Daily PT Capsule May 11

Here is the digest of important newspaper articles and quiz!

Revision of tax treaty with Mauritius

Starting from next financial year the centre will tax capital gains on investment from Mauritius. India has received nearly a third of its total foreign direct investment (FDI) inflows since 2000.  The two countries have signed a protocol at Port Louis, Mauritius. In a two-year transition phase, from April 1, 2017 to March 31, 2019, the capital gains will be taxed at a concessional tax rate of 50 per cent of the domestic rate, according to the statement. Capital gains on investments made before April 1, 2017, will not be taxed in India.

The Protocol marks a shift from residence-based taxation to source-based taxation. Consequently, capital gains arising on or after April 01, 2017 from alienation of shares of a company resident in India shall be subject to tax in India. Those companies will be exempt from paying tax on capital gains in India that can prove they spent at least Rs. 2,700,000 in Mauritius during the immediately preceding 12 months.

The protocol amends the convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains.  The amendment will tackle long-pending issues of treaty abuse and round-tripping of funds, attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius.

Signed in 1983, the Double Taxation Avoidance treaty between the two countries made Mauritius, which taxes capital gains at near-zero rates, an attractive “post box address” for foreign investors to route investments into India. In addition, regulators in India suspect that Indians avoiding taxes set up shell companies in Mauritius, concealing identities and channeling cash or stock market investments through “round tripping” and “participatory notes”.

Analysis

What is capital gains tax? –  A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.

What will be the impact of the revision? – Although no concrete estimates are available the revision of the treaty will lead to substantial tax gain for the country. It will also promote the agenda that has been discussed at the Base Erosion and Profit Shifting(BEPS) project of OECD and G20. The business of participatory notes and round tripping will also be affected.

What will be the impact on other treaties? – Article 6 of the protocol to the India-Singapore DTAA states that the benefits in respect of capital gains arising to Singapore residents from sale of shares of an Indian Company shall only remain in force so long as the analogous provisions under the India-Mauritius DTAA continue to provide the benefit.

Source: TheHindu, EconomicTimes

SC for human rights commission for Delhi

The Supreme Court on Tuesday asked the Centre to consider setting up a state human rights commission (SHRC) in Delhi. Delhi occupies a special status in the Constitution, with its own elected government and a lieutenant governor as an administrator with its own High Court.

The issue has arisen in the wake of an apex court ruling in July 2015 which directed Delhi, Nagaland, Mizoram, Meghalaya, Tripura and Arunachal Pradesh to set up SHRCs within six months. A contempt petition was filed as Delhi had failed to comply with this direction.

CJI Thakur noted that since state governments are responsible for setting up state commissions, for union territories (UTs), the Centre would be the appropriate authority to form the panels. He also pointed out that NHRC has repeatedly said that states must have a state human rights commission.

Analysis

What is the Human Rights Commission? – The National Human Rights Commission (NHRC) of India is an autonomous public body constituted on 12 October 1993 under the Protection of Human Rights Ordinance of 28 September 1993. It was given a statutory basis by The Protection of Human Rights Act, 1993 (TPHRA). The NHRC is the national human rights institution, responsible for the protection and promotion of human rights, defined by the Act as “rights relating to life, liberty, equality and dignity of the individual guaranteed by the Constitution or embodied in the International Covenants”.

It consists of a chairperson who is a retired Chief Justice of India, a member who is /has been a judge of a Supreme Court, a member  who is/has been the Chief Justice of High Court, two Members to be appointed from among persons having knowledge of, or practical experience in matters relating to human rights. The Chairpersons of four National Commissions of (Minorities,SC and,ST,Women) serve as ex officio members.

A State Government may constitute a body known as the Human Rights Commission of that State to exercise the powers conferred upon, and to perform the functions assigned to, a State Commission. At present, 23 states have constituted SHRC.

Source: TheHindu

The issue of bicameral legislature in States

The electoral politics of Tamil Nadu has brought to the forefront the debate of the need of having the legislative council in states.

DMK founder C.N. Annadurai used to explain it with a “cup and saucer” analogy. The Council, he said, was like a saucer that can cool down a hot issue through its enlightened debates. When the DMK was elected to power in 1967, Annadurai, who had not contested the Assembly election, became Chief Minister by virtue of his election to the Council.

Rajagopalachari was Chief Minister twice and on both occasions, he depended on the Council route to enter the legislature.

The Upper House in Tamil Nadu was later abolished in 1986.

Analysis

What is the benefit of a Legislative Council? – The presence of a second chamber acts as a check against hasty legislation. It could promote a healthy debate on legislative and administrative issues. The councils can delay a bill to a maximum of four months which can provide a window of opportunity to crystallize public opinion on all Bills before they become an Act. It could also be a source of non-controversial bills for which the lower chamber may not find sufficient time.

What are the disadvantages of a Legislative Council? – The council have not proven to be a strong check on the powers of the lower house. Four months has proven to be a short window of time to delay a bill. It has on the other hand become a stronghold of legislatures who have not been able to get elected in the lower house of the state. It also has its added financial cost which does not make sense for a small state.

Source: TheHindu

Setting up of Monetary Policy committee after Finance Bill is notified

The process to constitute a Monetary Policy Committee (MPC) will begin once the Finance Bill 2016 has been notified as an Act. The setting up of Monetary Policy Committee was announced as part of the Budget 2016.

The proposed committee will have six members – three appointed by the Reserve Bank of India (RBI) and the remaining nominated by an external selection committee.

Following the setting up of this MPC, each member will have a vote while the Reserve Bank of India governor will have a deciding vote in the event of a tie, therefore rendering him as first among equals.

Analysis

What is the benefit of setting up MPC? – The objective of monetary policy is to achieve price stability while striking a balance with the objective of the Central government to achieve growth.

The RBI and the finance ministry had earlier signed a monetary policy framework agreement – a key recommendation of the Urjit Patel committee on monetary policy reform – under which the central bank would target retail inflation for policy rates.

What is the international experience? – Internationally, MPCs function in different ways but decisions are taken largely through a consensus. For instance, the nine-member MPC of the Bank of England meets every month to set the interest rates. Its decisions are made on the basis of one-person, one vote and is not based on a consensus of opinion. On the other hand, the US Federal Reserve’s Federal Open Market Committee (FOMC) consists of twelve members and holds eight regularly scheduled meetings per year. Each of the FOMC members discusses their policy preferences and then vote. But it is expected to reach a consensus on the appropriate course for policy.

Source: TheHindu, IndianExpress

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