Mitras Analysis of News : 1-05-2017

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1.Taxing the farm income (Indian Express)

2.Real Estate Act: Reining in the sharks (The Hindu)

3.Price caps are a bad idea (The Hindu)

4.Explained: CO2 to solar fuel  

 

1.Taxing the farm income (Indian Express)

 Synoptic line: It throws light on the proposal to tax the farm incomes. (GS paper III)

Overview

  • NITI Aayog has proposed bringing agricultural income within the personal income tax net, to broaden the tax base and thereby enable the government to reduce the tax rate.
  • The recommendation is part of a 15-year perspective plan circulated among states at the NITI Aayog’s governing council meeting. It’s impact is multi dimensional, which needs to be seen.

Proposal to tax

  • NITI Aayog member made a strong case for taxing agriculture income. In addition, the member of the government’s top think tank also suggested that exemptions on personal income tax should be removed to increase tax base from the current about 37 million in the country of 1.3 billion of people.
  • Widening of the personal income tax base was examined by the think tank as corporate tax exemptions are already being weeded out and the proposed Goods and Services Tax (GST) will expand the base of indirect taxes.
  • NITI Aayog’s reasoning is that out of the 220 million households in the country, about two-third live in rural areas and only about half of the 7.5 crore households in urban areas come under personal income tax bracket after accounting for the Rs2.5 lakh a year exemption limit.
  • So, in order to widen the tax base of personal income tax, besides removing tax exemptions, rural income including agriculture income could be taxed. The non-farm personal income of rural population is already being taxed.
  • However, taxing agriculture income is a politically sensitive issue and successive governments have refrained from doing so. The govt. has assured that there are no such plans in foresight at the present moment.

Prudence of decision

  • The debate on taxing farm income to prevent money-laundering is not new. Due to its exempt nature, agriculture is seen as a loophole to evade taxes. While many experts, over the years, have demanded closing of this loophole, no step has been taken by any government.
  • The proposal assumes significance also because the tax department had found suspected cases of non-farm income being shown as farm income to avoid taxes. According to the finance ministry, between 2007-08 and 2015-16, 2,746 entities and individuals declared agricultural income of above Rs1 crore.
  • Excluding income from farming, which accounts for about 15% of India’s $2.2 trillion gross domestic product, out of the tax net forces the government to keep personal income tax rate high. Besides, taxing farm income above a threshold will also prevent evasion of taxes misusing the exemption given to farm income.
  • Moreover, an RTI (in 2016) had surfaces indicating how rich people use agriculture tax exemptions to convert black money into white. Agriculture exemptions are used to route black money by non-agricultural entities.

Shocking numbers

  1. In 2011, agricultural income of close to Rs 2000 lakh crore was registered for around 6.57 lakh assesses.
  1. According to records, more than 90 percent of the agricultural land is under marginal farmers who do not file returns.
  1. During 2010-11, agriculture income exceeded gross domestic product 20 times. During this period, agricultural production and area under cultivation remained almost constant.
  1. Contrary to the above figures, agricultural growth in India usually hovers around 3-4 percent. Agriculture production, too, has remained stable at around 14-15 percent of the GDP.

Certain Challenges to the proposal

  • The practical problem is how to compute costs of cultivation and arrive at profits or net earnings which can always be shown to in the negative. Although agriculture income is not taxed in India, farmers do face many types of implicit taxes. Controls on exports and stock limits which suppress farm gate prices are actually implicit taxes on India’s peasantry.
  • As per the 2010-11 Agriculture Census, over 95 per cent of India’s 13.84 crore operational holdings are of below four hectares (10 acres) size.
  • Not many farmers falling within this holding limit barring those growing very high-value crops under assured irrigation conditions would be drawing an annual income above Rs 5 lakh, which currently attracts zero personal tax liability with rebate. Moreover, agriculture could be treated as a business for tax purposes, with all expenses relating to it whether on farm inputs, labour, interest, crop insurance premium or leased land rentals being deductible from income. Farmers can also be entitled to claim depreciation on fixed assets from tractors and drip irrigation systems to cattle and carry-forward/set-off their losses from year to year or against income from other sources. This will not only ensure that the bulk of agricultural incomes remain untaxed

Way ahead

  • Tax on agriculture income may be a controversial move since agriculture is the major source of livelihood for over 50% of our population. It is a livelihood industry with multiple impact on human life.
  • However, other methods could be explored to tax rich farmers with multiple sources of the income.

Question: What can be impact of taxing farm incomes. Critically analyse?

 

2.Real Estate Act: Reining in the sharks (The Hindu)

 Synoptic line: It throws light on Real Estate Act and its provisions and its implications for housing. (GS paper III)

Overview

  • As one of the largest job creators, the real estate sector contributes almost 6% towards the GDP. The much awaited Real Estate Act comes into force from 1st may 2017; the Act ushers in the much desired accountability, transparency and efficiency in the sector, defining the rights and obligations of both the buyers and developers.

Real Estate Act (RERA)

  • The Real Estate (Regulation and Development) Bill, 2016, (RERA Act), was passed by Parliament in last year, comes into effect from 1 May.
  • So far, only 13 states and Union territories have notified the new rules, of which only three states—Maharashtra, Madhya Pradesh and Rajasthan have appointed a housing regulator. Besides, none of the states apart from Maharashtra has set up a website where developers and brokers can register or apply for new projects under the new Act.

Provisions of the act

  • Key provisions of the Act include a requirement for developers to now register projects with RERA prior to any advertisement and sale. Developers are also expected to have all sanction plans approved and regulatory clearances in place prior to commencement of sale.
  • The Act ambitiously stipulates an electronic system, maintained on the website of RERA, where developers are expected to update on a quarterly basis the status of their projects and submit regular audits and architectural reports.
  • Non-registration of projects is a serious matter. If there is non-compliance, RERA has the power to order up to three years imprisonment of the promoters of a project.
  • Act seeks to assist developers by giving the regulator powers to make recommendations to State governments to create a single window clearance for approvals in a time-bound manner.
  • The Act’s legislative intention is to primarily protect the interests of consumers and bring in efficiency and transparency in the sale or purchase of real estate. The Act also attempts to establish an adjudicatory mechanism for the speedy redress of disputes.
  • Importantly, it requires developers to maintain separate escrow accounts in relation to each project and deposit 70% of the collections in such an account to ensure that funds collected are utilized only for the specific project. The Act also requires real estate brokers and agents to register themselves with the regulator.

Builder grievances

  • According to the developers, provisions of the act will be exceptionally burdensome on a sector already ailing from a paucity of funds and multiple regulatory challenges. The builder lobby has been demanding “industry” status for the real estate sector as it would help in the availability of bank loans.
  • Due to the failure of authorities to grant approvals sanctions on time, Real estate companies face the most delays. The Act addresses only some of issues, it does not deal with the concerns of developers regarding force majeure (acts of god outside their control) which result in a shortage of labour or issues on account of there not being a central repository of land titles or deeds.
  • Due to the 100% foreign direct investment in real estate, international money flooded the market. Builders and developers overstretched themselves and diverted funds while some began to cross-invest in non-core activities, real estate companies embarking on projects without even consolidating land. For new legislation it will take some time to iron out the creases.

Way ahead

  • Effective implementation is needed to harness benefit. Despite a model set of rules, only a few States have notified their rules. The onus is now on States to formulate rules and establish the regulatory authorities on time. There should not be just paper compliance, by designating an existing authority to take additional charge as the real estate regulator, as that would affect the timeliness prescribed under the Act.
  • Overall the new legislation is a welcome enactment. It will go a long way in assisting upstanding developers. More importantly, it will ease the burden on innocent home buyers who put their life’s savings into a real estate investment.

Question: With the real estate act in pipeline, what can be the implications for making housing affordable in India?

 

3.Price caps are a bad idea (The Hindu)

 Synoptic line: It throws light on how price caps on life-saving devices, actions taken for the public good may actually be fatal for patients. (GS paper III)

Overview

  • In India, cardiovascular diseases (CVDs) have now become the leading cause of mortality, with a quarter of all deaths in 2015 attributed to the disease. According to the Global Burden of Disease (GBD) 2015 study, the age-standardized CVD death rate for India is at very higher ends.
  • Due to non affordability state of poor population of the country, the Indian Government recently announced a significant price capping on the cardiac stents available in the market. Prices are expected to be reduced by as much as 85%, which will surely fill the hearts of patients with extreme joy, and considering the huge cardiac patient pool in the country, this is promised to be a significant move towards the government’s push to provide the health care for everyone in the country.
  • But after the government’s decision to slash prices and enforce a single ceiling price for all the different variants of drug-eluting stents, manufactures and distributors started pulling off the high-end stents across the country.

What is Cardiac Stent?

  • Cardiac stents are the medical devices used to prevent fatal heart attacks by allowing the easier flow of blood.
  • Stents are small, expandable tubes that treat narrowed arteries in your body. In people with coronary heart disease caused by the buildup of plaque, stents are used for:
  • Open narrowed arteries
  • Reduce symptoms, like chest pain
  • Help treat a heart attack
  • A stent is placed in an artery as part of a procedure called Percutaneous Coronary Intervention (PCI), also known as coronary angioplasty. PCI restores blood flow through narrow or blocked arteries. A stent helps support the inner wall of the artery in the months or years after PCI.

Issue involved

  • The National Pharmaceutical Pricing Authority (NPPA) slashed the price of stents by up to 85%. The price of bare metal stents was fixed at Rs.7, 623 and drug-eluting stents at ₹31,080; down from ₹45,000 and ₹21 lakh respectively. The NPPA later raised the price cap by around 2% to compensate for the rise in the input costs of producers.
  • The move could discourage reliable stent makers and lead to a growth in companies that produce poor quality stents.
  • According to Indian Stent Company, one of the biggest costs in this business is the cost associated with the supply chain and most of the margins made by stent makers go into paying the distributor. The total investment made when supplying through a distributor, including procurement and storage costs, is estimated to be around Rs30-40 lakh.
  • It curbs innovation as the prices have set the stage for multinational and domestic stent companies to halt any newer generation stent from reaching Indian patients.
  • According to the lobby group that represents large multinational stent manufacturers “the singular focus on controlling ceiling price of stents, without attempting to address the larger picture and correct inefficiencies in the healthcare ecosystem will not achieve its stated benefit, in the long-run”.

Consequences

  • The initiative had adversely affected the returns of pharmaceutical companies that earn on making stents; price caps can reduce their supply. For instance, fixing the price of stents below their cost of production would offer no economic incentive for firms to continue production,
  • Three international manufacturers (Abbott Healthcare, Boston Scientific, and Medtronic India) that supply stents in India threatened to pull out of the market. The NPPA refused to approve the withdrawal request of two of the companies, shedding bad light on doing business in India.
  • However the National Pharmaceutical Pricing Authority (NPPA) justified its price ceiling, by saying that it still left enough room for the stent makers to make a decent margin and the drug price control order (DPCO) has provision for separate prices for superior products.

Way ahead

  • The government is in the same failed path as it seen before; it suggests that government has not learned any lessons. In 1995, the price caps imposed on 74 drugs under the Drugs (Prices Control) Order (DPCO) led to the stoppage in production of half the drugs.
  • In the DPCO 2013, which capped the price of 348 drugs, dried up any new investments in them something crucial to lowering drug prices in a sustainable manner
  • India’s health system is facing various crises that must be resolved if the country is to improve the overall health of its citizens. Transparent costing, outcomes-based measurement systems in healthcare delivery, and evidence-based healthcare policymaking, access to healthcare need more focus.

Question: Price cap is a debatable issue regarding its utility and workability. What are your opinions?

 

Explained

4.CO2 to solar fuel  (GS paper III)

Context

  • US scientists have stumbled upon an economically practical and highly efficient way of converting a greenhouse gas largely blamed for global warming into an environmentally friendly fuel – a development that could boost the renewable energy industry.

Artificial photosynthesis

  • Scientists along with his team, has created a way to trigger a chemical reaction in a synthetic material to use light and break down carbon dioxide. The carbon dioxide is converted to solar fuel which can be used to produce electricity. This is similar to photosynthesis performed by plants where they convert carbon dioxide and water into food in the presence of sunlight.
  • It is very important that we develop technologies that can help natural photosynthesis to fixate carbon dioxide, because the current rate of emissions is larger than the rate of fixation through photosynthesis, resulting in accumulation of CO2, which is the main cause of global warming and climate change. Discovering new technologies like the materials we prepare, can help reduce the amounts of CO2
  • The idea would be to set up stations that capture large amounts of CO2, like next to a power plant. The gas would be sucked into the station, go through the process and recycle the greenhouse gases while producing energy that would be put back into the power plant.

Question: Co2 to solar fuel can lead to outcomes at twin fronts. What can be its further more utilities?

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