Indian Economy News & Discussion - Aug 26 2015

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JohnTitor
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by JohnTitor »

I know right. 14-15% should be the maximum. I find it hilarious that chocolate is taxed at 18% and eating in an a/c restaurant is taxed at 18%. Since when is an a/c luxury in India (maybe it was in the 90s)? Even in winter its 20-25c and in summer temperatures reach over 40c.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by pankajs »

Tax ratio similar to Rwanda, but wants to beat China: That’s India
http://economictimes.indiatimes.com/mar ... 710745.cms

Btw, what is the tax to GDP ration of Denmark compared to India's. And we want whole scale import of tax policy.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by Suraj »

Those looking for understanding of GST rates by trying to figure out 'why is X taxed at Y% ?' is looking at it all wrong.

GST rates are design-by-committee. Don't blame the central government for this - The GST Council is the rate definition mechanism, and it is a council of states with divergent motives. Several of those states have seen their ruling entities too change in the last few years.

Further, at least introductory GST rates are focused first on achieving revenue neutral operation of GST and only secondarily on making it easy for the wide economy at large.

Remember the GST Council deliberations the last 2-3 years ? When did they ever discuss "how do we set rates so disruption to business is minimal ?" No, the emphasis was always "how do we set rates so the disruption to OUR tax revenues is minimal ?"

What's seen today is the result of that. Don't make it a political party thing. This is creature of the manner in which the rates were set, and the motives of the Council. I don't know how to 'fix' it. Perhaps FICCI/ASSOCHAM etc should have a seat on the GST Council so the industry too has a voting voice ?

Comparisons to mature GST systems elsewhere is quite pointless ~3 months(1 quarter) in. My question would be - how much time did they take to achieve revenue neutral stability ? How many fiscal quarters ? years ? Everyone here expects this to work overnight. That's completely unrealistic.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by pankajs »

OECD report for the curious on Denmark. Now Denmark is my fav country.

https://www.oecd.org/tax/revenue-statistics-denmark.pdf
The OECD’s annual Revenue Statistics report found that the tax-to-GDP ratio in Denmark decreased by 3 percentage points, from 49.6% in 2014 to 46.6% in 2015.
Where is India in comparison?
https://en.wikipedia.org/wiki/List_of_c ... _GDP_ratio
Per wiki it is 17.7%.

Lets import Denmarks tax policy whole scale into India and find out who will squeal the loudest. It is a successful country after all with a successful GST implementation.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by A_Gupta »

1. Coolant 28%
2. Nut 28%
3. Bulb 28%
4. Plug Assembly, Oil Drain 28%
5. Cabin Air Filter 18%
6. Brake Fluid 28%
7. Fuel filter, Oil Filter and Air Filter 18%
8. Rust Protecter - 18%
9. Grease, Caliper Assemby - 28%
10. Windscreen Washer Fluid 28%
11 Engine Oil 18%
* Most petroleum products come in at 18%. This would cover engine oil, rust protector. Not sure why grease is coming in at 28%.

* Coolant, Brake Fluid, Windscreen washer fluid as far as I can tell from a quick scan of GST chapters and HSNs should have come in at 18%.

* Anti-freeze and deicing preparations come in at 28%, but they ought not to be applicable to your situation.

* Motor vehicle parts are supposed to be at 28%. This would cover nut, plug assembly, oil drain, caliper assembly. Not sure why cabin air filter, fuel filter, oil filter and air filter are at 18%, as auto parts I think they should be at 28%.

* Most glass including bulbs are at 28%. The bulb is also a motor vehicle part, so it is at 28%.

e.g., brake fluid
wiki: Most brake fluids used today are glycol-ether based, but mineral oil (Citroën/Rolls-Royce liquide hydraulique minéral (LHM)) and silicone (DOT based fluids are also available. ( https://en.wikipedia.org/wiki/Brake_fluid )
All but one of the glycol categories are at 18%.
https://www.indiafilings.com/find-gst-r ... col&rel=pl
So are silicone oil and mineral oil at 18%.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by JayS »

Suraj wrote:
Further, at least introductory GST rates are focused first on achieving revenue neutral operation of GST and only secondarily on making it easy for the wide economy at large.
True. The first aim is really to get the system up and running. That's the biggest hurdle. Once its passed then tinkering will be far more easy. Already JetLi said that 12 and 18% brackets can converge to 15% brackets. If the GOI can broaden direct tax base significantly, they can have much more leeway in reducing the indirect taxes. The way things are moving, it looks like that will be possible to do so in coming years. We do need significant funds for development. Keeping deficit low means there is a limit to borrowing. So GOI will look to take out money from increasing tax base for initial few years before start passing on the benefits to public through reduced indirect taxes. Of coarse political considerations can change the trend but if we have a stable government for say next 2 more terms, the path is pretty much laid out now.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by JayS »

vina wrote:
That said, this entire 18% stuff is WAY overboard. The appropriate rate of taxation would be around 14% for India.

I maintain what I wrote earlier. This Govt has INCREASED taxes, especially the indirect taxes all around and surreptitiously and people are getting a sticker shock. Demand WILL take a hit because of higher taxes and that is probably reflecting in the IIP numbers. At 28%, there seems to be EVERY incentive to avoid taxes, but then the trouble is , guys outside the GST will get cut out of the formal chains as the formal guys will insist on GST registration to get input credit or they will be paying presumptive input taxes (like I am having to do in imports).

It would be good if you actually put numbers on various items from across the spectrum with before and after GST rates (considering the effect of ITC of coarse). The sticker shock is coming because of profiteering by a lot of traders (restaurants are the most easily seen example) or because of gray area for ITC in the transition period for those who are even willing to pass on the benefits (under-construction properties is one example). Some who were changing VAT/ST included in sticker price (or were simply avoiding all taxes) now are putting entire GST on the sticker price without adjusting it for elimination of VAT or ITC. A lot of other businesses are not at all passing on ITC to consumers. Even big FMCG conglomerates have been trying to increase profit margins using GST. Funny case with garment industry, I was reading in news paper one day, while the garment business men are crying foul over GST and how its killing them, the businesses who outsource work to these suppliers and very well understand what GST means for prices, are asking for discounts from suppliers on account of GST. So who is lying..?? The pain is definitely due to gross tax evasion earlier. There is no business as usual anymore. Get in line or get out. Its fair and square. Short time pain long time gain for all. At least I am happy as an honest tax payer that now others crooks are forced to pay taxes.

The system is good. There is little that can be seen at fault with GST in spirit when seen in broader perspective. Implementation is where there are short comings. But its too early to comment on it. Transition period has to be passed before one can decide if its truly going in wrong direction. Thing is if everyone decides to either screw the system or keep mum while seeing the system getting screwed, its very difficult for any government to implement GST properly in such short time. I see people having no guts or will to question even a small time restaurant guy why he is applying GST over an above old sticker price when it has absorbed VAT/ST and ITC is supposed to be passed on by adjusting sticker price, are the loudest in criticizing GOI how GST is the worst.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by Supratik »

The current thinking is that the PSU banks will be consolidated to 12 large banks and then to 7-8 big banks. It will happen relatively slowly. The first step has been taken by merging SBI with its subsidiaries.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by vinod »

I have a very stupid question... I keep on hearing that earlier there was lot of tax evasion, now with GST they are forced to pay tax. My question is, if they were evading tax before, why can't they do it now? I understand about things getting difficult on storing and spending the tax evaded money, but specifically want to know what in GST reduces the tax evasion!!
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by Supratik »

Taxation takes place at the source. Hence, more difficult to evade.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by vina »

pankajs wrote:OECD report for the curious on Denmark. Now Denmark is my fav country.

https://www.oecd.org/tax/revenue-statistics-denmark.pdf
The OECD’s annual Revenue Statistics report found that the tax-to-GDP ratio in Denmark decreased by 3 percentage points, from 49.6% in 2014 to 46.6% in 2015.
Where is India in comparison?
https://en.wikipedia.org/wiki/List_of_c ... _GDP_ratio
Per wiki it is 17.7%.

Lets import Denmarks tax policy whole scale into India and find out who will squeal the loudest. It is a successful country after all with a successful GST implementation.
Singapore is mine. They have 14% tax to GDP ration. They have 7% GST. Can we import that ? And they do have far more social services than India. :lol:
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by hanumadu »

Taxes in US are considered less than in Europe. Even then there is a state tax in US which gets cut right out of your income and then there is a sales tax on items purchased. The net effect of them both is probably more than the 18% you pay in India. Not to mention the minimum 15% tip you are made to pay for eating out.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by pankajs »

vina wrote:
pankajs wrote:OECD report for the curious on Denmark. Now Denmark is my fav country.

https://www.oecd.org/tax/revenue-statistics-denmark.pdf



Where is India in comparison?
https://en.wikipedia.org/wiki/List_of_c ... _GDP_ratio
Per wiki it is 17.7%.

Lets import Denmarks tax policy whole scale into India and find out who will squeal the loudest. It is a successful country after all with a successful GST implementation.
Singapore is mine. They have 14% tax to GDP ration. They have 7% GST. Can we import that ? And they do have far more social services than India. :lol:
Sure but just that India is not a city state.

Leg pulling aside, China makes a good case for comparison. Its tax to GDP is about 20% and its GST is multi slabbed like India's. Its max GST is low at 13% but it then makes it up in other taxes. People have to pay one way or another.

The idea should be to increase the tax net, get more in direct taxes and reduce GST over time to 10-15% max.
Last edited by pankajs on 06 Oct 2017 23:09, edited 1 time in total.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by vina »

What is the fundamental purpose of GST? To make India into a common market so that it has economies of scale and not the splintered micro markets each state had become.

Which is the first country with a FEDERAl structure, that had done this in history ? The US. It is because of that, US had a continental sized internal market and grew to become what it did over 300 years.

How did they do it ? Simple. In the US constitution , interstate commerce is a federal subject and hence every state had to give sovereign treatment to other state's goods and services and couldnt erect barriers to other state's goods and services. In Micheal Porter's magnum opus - Strategy, he talks about how in the US, Iron ore flowed in from Minnesota over the Great Lakes, Coal from the Applachains , all converged into Gary , Indiana, to vast steel works that made steel and sent it all over the US and the world. Every other country marvelled at such a system. The Europeans couldnt do it. Coal couldn't flow from Ruhr out to Lorraine-Alasce or iron ore into Ruhr and hence France and Germay were at each other throats for a century.

What is the indirect taxation system in US ? SALES Tax. What did we have in India . SALES Tax.
What do the states in India want ? Power to set tax rates individually , like the US .

So What WAS needed , to get US style continental scale of internal market. A similar constitutional amendment that would make interstate commerce a Central Subject and prevent states from erecting entry barriers via octroi, entry tax ,etc . etc.

This would have been FAR simpler to do. The States could still set the tax rates on each goods/service as they decided and you could have had the larger objective of common market met.

But what did we do ? We adopted a European invention called VAT, that was the primary means by which the European union knitted itself into a common market. It was a complex multi currency thing and needs a centralised bureaucracy to create, run and administer and a big amount of command and control.

We LOVE law large bureaucracies staffed with insufferable Baboons with inflated egos and no brains coupled with a massive narcissist complex. On top of that we LOVE command and control. And the pinnacle for us is a totalitarian centralising impluse.

So what did we do ? Import the European idiocy , totally unsuited for us, Harrumped about "one rate for the entire country" for a particular good/service and set up a GST Bureaucracy staffed with from the looks of it nincompoops from the length and breadth of the country (and not very particularly bright from the looks of it), and "applied our brains" and made it a mangled complex mess that is nightmarish to understand, administer , run and use , with huge compliance costs. A disaster in the making. To even get the states on board, you had to promise "no revenue loss" and this and that put pressure on revenue collection and unrealistic high rates.

A far simpler route would have been to go the American way. Making interstate commerce a central subject would have been a far easier constitutional amendment , and the states would have retained the full taxation powers and there was no need for any compensation and this and that and the well understood and used sales tax could have been continued.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by vina »

Yawn. The Govt tinkered at the margins, tweaked rates for 27 items , including "Unbranded Namkeen" the blaring headlines say (Sure, Unbranded Namkeen is the think that people care most about, I really dont understand this fetish about Headline Management. If you want to give a sop, do so, why pretend you are giving one, and restrict it to Unbranded and market it as something great?), and we are told things are great again and the Govt has fixed everything.

Modi has the nice alliterative one-liner on this. He messaged that the "Good and Simple Tax" (GST -- you gotta hand it to him for coining stuff like this) has now become "Simpler" . It boggles one imagination that in India if this is "Good and Simple" , what "Bad and Complex" would look like.

Awright folks, Everything taken care of now. The economy will grow by 9% next quarter and hit double digits after that. Peace.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by tandav »

vina wrote:What is the fundamental purpose of GST? To make India into a common market so that it has economies of scale and not the splintered micro markets each state had become.

Which is the first country with a FEDERAl structure, that had done this in history ? The US. It is because of that, US had a continental sized internal market and grew to become what it did over 300 years.

How did they do it ? Simple. In the US constitution , interstate commerce is a federal subject and hence every state had to give sovereign treatment to other state's goods and services and couldnt erect barriers to other state's goods and services. In Micheal Porter's magnum opus - Strategy, he talks about how in the US, Iron ore flowed in from Minnesota over the Great Lakes, Coal from the Applachains , all converged into Gary , Indiana, to vast steel works that made steel and sent it all over the US and the world. Every other country marvelled at such a system. The Europeans couldnt do it. Coal couldn't flow from Ruhr out to Lorraine-Alasce or iron ore into Ruhr and hence France and Germay were at each other throats for a century.

What is the indirect taxation system in US ? SALES Tax. What did we have in India . SALES Tax.
What do the states in India want ? Power to set tax rates individually , like the US .

So What WAS needed , to get US style continental scale of internal market. A similar constitutional amendment that would make interstate commerce a Central Subject and prevent states from erecting entry barriers via octroi, entry tax ,etc . etc.

This would have been FAR simpler to do. The States could still set the tax rates on each goods/service as they decided and you could have had the larger objective of common market met.

But what did we do ? We adopted a European invention called VAT, that was the primary means by which the European union knitted itself into a common market. It was a complex multi currency thing and needs a centralised bureaucracy to create, run and administer and a big amount of command and control.

We LOVE law large bureaucracies staffed with insufferable Baboons with inflated egos and no brains coupled with a massive narcissist complex. On top of that we LOVE command and control. And the pinnacle for us is a totalitarian centralising impluse.

So what did we do ? Import the European idiocy , totally unsuited for us, Harrumped about "one rate for the entire country" for a particular good/service and set up a GST Bureaucracy staffed with from the looks of it nincompoops from the length and breadth of the country (and not very particularly bright from the looks of it), and "applied our brains" and made it a mangled complex mess that is nightmarish to understand, administer , run and use , with huge compliance costs. A disaster in the making. To even get the states on board, you had to promise "no revenue loss" and this and that put pressure on revenue collection and unrealistic high rates.

A far simpler route would have been to go the American way. Making interstate commerce a central subject would have been a far easier constitutional amendment , and the states would have retained the full taxation powers and there was no need for any compensation and this and that and the well understood and used sales tax could have been continued.
I think that is the intent of the IGST ... I can bill everything as IGST and not bother about CGST and SGST
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by A_Gupta »

http://www.thehindu.com/business/Econom ... 814642.ece
GST Council relief to exporters, small businesses
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by JohnTitor »

vina wrote:What is the fundamental purpose of GST? To make India into a common market so that it has economies of scale and not the splintered micro markets each state had become.

Which is the first country with a FEDERAl structure, that had done this in history ? The US. It is because of that, US had a continental sized internal market and grew to become what it did over 300 years.

How did they do it ? Simple. In the US constitution , interstate commerce is a federal subject and hence every state had to give sovereign treatment to other state's goods and services and couldnt erect barriers to other state's goods and services.
Isn't one of the reasons for GST widening the tax net and ensuring compliance?

Sure the US system might have been a bit simpler but we would still be in a position where most small businesses don't pay tax.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by Rudradev »

vina wrote:What is the fundamental purpose of GST? To make India into a common market so that it has economies of scale and not the splintered micro markets each state had become.

.
A cherry-picked premise for a strawman argument if I ever saw one.

There are many "fundamental" motives for GST, including:
1) Broadening the tax base.
2) Taxing consumption rather than income, savings, and/or investments.
3) Generating more revenue more efficiently, allowing room to lower tax rates on personal and corporate income.
A far simpler route would have been to go the American way. Making interstate commerce a central subject would have been a far easier constitutional amendment , and the states would have retained the full taxation powers and there was no need for any compensation and this and that and the well understood and used sales tax could have been continued.
In fact there are colossal problems with the highly convoluted "American Way" of taxation, as noted by author T.R. Reid, who is among a growing number of economists pushing for a VAT in the U.S.

https://www.amazon.com/Fine-Mess-Global ... 1594205515

From an interview with the author:

http://www.npr.org/2017/04/03/522440141 ... d-tax-code

(The VAT) is the most important innovation in taxation in the last 60 years. This is a tax that's like a sales tax on steroids. It's a tax - our sales tax is called a retail sales tax. The tax is only collected when the retailer sells you the book. But on a value-added tax, a tax is collected when the paper mill sells the paper to the publisher and when a publisher buys ink from an ink company and then the publisher sells it to a wholesaler and a wholesaler sells it to a distributor, distributor to the bookstore and the bookstore to you.

That tax is collected at every level, and every time you pay the tax to the other guy, you report it to the government to get a credit for the tax you paid which means every penny of tax that's paid is reported to the government. So the VAT turns out to be a very easy tax for government to collect and a very hard tax for taxpayers to avoid. And so if you put in a value-added tax, they're very steady collections, and it's hard to cheat on.

And you could use that money to reduce the rate of the corporate or the personal income tax. So 176 countries have adopted this innovation. It's a great idea. The only countries that don't have it are a bunch of countries so poor they have no taxes and the United States of America. So I say in my book in taxation, Americans are still banging out letters on a typewriter and dropping them in a mailbox, and everybody else is texting and using Instagram.

...

For the government, it's easier to collect so you need less bureaucracy collecting the tax. And here's the other thing. This is a tax that doesn't tax savings. It doesn't tax work, doesn't tax investment. It taxes spending, and economists like that. So that's why so many countries have it.


...

Conservatives don't like the VAT because they call it - are you ready? - they call it the money machine. You can raise so much money with it that it bodes higher taxes. But, in fact, when you raise the money with the VAT, then you should use that revenue to lower the income tax rate.


{Regarding the "American way" being touted here}

Well, I went to the International Monetary Fund and the World Bank and said to them what makes a good tax code? Who's got one? And they said we know, we know fairly simple formula - BBLR. That means broaden the base so you can lower the rates.

Broaden the base means you make everything taxable. You got a paycheck. That's taxable. Your employer pays your health insurance premium. Well, that's income to you. We're going to tax that. Your employer gives you free parking. Well, that would cost 20 bucks a month. That's taxable. And then no deductions - you want to give money to charity? Boy, that's great. We're all for it, but we're not going to give you a tax break. You have a mortgage interest? Fine, but we're not going to give a tax break.

And if you do that, that broadens the base, and then you can lower the rates way down. And several countries have done this, and there's a tradeoff. So people lose their cherished deduction. Oh my, God, don't broaden my base. I want my deduction. And the carrot is we're going to give you a lower rate. So in America, a family at the median income - if you take their income tax, their Social Security tax, their Medicaid tax and their health insurance - is paying about 35 percent.

In New Zealand, income tax, social security, health care and education - 17.5 percent for that same family. And the reason is they broadened the definition of income. They took away all the giveaways. And if you do that, you can get the rates way down. And it makes your tax return much easier. You don't have to fill in 50 lines on all the stuff you want for an exemption.

{Yet some brainiacs insist that the European VAT system is a "nightmarish, mangled, complex mess" by comparison :mrgreen: }
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by kiranA »

Below are the reasons why GST is and will be an unmitigated disaster for India :

a) Its wrong in principle. Everyone I talked to says GST "simplifies" everything and repeats it like a parrot. But how can you simplify a country of 1.2 billion people with so many cultures ? shouldnt taxation be flexible to respond to local needs ? why shouldnt the states have a say how businesses are taxed instead of baboon from Delhi ? The so called octroi or entry taxes are widly exaggerated only few states taxes like these. And there is nothing wrong.

b) Piss poor design. After all when a delhi Baboon designs how else can it be ? In a country with poor quality of electricity, piss poor mobile coverage quality (basically poor quality everything) what sort of a moron come up with monthly electronic filing of taxes ?

c) Horrendous implementation. As I have said before Indian central government bureaucracy does not have the competency to execute something of this scale (perhaps of any scale). Naturally the servers kept crashing, information was inconsistent and contradictory when coming from the ministry itself.

d) Continuous lies to public. Central government bluffed to people that prices will mostly come down. When in reality prices shooted up. But for this administration lying is the second nature like we have seen with demon. Apparently it eliminated militancy, eliminated maoism, caught lakhs of crores of black money, flooded country with loans of infrastructure and blah blah blah.

What is the solution ?
Scrap the whole thing. {Deleted}
Last edited by Suraj on 07 Oct 2017 06:10, edited 1 time in total.
Reason: Deleted politics
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by kiranA »

{Deleted}
Last edited by Suraj on 07 Oct 2017 06:11, edited 1 time in total.
Reason: Politics + unattributed claims = post delete
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by VKumar »

GST is a terrific solution. I will explain by example. Take the case of a trader who imports goods from overseas into Mumbai and distributes across India. Here is a list of taxes he had to pay earlier:
Customs duty, CVD, SAD, OCTROI
Now, post GST :
Customs duty, GST.

The amount of harassment saved in claiming back SAD. The impossibilty of ever claiming back octroi. The time and cost at octroi checkpoint, are saved.

Now when he sells, he has to collect GST and report monthly.

Earlier he had to collect VAT, for interstate CST which may be with our without FORM C, multiple WAY LEAVE forms in advance for transport of goods, LBT OR OCTROI in some cities. File monthly returns for VAT, CST, SERVICE TAX, EXCISE ( if he is doing any processing) , quarterly, annual returns, payments to multiple agencies. Below table payments to each agency.

Collection of FORM C was a VERY BIG HEADACHE and loss. Huge extortion when getting annual returns accepted by various authorities. Huge tension, time waste.

All this is now saved.WHEW!

As regards rate of taxes, people have realised that more or less they were paying same amount but broken up under various headings. So it was hidden.
Now only one heading.

MAJOR BENEFIT IS SET OFF!

Wait a few months and then understand the benefits of all this. Sizeable savings in cost, time, harassment to the trader. Reduction in cost that he can pass on to customers and become more competitive.

GST has made India one market! Earlier the trader had to appoint distributor, CFA agent, mainly because of C FORM and local VAT. customers needed local billing.

Now no longer required to appoint distributor, sell and supply direct, no C Form no local Vat, no way leave form. ..

If you were riding a cycle earlier and now driving a car, you have to learn driving, practise it, read the rules etc. It takes years to become expert. Same with GST. In time businesses will become experts, file swiftly and easily. Now businesses are using accounting software TALLY, for example. Software enables quick and accurate filing of GST and also accounts are streamlined.

Earlier too all returns were filed over Internet, so this is not new. Same number of businesses were filing multiple returns with multiple agencies, monthly, quarterly, annually.

I repeat GST is a terrific solution.

Good for all legal businesses, good for consumers, good for nation to collect taxes even from those parasites not paying taxes earlier.

Some problems are in every system. System designer cannot be omniscient. These will get ironed out, as we are seeing happen OR people will learn to live with it.

Fortunately the GST council is responsive, unlike a STATE VAT BODY OR OCTROI BODY?

We should appreciate the structural reforms being undertaken by the government, even at risk of unpopularity.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by kiranA »

kiranA wrote:{Deleted}
Seriously Suraj ..what is unattributable ..did I not give a link from hindustan times ? How long you prefer to hide, cover and control the truth ? you think you can succeed in anyway ? cant you verify what I said over the internet.
Very dissapointed. I want to know from Ramana - does BRF stand for India or is it an informal extension of current administration of India. Because I see a drastic change pre-2014 and post 2014 - Pre-2014 the emphasis was standing for people of India, post 2014 its about defending the incumbent government. We need to care about India not worry about reputation of current government.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by kiranA »

VKumar wrote:GST is a terrific solution. I will explain by example. Take the case of a trader who imports goods from overseas into Mumbai and distributes across India. Here is a list of taxes he had to pay earlier:
Customs duty, CVD, SAD, OCTROI
Now, post GST :
Customs duty, GST.

The amount of harassment saved in claiming back SAD. The impossibilty of ever claiming back octroi. The time and cost at octroi checkpoint, are saved.

Now when he sells, he has to collect GST and report monthly.

Earlier he had to collect VAT, for interstate CST which may be with our without FORM C, multiple WAY LEAVE forms in advance for transport of goods, LBT OR OCTROI in some cities. File monthly returns for VAT, CST, SERVICE TAX, EXCISE ( if he is doing any processing) , quarterly, annual returns, payments to multiple agencies. Below table payments to each agency.

Collection of FORM C was a VERY BIG HEADACHE and loss. Huge extortion when getting annual returns accepted by various authorities. Huge tension, time waste.

All this is now saved.WHEW!

As regards rate of taxes, people have realised that more or less they were paying same amount but broken up under various headings. So it was hidden.
Now only one heading.

MAJOR BENEFIT IS SET OFF!

Wait a few months and then understand the benefits of all this. Sizeable savings in cost, time, harassment to the trader. Reduction in cost that he can pass on to customers and become more competitive.

GST has made India one market! Earlier the trader had to appoint distributor, CFA agent, mainly because of C FORM and local VAT. customers needed local billing.

Now no longer required to appoint distributor, sell and supply direct, no C Form no local Vat, no way leave form. ..

If you were riding a cycle earlier and now driving a car, you have to learn driving, practise it, read the rules etc. It takes years to become expert. Same with GST. In time businesses will become experts, file swiftly and easily. Now businesses are using accounting software TALLY, for example. Software enables quick and accurate filing of GST and also accounts are streamlined.

Earlier too all returns were filed over Internet, so this is not new. Same number of businesses were filing multiple returns with multiple agencies, monthly, quarterly, annually.

I repeat GST is a terrific solution.

Good for all legal businesses, good for consumers, good for nation to collect taxes even from those parasites not paying taxes earlier.

Some problems are in every system. System designer cannot be omniscient. These will get ironed out, as we are seeing happen OR people will learn to live with it.

Fortunately the GST council is responsive, unlike a STATE VAT BODY OR OCTROI BODY?

We should appreciate the structural reforms being undertaken by the government, even at risk of unpopularity.
This is not reflective of the whole country. Very few states levy octroi. Atleast 18 out of 25 states dont - why should the freedom of all those states taken away for alleged benfit of those in 5-6 states ?
Also your post is very international trade specific - vast trade happens internally. How would a delhi bureacrat know which one needs to go to which bracket - he will make a mess of it. I made a point on this and Suraj deleted it. But its not just my point - tons of people are talking about it. India itself is under threat with these policies.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by A_Gupta »

vina wrote: Which is the first country with a FEDERAl structure, that had done this in history ? The US. It is because of that, US had a continental sized internal market and grew to become what it did over 300 years.

How did they do it ? Simple. In the US constitution , interstate commerce is a federal subject and hence every state had to give sovereign treatment to other state's goods and services and couldnt erect barriers to other state's goods and services.
As noted in

State Taxation of Interstate Commerce
Frank J. Goodnow
Publications of the American Economic Association
3rd Series, Vol. 5, No. 2, Papers and Proceedings of the Sixteenth Annual Meeting. Part II. New Orleans, LA., December 29-31, 1903 (May, 1904), pp. 63-85
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2999878
The question as to the constitutionality of the taxation of interstate commerce by the states could not very well arise in the early history of the country. There were no such things as interstate transportation companies. There were hardly any interstate or state roads. Furthermore, the expenses of the State governments were, on account of the modest character of the work they did, very small in amount, and these expenses could be easily met by the taxes which were universally levied on property and on occupations.
The article then goes through the series of cases which led to the US interpretation of the interstate commerce clause. In particular, around 1827 it was interpreted that taxation was regulation.

With industrialization and urbanization, the costs of government went up. Governments tried to raise revenues, and the large interstate transportations that came about were taxed; and there was much litigation. In a series of cases culminating in 1872, the Supreme Court established a whole set of rules which kept states from imposing any kind of entry tax or export tax on goods crossing state lines. The states then around 1880 started on a new tack, that they could tax the property of interstate commercial companies that was within the state. E.g., the state of Pennsylvania could tax a railway company valuing it by its national revenues times the fraction of its national transport-miles that were within Pennsylvania; and this the Supreme Court upheld.
What is the indirect taxation system in US ? SALES Tax. What did we have in India . SALES Tax.
What do the states in India want ? Power to set tax rates individually , like the US .

So What WAS needed , to get US style continental scale of internal market. A similar constitutional amendment that would make interstate commerce a Central Subject and prevent states from erecting entry barriers via octroi, entry tax ,etc . etc.

This would have been FAR simpler to do. The States could still set the tax rates on each goods/service as they decided and you could have had the larger objective of common market met.
Article 301 of the Constitution says:
301. Freedom of trade, commerce and intercourse: Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.
Article 304 of the Constitution says that states cannot levy taxes on goods imported from other states that would lead to discrimination from similar goods produced within the state.

The sixth amendment to the Indian Constitution, passed in 1956 did the following:
https://en.wikipedia.org/wiki/Sixth_Ame ... n_of_India
The Sixth Amendment of the Constitution of India, officially known as The Constitution (Sixth Amendment) Act, 1956, brought taxes on inter-State sales and purchases of goods other than newspapers within the exclusive legislative and executive power of the Union....
[/quote]

Why doesn't all this do away with octroi, etc.? I don't know, I think the meaning of the law is often obscure.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by A_Gupta »

vinod wrote:I have a very stupid question... I keep on hearing that earlier there was lot of tax evasion, now with GST they are forced to pay tax. My question is, if they were evading tax before, why can't they do it now? I understand about things getting difficult on storing and spending the tax evaded money, but specifically want to know what in GST reduces the tax evasion!!
Because if X purchases some inputs and produces and sells some outputs, then X is liable only for tax on the value added and gets a rebate on the GST taxes paid on the inputs. Therefore X has an incentive only to buy through legitimate channels.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by A_Gupta »

The US federal government (2016) got 47% of its revenue from individual income taxes, 34% of its revenue from payroll taxes, 9% of its revenue from corporate income taxes and 9% of its revenue from excise, estate and other taxes.

US State and Local governments (2010) got 35% of revenue from property taxes, 34% from sales & gross receipt taxes, 20% from individual income taxes, 3% from corporate income taxes, 2% from Motor Vehicle license taxes, and 6% other.

I don't think the Indian economy is in a shape where the GOI can get the majority of its revenue from individual and corporate income taxes.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by Pratyush »

In order to understand gst and ho it compells compliance please refer to th link.


https://taxguru.in/goods-and-service-ta ... .html/amp/

You will also understand a lot of bellyach as well.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by chetak »

vina wrote:Yawn. The Govt tinkered at the margins, tweaked rates for 27 items , including "Unbranded Namkeen" the blaring headlines say (Sure, Unbranded Namkeen is the think that people care most about, I really dont understand this fetish about Headline Management. If you want to give a sop, do so, why pretend you are giving one, and restrict it to Unbranded and market it as something great?), and we are told things are great again and the Govt has fixed everything.

Modi has the nice alliterative one-liner on this. He messaged that the "Good and Simple Tax" (GST -- you gotta hand it to him for coining stuff like this) has now become "Simpler" . It boggles one imagination that in India if this is "Good and Simple" , what "Bad and Complex" would look like.

Awright folks, Everything taken care of now. The economy will grow by 9% next quarter and hit double digits after that. Peace.
The GST was basically buggered by the states, including some of the BJP run states who arm twisted and blackmailed the centre into this dog's breakfast of GST rates because of their basic avowed aim, under the guise of the fear of "loss of tax revenue" was the greedy plunder of the aam aadmi.

The center gave in because it had no majority in the RS and the congis used that WMD to sabotage the GST apart from using people like mamta banoo to plant land mines to derail the process.

The tearing hurry by the govt to implement the GST was another factor that resulted in the active sabotage of the GST by states and central baboo(n)s who said that not enough time was given to prepare for the GST roll out. Ideally, they would have like the GST to have been delayed by about 10--20 years while getting "ready" for the roll out.

I have a strong feeling that enough loopholes have not been built into the GST for sneaky states and even sneakier baboo(n)s to plunder the system for personal benefit, leading to widespread resentment and the visceral opposition to its rollout.

the multiplicity of rates is the doing of the various states who had to be "accommodated" to obtain their buy-in for the GST.

the various greedy players in the market, including the unscrupulous MNCs have all chosen to pad and jack up their prices instead of reducing the prices as it was envisaged under the new GST regime.

The GoI should have ideally come out with guidelines about how to price items after the GST kicked in and given examples on public forums so that the public would be aware of what was going on.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by achoudhury »

Every taxation system has its advantages and its disadvantage. Taxation system in US is not ideal but since cost of non-compliance is so high that most dont try to evade tax. I have argued that GST permanently benefits more industrialized states with better infra and states like UP and Bihar will be net looser in the medium to long run. But as a whole, it is net advantage for India. What was the basic problem of indirect taxation in India? Number one was Tax compliance. Number two, a maze of different taxes levied from municipality to Central GoI and number three corruption in present system. GST gets rid of all these three. Forces compliance, removes numerous levies and removes corruption as it is self policed. Yes, people who never had to file any tax will find it difficult with the compliance. But they will have to fall in line. It will also cause temporary disruptions in supply chains as Business will take some time to re-organize. Also, It will have one time impact on inflation as many things on which taxes were not paid will now be more expensive. Also, Sometimes Individual tax slabs dont make sense due to current concern about revenue and Inflation. But Clarity will come after few quarters and a more rationalized tax structure will evolve. It is easy to abuse babus , but very difficult to Harmonize 400000+ items per the economic and political needs of India.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by chetak »

achoudhury wrote:Every taxation system has its advantages and its disadvantage. Taxation system in US is not ideal but since cost of non-compliance is so high that most dont try to evade tax. I have argued that GST permanently benefits more industrialized states with better infra and states like UP and Bihar will be net looser in the medium to long run. But as a whole, it is net advantage for India. What was the basic problem of indirect taxation in India? Number one was Tax compliance. Number two, a maze of different taxes levied from municipality to Central GoI and number three corruption in present system. GST gets rid of all these three. Forces compliance, removes numerous levies and removes corruption as it is self policed. Yes, people who never had to file any tax will find it difficult with the compliance. But they will have to fall in line. It will also cause temporary disruptions in supply chains as Business will take some time to re-organize. Also, It will have one time impact on inflation as many things on which taxes were not paid will now be more expensive. Also, Sometimes Individual tax slabs dont make sense due to current concern about revenue and Inflation. But Clarity will come after few quarters and a more rationalized tax structure will evolve. It is easy to abuse babus , but very difficult to Harmonize 400000+ items per the economic and political needs of India.
the problem in India is that we are all oversold on the infallibility of one IAS super man baboo(n) who can (and very unfortunately also does)administer everything from "sandas ('संडास'=latrine) to space" while having nil relevant educational qualifications as applied to the subject he is "administering" as well as sorely lacking both exposure and experience to the said subject.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by vina »

tandav wrote:I think that is the intent of the IGST ... I can bill everything as IGST and not bother about CGST and SGST
It is like this. If you are billing out of state, you pay CTST and IGST, and not SGST. Instate , you bill CGST and IGST.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by chetak »

achoudhury wrote:Every taxation system has its advantages and its disadvantage. Taxation system in US is not ideal but since cost of non-compliance is so high that most dont try to evade tax. I have argued that GST permanently benefits more industrialized states with better infra and states like UP and Bihar will be net looser in the medium to long run. But as a whole, it is net advantage for India. What was the basic problem of indirect taxation in India? Number one was Tax compliance. Number two, a maze of different taxes levied from municipality to Central GoI and number three corruption in present system. GST gets rid of all these three. Forces compliance, removes numerous levies and removes corruption as it is self policed. Yes, people who never had to file any tax will find it difficult with the compliance. But they will have to fall in line. It will also cause temporary disruptions in supply chains as Business will take some time to re-organize. Also, It will have one time impact on inflation as many things on which taxes were not paid will now be more expensive. Also, Sometimes Individual tax slabs dont make sense due to current concern about revenue and Inflation. But Clarity will come after few quarters and a more rationalized tax structure will evolve. It is easy to abuse babus , but very difficult to Harmonize 400000+ items per the economic and political needs of India.
tax evasion in India is considered a sport, passed off with a wink wink, nudge, nudge and a suitably contrite "contribution" to some baboo(n)s retirement fund whereas in the US the taxman comes after you with a single minded vengeance and it invariably results in a stiff prison sentence.

For ex, telecom services act like a GDP multiplier. Why tax them at 18%?? Its simply vengeful plunder of the hard earned money of the consumer. It should have been taxed at 0% or at max 5%, if at all.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by vina »

VKumar wrote:GST is a terrific solution. I will explain by example. Take the case of a trader who imports goods from overseas into Mumbai and distributes across India. Here is a list of taxes he had to pay earlier:
Customs duty, CVD, SAD, OCTROI
Now, post GST :
Customs duty, GST.
Not quite. For imported inputs, you have to pay the GST on the imported stuff on a reverse charge basis and then that can be claimed as input credit .
The amount of harassment saved in claiming back SAD. The impossibilty of ever claiming back octroi. The time and cost at octroi checkpoint, are saved.

Now when he sells, he has to collect GST and report monthly.

Earlier he had to collect VAT, for interstate CST which may be with our without FORM C, multiple WAY LEAVE forms in advance for transport of goods, LBT OR OCTROI in some cities. File monthly returns for VAT, CST, SERVICE TAX, EXCISE ( if he is doing any processing) , quarterly, annual returns, payments to multiple agencies. Below table payments to each agency.

Collection of FORM C was a VERY BIG HEADACHE and loss. Huge extortion when getting annual returns accepted by various authorities. Huge tension, time waste.

All this is now saved.WHEW!
All this I whole heartedly agree.
As regards rate of taxes, people have realised that more or less they were paying same amount but broken up under various headings. So it was hidden.
Now only one heading.
Nope. Service tax rate has increased from 14% or so to 18% to 28% in some cases. This is a tangible and REAL increase in rates. Remember services is upwards of 60% of India's GDP
MAJOR BENEFIT IS SET OFF!

Wait a few months and then understand the benefits of all this. Sizeable savings in cost, time, harassment to the trader. Reduction in cost that he can pass on to customers and become more competitive.

GST has made India one market! Earlier the trader had to appoint distributor, CFA agent, mainly because of C FORM and local VAT. customers needed local billing.
Well, I haven't received a single input credit that is due to me until now ! Ideally it should be real time or near real time. (like the UPI/IMPS transaction), and you get input credit seamlessly . Now it is nearly 3 months and many people haven't seen a single input credit.
Fortunately the GST council is responsive, unlike a STATE VAT BODY OR OCTROI BODY?
It is staffed with retards. That Huh-Schumck is a joker of the 1st order. A typical Baboon, high on ego and narcissism and zero experience in anything beyond random Baboongiri. Classic example of someone who SHOULD NOT be running it. You needed a taxation expert with global experience, someone like Dr. Parthasarathi Shome , who has deep background , experience , education ,credibility at the highest levels in these matters and could have marshalled in people more with expertise
We should appreciate the structural reforms being undertaken by the government, even at risk of unpopularity.
Yes. But it is half baked , badly designed and implemented. They could have done far better than this.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by Schmidt »

GST is supposed to subsume all the previous indirect taxes into one tax.

It is not possible to have one single rate in India ( like say Singapore , where there is a single rate of 7% ). Too much inequality and all that.

Amazingly , Hong Kong has no GST whatsoever.

Also , the states in INdia were paranoid about losing out on revenue and conspired to keep the rates high. The Centre was anxious to get the roll out completed on tie , hence did not negotiate too hard on the rates. They probably wanted to see the revenue collections before tinkering with the rates.

Earlier , there was 14.50% Excise Duty on many products , and a state VAT of another 15% , adding up to more than 30%.

So to keep it revenue neutral , they kept the GST rates at 28%.

I agree that the Indian tax rates are quite high and need to be brought down slowly to more manageable rates.
Ideally GST on all products around 7-10%, with very few exeptions.


While they are at it , bring down Income Tax rates too to a max of 17%
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by JohnTitor »

One of the major issues I see with the indian tax system (gst as well as the previous one) is the bucketing of individual items into brackets. That is a joke and its sole purpose seems to provide baboons and politicians a tool to show the commoner that they are changing things without actually having any major impact.

For instance, salt and turmeric are taxed individually, so one may be taxed at 5% and the other at 12% (I don't know the exact rates of these but I'm just using it as an example).

In the UK and US , both are aggregated to being unprocessed ingredients and therefore fall into the same tax bucket. This is a subtle but crucial difference. Because in the Indian system, the baboo can tweak the rate and the political can claim that he has made something cheaper but in reality changing rate of salt from 12% to 5% wont make any meaningful difference whereas changing the rate for all ingredients from 12% to 5% will. As part of this, clear and simple definitions of what a 'unprocessed ingredient' is should be stated.

This is clearly a baboo issue but I'm surprised that neither jetli nor modi saw this and took this as an opportunity to simplify the tax system. I hope that this will be done in the near future. It's hilarious to see the FM talking about individual items like a housewife listing groceries that need to be purchased.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by Deans »

Suraj wrote:Those looking for understanding of GST rates by trying to figure out 'why is X taxed at Y% ?' is looking at it all wrong.

GST rates are design-by-committee. Don't blame the central government for this - The GST Council is the rate definition mechanism, and it is a council of states with divergent motives. Several of those states have seen their ruling entities too change in the last few years.

Further, at least introductory GST rates are focused first on achieving revenue neutral operation of GST and only secondarily on making it easy for the wide economy at large.

Remember the GST Council deliberations the last 2-3 years ? When did they ever discuss "how do we set rates so disruption to business is minimal ?" No, the emphasis was always "how do we set rates so the disruption to OUR tax revenues is minimal ?"

What's seen today is the result of that. Don't make it a political party thing. This is creature of the manner in which the rates were set, and the motives of the Council. I don't know how to 'fix' it. Perhaps FICCI/ASSOCHAM etc should have a seat on the GST Council so the industry too has a voting voice ?

Comparisons to mature GST systems elsewhere is quite pointless ~3 months(1 quarter) in. My question would be - how much time did they take to achieve revenue neutral stability ? How many fiscal quarters ? years ? Everyone here expects this to work overnight. That's completely unrealistic.
An excellent post Suraj ji, I might add that the opinion of industry bodies was actively sought. There are anomalies of course, but a lot of them were addressed yesterday.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by Deans »

Some thoughts on GST, not covered earlier:

This is the youngest, yet biggest tax system in the world. Youngest because its 3 months old - people expect the same level of refinement as US &
EU who have taken decades to get theirs right and still have several modifications. India is larger and more complex than the EU. Do we seriously expect that everything would be perfect when launched ? While there flaws that might have been corrected before launch (with the benefit of hindsight), perhaps they would have been corrected had the Govt got approvals earlier from an uncooperative opposition. Other defects become apparent only when people actually start using the system. A 100 day trial is fair.

I am yet to see any analysis of how (for the average household or company) GST makes things more expensive. No one seems to have a clue of what overall taxes (net of refunds) were before and after GST. Or perhaps they do, but know that there will then be no basis to criticise.
The press screams `traders are affected' when most traders do not come under GST and most that do have not paid tax after filing their return.

Almost all the criticism is from people forced to get into the tax network for the first time. A lot of genuine problems were addressed yesterday. Deferring certain things to next April is realistic and Govt needs that much time to get things together.

The GST council probably has multiple and often contradictory opinions and any consensus decision would usually be sub-optimal. Even when there is consensus, we have Raga saying why doesn't govt bring Petroleum products under GST when he knows fully well, NONE of the non BJP members of the council want it.

like DeMo, the INITIAL impact of GST will only be known once tax revenues for a year are compared with pre GST. Similarly, total costs to the the consumer per and post GST quantified. In the case of DeMo the gain will be from demands filed against high value depositors, for which the process has barely started.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by ssundar »

disha wrote:
ssundar wrote:To me, the biggest two questions are:

1. When are we going to get solid metrics to measure ALL employment, including formal and informal as well as the entrepreneur count allegedly created by Mudra.
I am not politicking with an agenda Saar. My ask is simple. If the traditional employment metrics do not cover areas where we say new jobs are being created, we ought to evolve a new metric that makes all new job creation visible. YouTube videos are anecdotal. An official comprehensive labor report or metric leaves no room for politicking.
Why does FDI have to do only with big names? Just go by the report from UN http://www.india.com/business/india-to- ... t-2213391/
No need for big names, but need names and more detailed numbers nevertheless. For transparency"s sake.
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Re: Indian Economy News & Discussion - Aug 26 2015

Post by pankajs »

chetak wrote:
pankajs wrote:My guess is that we want to be in line with international norms with regards to our ability to withstand another GFC 2008 type crisis.
Why we don't really need Basel III
Why we don't really need Basel III

S. ADIKESAVAN

Basel III is meant to address the excesses of Western banks. It will hike borrowing costs in India and choke growth.
This article needs to be addressed on its basic assumptions. Below quote captures the essence of the article.
Complex financial products, which nobody understood, and light-touch regulation were the main reasons why Western banks were shaken to their foundations by the impact of the crisis
Complex products that no one understood v/s plain vanilla banking.
1. While complex products are definitely a problem but the author should also tell us what happened to the *plain vanilla* loan originators in the US. The complex products were after all built on these *plain vanilla* loans. Without the toxic *plain vanilla* loans there wouldn't be much of the toxic complex products.
2. If *plain vanilla* banking is not an issue why are the PSU banks reeling under a truck load of NPAs?

The key to understanding this point is that *plain vanilla* banking is as much of problem as *Complex products*. The difference however is that packaging and re-packaging *plain vanilla* into *complex products* allowed the risk to spread throughout the financial system, often to folks who don't quite understand the product, rather than be concentrated on the loan *originators* balance sheet just like we find the NPAs concentrated on the PSU balance sheet in India.

Bad lending in the form of *Sub prime* loans that was then packaged and re-packaged, sold and re-sold were at the root of the US financial crisis just as much as bad lending is at the root of the Indian bank's of NPAs. The absence of *complex products* does not take away or mitigate the risk inherent in the *plain vanilla* banking.

Light-touch regulation (Western regulators) v/s thorough-going regulator (RBI)
1. While western regulators were certainly lax in allowing risk to be built up and spread but I still don't understand how NPAs where built up to such an extent right under the watchful eyes of the RBI.
2. How 100s of crores were allowed to be lent on *Kingfisher Airlines* brand name in spite of RBIs strict supervision?
3. Weren't loans ever-greened right under the watchful eye of the diligent RBI?

They key to understand why India *looked* better than the Western financial system is to make note of the key differences between the two markets/systems.

a. We don't YET have the kind of financial derivative market in India and the risk was contained at the bank balance sheet level.
b. Indian banking is still dominated by PSU banks. That has it own dynamics where the GOI is the backstop.
c. Lend and pretend to the extent that new loans are issued to cover interest payment on the previous loan and keep it current! Bhai wah! This is like magic!
d. Look at the root cause of the GFC i.e. lax lending especially in the housing sector. IF people think that the Indian RE over priced, and I am of that view, then doesn't that make the past and current loans problematic? So why wasn't it reflected on the bank balance sheet in India? That's because the prices have been kept artificially high by the RE firms in connivance with the lenders. No need for banks to mark down these RE loans. That can be managed when only a tiny minority of house purchase are on loan. What will happen when we have a US style RE market where majority of the housing purchases are on loan? Not hard to predict. One just has to look at the US 2008 housing crisis and its impact on the housing loan originators.

So how does the future [20-30 years] look on the above 4 points.
a. We are on path to US style financial derivative market in India. No one should doubt that. The risk will be spread from the banks to Insurance firms, pension funds, etc.
b. Expect a flip in the banking dominance between PSU and private bank i.e PSU bank 25% share and private banks/lenders 75% of the pie.
c. With majority lending moving into private hand there will be a different set of dynamics. Profit motive with the opportunity to flip the loan to the next guy will operate in India as much as it did in the US leading up to 2008.
d. Majority housing purchase will be on loan and we will then be subject to the same market dynamics as US was subjected to leading into the 2008 housing collapse.

Net result expect a US 2008 style meltdown in India in 20-30 years. So what do you do? Try learn from the US 2008 housing/financial/market meltdown and try to put a mechanism to prevent cope with it. The writer is assuming that 20-30 years from now the current market/system is going to be in place *unchanged* but he is wrong. He says "Basel III is meant to address the excesses of Western banks" but we are on the path to those very same excesses. So we better buckle up and implement the learning if we are to do any better when our turn comes.

PS: These days I regularly receive calls from private banks with offers of personal loans, credit cards, insurance products, investment products. Yesterday I was being pitched a personal loans without any checks. This from a private bank that I haven't operated in 8-10 years and just have a bit over their minimum balance all this time. I know that this is a excuse to pull me into the bank but we are on the path to American style capitalism. In 20 years lenders will be into liar loans in India too.
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