
On elections: It will reduce the Vote-for-Note politics making elections more clean and transparent.
On Economy:
First, it will bring more borrowings to the exchequer, improve inflation outlook and increase India’s gross domestic product (GDP).
Second, it will revive investment opportunities and give a fillip to infrastructure and the manufacturing sector.
Third, it will help reduce interest rates and lower income tax rate.
Real estate cleansing: An unexpected dip in land and property prices.
On Higher Education: will become more reachable as the black money from ‘high capitation fees’ is discouraged.
On security:
Terror financing: Terror financing is sourced through counterfeit currency and hawala transactions.
Kashmir unrest: The four-month-long unrest in Kashmir valley is on a backburner
North-East insurgency and Maoists: Black money is the oxygen for Maoists collected through donations, levy and extortions. The illicit money is used to purchase arms and ammunition

Reforming the urban property tax in punjab

The legislature of Punjab faces a genuine financial test in paying for the conveyance of fundamental open administrations. Developing requests for more prominent responsibility by voters now imply that genuine endeavors to change the administration’s expense limit must be investigated.

Streets, streetlights, policing and sanitation are a portion of the administrations for which governments demand the property charge in urban areas and towns. As an extent of aggregate nearby government incomes and an offer of GDP, the urban property charge gathered in Punjab is around one fifth of that gathered by areas in equivalent nations. The expenses of urban administration arrangement likewise far surpass the assessment incomes gathered. Nonetheless, Punjab can build its accumulation to more than 25 billion PKR with extensive changes. This will be commonly more than what is gathered today, and will add up to 8 percent of Punjab’s advancement spending plan and 31 percent of its wellbeing and instruction spending plan for 2014-15.

The low levels of duty gathered the nation over – under 10 percent of the GDP – puts Punjab’s property assess accumulation issues into point of view. Pakistan fairs ineffectively in contrast with other South-Asian nations (India: 15 percent and Sri Lanka: 13 percent) and the normal for creating nations (15 percent). Regions represent a little part of the national duty income (5 percent of aggregate national expense income or short of what one percent of GDP). This profile has changed little in the previous decade, in spite of common consumptions representing an expanded offer of national spending. Common expense gathering is additionally profoundly wasteful.

This needs to change after the section of the eighteenth Constitutional Amendment which appoints greater duty to territories for the conveyance of social administrations like training and wellbeing. Furthermore, the voters know it. This implies spending should be expanded. To get this going, a more grounded income gathering exertion should be embraced in the areas.

Common and nearby governments require stable wellsprings of self-produced income to anticipate the basic foundation speculations expected to advance monetary improvement in our urban areas. In light of global experience, a basic wellspring of this self-created income is property impose from urban ranges. The Economist magazine reports examines demonstrating that urban property charges are the most monetary development agreeable of all major expenses

NO new duty is proposed in Punjab in Budget 2017

The Punjab government introduced Budget for the 2015-16 budgetary year without proposing any new charges.

Showing his fourth progressive Budget, Punjab Finance Minister Parminder Singh Dhindsa evaluated a shortage of Rs 125 crore at the end of 2015-16 monetary year.

The receipts for the following monetary have been proposed at Rs 60,585 crore as against Rs 54,096 crore in current money related year. Dhindsa said Rs 60,585 crore receipts in coming monetary incorporate Rs 46,229 crore of income receipts and Rs 14,356 crore of capital receipts as against the present year figures of Rs 42,742 crore and Rs 11,353 crore, individually.

The consumption has been proposed at Rs 61,814 crore as against the present year’s figure of Rs 56,431 crore. Financials proposition incorporate Rs 52,623 crore of income use, Rs 4,857 crore of capital cost, Rs 3,598 crore of reimbursement of open obligation and Rs 736 crore of advances and propel disbursals.

Monetary shortage will be 2.98 for each penny of GSDP (Gross State Domestic Product) and income deficiency will be 1.60 for each penny of GSDP.

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