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Distribution: weekly

  • Anti-Defection Law

    Vice-President M. Venkaiah Naidu said that there was a need to amend the anti-defection legislation in the country to plug existing loopholes.

    What did VP notice now?

    • Stating that there was no clarity in the law about the time frame for the action of the House Chairperson or Speaker in anti-defection cases.
    • Some cases are taking six months and some even three years.
    • There are cases that are disposed of after the term is over.

    What is Anti-defection Law?

    • The Anti-Defection Law under the Tenth Schedule of the Constitution punishes MPs/ MLAs for defecting from their party by taking away their membership of the legislature.
    • It gives the Speaker of the legislature the power to decide the outcome of defection proceedings.
    • It was added to the Constitution through the Fifty-Second (Amendment) Act, 1985 when Rajiv Gandhi was PM.
    • The law applies to both Parliament and state assemblies.

    Cases considered under the anti-defection law

    The law covers three scenarios with respect to shifting of political parties by an MP or an MLA.

    (1) Voluntary give-up

    • The first is when a member elected on the ticket of a political party “voluntarily gives up” membership of such a party or votes in the House against the wishes of the party.
    • Such persons lose his seat.

    (2) Independent members

    • When a legislator who has won his or her seat as an independent candidate joins a political party after the election.
    • In both these instances, the legislator loses the seat in the legislature on changing (or joining) a party.

    (3) Nominated MPs

    • In their case, the law gives them six months to join a political party, after being nominated.
    • If they join a party after such time, they stand to lose their seat in the House.

    Powers to disqualification

    • Under the anti-defection law, the power to decide the disqualification of an MP or MLA rests with the presiding officer of the legislature.
    • The law does not specify a time frame in which such a decision has to be made.
    • As a result, Speakers of legislatures have sometimes acted very quickly or have delayed the decision for years — and have been accused of political bias in both situations.

    Significant role of the Speaker/Presiding Officer

    • Pandit Nehru had referred to the Speaker as “the symbol of the nation’s freedom and liberty” and emphasized that Speakers should be men of “outstanding ability and impartiality”.
    • Several judgments on the anti-defection law have been rendered by the Supreme Court.
    • A common factor that shows up in these rulings is the blatant, partisan conduct of speakers in state assemblies.

    Reasons for Speakers’ ambiguous action

    • The Speaker continues to belong to a particular political party.
    • The electoral system and conventions in India have ‘not been developed to ensure protection to the office, there are cogent reasons for Speakers to retain party membership.
    • It would be unrealistic to expect a speaker to completely abjure all party considerations while functioning.
    • There are structural issues regarding the manner of appointment of the Speaker and her tenure in office.

    Way forward

    • Parliament may seriously consider a Constitutional amendment to bring in a permanent Tribunal for dealing with defection cases.
    • It is suggested that a scheme should be brought wherein Speakers should renounce all political affiliations, membership, and activity once they have been elected.
    • We can learn from the UK model. In practice, once elected, the Speaker gives up all-partisan affiliation, as in other Parliaments of British tradition.
    • He/she remains in office until retirement, even though the majority may change and does not express any political views during debates.

    Conclusion

    • Impartiality, fairness, and autonomy in decision-making are the hallmarks of a robust institution.
    • It is the freedom from interference and pressures which provide the necessary atmosphere where one can work with an absolute commitment to the cause of neutrality as a constitutional value.

     

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  • Anatomy of communal violence in India

    Context

    Communal violence, a complex phenomenon, has been over-simplified to suit a convenient political narrative.

    India’s syncretic traditions and impact of invasions

    • For aeons, India has had syncretic traditions inspired by the Vedic aphorism, “Ekam sad vipra bahudha vadanti” (there is only one truth and learned persons call it by many names).
    •  Because of this underpinning, Indian society has never insisted on uniformity in any facet of life.
    • This equanimity of Indian society was, however, disrupted by invading creeds.
    • The first such incursion came in 712, when Muhammad bin Qasim vanquished Sindh, and as Chach Nama, a contemporary Arab chronicle states, introduced the practice of treating local Hindus as zimmis, forcing them to pay jizya (a poll tax), as a penalty to live by their beliefs.
    • In the 11th century, Mahmud of Ghazni, while receiving the caliphate honours on his accession to the throne, took a vow to wage jihad every year against Indian idolaters.
    • The fact is, ties between the two communities were seldom cordial.
    • There were intermittent skirmishes, wars and occasional short-lived opportunistic alliances.
    • When Pakistan declared itself an Islamic Republic in 1947, it would have been natural for India to identify itself as a Hindu state.
    • It didn’t, and couldn’t have — because of its Hindu ethos of pluralism.
    • India, is, and will always be, catholic, plural, myriad and a vibrant democracy.

    Conclusion

    It’s relevant to recall what Lester Pearson (14th PM of Canada) said: “Misunderstanding arising from ignorance breeds fear, and fear remains the greatest enemy of peace.”

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  • Rape laws are being misused today: Justice BN Srikrishna

    Retired Supreme Court judge Justice BN Srikrishna has said that there is a blatant misuse of rape laws in the country.

    What did Justice BN Srikrishna say?

    • Lesser convictions: Statistics show that even after the amendment of rape laws, there have been less number of convictions.
    • Need for objective analysis: It is time that rape cases be looked at in a very objective manner.
    • Authencity of women’s claims needs to be checked: We need to question — is the woman really subjected to cruelty and atrocities? Otherwise, in the general course of things, the accused is presumed to be innocent unless proven guilty should apply.
    • Tilt of such laws is always against the men: However, in rape cases, whatever the woman says is treated as the gospel truth. But that is not the intention of the law. It is not the way to empower women.

    Various laws for the protection of women

    • Various special laws relating to women include:
    1. Protection of Women from Domestic Violence Act, 2005
    2. Dowry Prohibition Act, 1961
    3. Indecent Representation of Women (Prohibition) Act, 1986
    4. Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
    5. Prohibition of Child Marriage Act, 2006

     Alleged rape cases these days

    • False accusations: Justice BN Srikrishna said that, sometimes some innocent men are being falsely accused of rape and later getting acquitted.
    • Consensual sex is later cried as rape: There are many cases either in a consensual relationship or in co-habitation for a long time, there is a disagreement and the woman cries rape.
    • Tool to preserve honour: There are instances where a secret affair is going on, people get to know of it and in order to come out of the ignominy of it, she cries rape, Justice Srikrishna said.

    Issues with such alleged rape cases

    • Whenever the man is accused of rape, he gets arrested, newspapers carry it on the front page.
    • But when there is an acquittal, it is not carried in the same way. This is terrible.
    • The balance is always tilted in favour of women in such cases.

    Various sexual crimes in India

    • Sexual Abuse/ Molestation/ Rape: Rape is one of the most common crimes in India. According to the National Crime Records Bureau, one woman is raped every 20 minutes in India.
    • Marital Crimes: In India, marital rape is not a criminal offense.  India is one of fifty countries that have not yet outlawed marital rape.
    • Forced Marriage: Girls are vulnerable to being forced into marriage at young ages, suffering from a double vulnerability: both for being a child and for being female.
    • Trafficking and forced prostitution: Human trafficking, especially of girls and women, often leads to forced prostitution and sexual slavery.
    • Online abuse: Women are regularly subject to online rape threats, online harassment, cyber-stalking, blackmail, trolling, slut-shaming and more.
    • Harassment at the workplace: Sexual harassment at workplace, mostly comprising of indecent remarks, unwanted touches, demands for sex, and the dissemination of pornography.

    Various initiative to protect women

    The Government has taken a number of initiatives for the safety of women and girls, which are given below:

    • Nirbhaya Fund for projects for the safety and security of women
    • One-Stop Centre Scheme to provide integrated support and assistance to women affected by violence, both in private and public spaces under one roof
    • Online analytic tool for police called “Investigation Tracking System for Sexual Offences” to monitor and track time-bound investigation in sexual assault cases in accordance with Criminal Law (Amendment) Act 2018.
    • National Database on Sexual Offenders (NDSO) to facilitate investigation and tracking of sexual offenders across the country by law enforcement agencies.

    Way ahead

    • Breaking the cycle of abuse will require concerted collaboration and action between governmental and non-governmental actors including educators, health-care authorities, legislators, the judiciary and the mass media.
    • Gender-based violence, an especially violent crime like rape, is a multifaceted problem.
    • Although the incorporation of stringent laws and stricter punishments are important to deter people from committing such crimes, the solution to this is much more than just promulgation.
    • Education of both men and women will lead to change in attitudes and perceptions.
    • It is a mammoth task. We are just doing bits and pieces. A way ahead is obscure but in our sphere with concrete and pronounced steps.

     

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  • What is the Five Eyes (FYEY) Alliance?

    The annual Raisina Dialogue in Delhi held this year by National Security Adviser Ajit Doval will host intelligence agency chiefs of several countries.

    What is the conference about?

    • The conference is modelled on the lines of the annual Munich Security Conference and Singapore’s Shangri-La dialogue.
    • It is expected to bring together heads and deputy heads of the top intelligence and security organisations from more than 20 — mostly Western countries and their allies.
    • Intelligence chiefs and deputies from Australia, Germany, Israel, Singapore, Japan and New Zealand are among those expected to attend the conference.
    • The meet is held on the sidelines of the “Five eyes alliance” of the U.S., U.K., Canada, New Zealand and Australia, who coordinate on terrorism and security issues.

    What is the Five Eyes Alliance?

    • The Five Eyes (FVEY) is an intelligence alliance comprising Australia, Canada, New Zealand, the United Kingdom, and the United States.
    • These countries are parties to the multilateral UKUSA Agreement, a treaty for joint cooperation in signals intelligence.
    • The origins of the FVEY can be traced to informal secret meetings during World War II between British and American code-breakers.
    • It was started before the US formally entered the war, followed by the Allies’ 1941 Atlantic Charter that established their vision of the post-war world.

    Back2Basics: Munich Security Conference

    • The Munich Security Conference is an annual conference on international security policy that has been held in Munich, Bavaria, Germany since 1963.
    • It brings together heads of state, diplomats and business leaders from the world’s leading democracies for three days of meetings and presentations.
    • It is the world’s largest gathering of its kind.
    • Over the past four decades the MSC has become the most important independent forum for the exchange of views by international security policy decision-makers.

     

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  • All-India Household Consumer Expenditure Survey

    The All-India Household Consumer Expenditure Survey, usually conducted by the National Statistical Office (NSO) every five years, is set to resume this year after a prolonged break.

    What is the Consumer Expenditure Survey (CES)?

    • The CES is traditionally a quinquennial (recurring every five years) survey conducted by the government’s National Sample Survey Office (NSSO).
    • It is designed to collect information on the consumer spending patterns of households across the country, both urban and rural.
    • Typically, the Survey is conducted between July and June and this year’s exercise is expected to be completed by June 2023.

    Utility of the survey

    • The data gathered in this exercise reveals the average expenditure on goods (food and non-food) and services.
    • It helps generate estimates of household Monthly Per Capita Consumer Expenditure (MPCE) as well as the distribution of households and persons over the MPCE classes.
    • It is used to arrive at estimates of poverty levels in different parts of the country and to review economic indicators such as the GDP, since 2011-12.

    Why need this survey?

    • India has not had any official estimates on per capita household spending.
    • It provides separate data sets for rural and urban parts, and also splice spending patterns for each State and Union Territory, as well as different socio-economic groups.

    What about the previous survey?

    • The survey was last held in 2017-2018.
    • The government announced that it had data quality issues.
    • Hence the results were not released.

     

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  • Strontium: A Cyber-Espionage Group

    Recently, Microsoft said that it had disrupted cyberattacks from a Russian nation-state hacking group called ‘Strontium’.

    What is Strontium?

    • Strontium, also known as Fancy Bear, Tsar Team, Pawn Storm, Sofacy, Sednit or Advanced Persistent Threat 28 (APT28) group, is a highly active and prolific cyber-espionage group.
    • It is one of the most active APT groups and has been operating since at least the mid-2000s, making it one of the world’s oldest cyber-spy groups.
    • It has access to highly sophisticated tools to conduct spy operations, and has been attacking targets in the US, Europe, Central Asia and West Asia.
    • The group is said to be connected to the GRU, the Russian Armed Forces’ main military intelligence wing.
    • The GRU’s cyber units are believed to have been responsible for several cyberattacks over the years and its unit 26165 is identified as Fancy Bear.

    How does it attack networks?

    • The group deploys diverse malware and malicious tools to breach networks.
    • In the past, it has used X-Tunnel, SPLM (or CHOPSTICK and X-Agent), GAMEFISH and Zebrocy to attack targets.
    • These tools can be used as hooks in system drivers to access local passwords, and can track keystroke, mouse movements, and control webcam and USB drives.
    • APT28 uses spear-phishing (targeted campaigns to gain access to an individual’s account) and zero-day exploits (taking advantage of unknown computer-software vulnerabilities) to target specific individuals and organizations.
    • It has used spear-phishing and sometimes water-holing to steal information, such as account credentials, sensitive communications and documents.
    • A watering hole attack compromises a site that a targeted victim visits to gain access to the victim’s computer and network.

     

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  • Palli in Jammu becomes India’s First Carbon-Neutral Panchayat

    Palli village in Samba district of Jammu and Kashmir has become the first panchayat in the country to become carbon-neutral, fully powered by solar energy.

    Various feats achieved

    • All its records have been digitised and the benefits of all the Central schemes are available in this village around 17 km from Jammu.
    • Palli village, with its enthusiastic and dedicated elected representatives full of dreams, has shown how to implement the Glasgow pledge (Panchamrita) made by PM Modi.
    • It has set an example of the slogan Sabka Prayas (everyone’s efforts).

    What is Carbon Neutrality?

    • Carbon neutrality refers to achieving net-zero carbon dioxide emissions or buying enough carbon credits to make up the difference.
    • This can be done by balancing emissions of carbon dioxide with its removal (often through carbon offsetting) or by eliminating emissions from society.
    •  It is used in the context of carbon dioxide-releasing processes associated with transportation, energy production, agriculture, and industry.
    •  The term carbon neutral also includes other greenhouse gases, usually carbon-based, measured in terms of their carbon dioxide equivalence.
    • The term “net-zero” is increasingly used to describe a broader and more comprehensive commitment to decarbonization and climate action.
    • Net-zero emissions are achieved when your organization’s emissions of all greenhouse gases (CO2-e) are balanced by greenhouse gas removals

    Methodology

    Carbon-neutral status can be achieved in two ways:

    • Carbon offsetting: Balancing carbon dioxide emissions with carbon offsets — the process of reducing or avoiding greenhouse gas emissions or removing carbon dioxide from the atmosphere to make up for emissions elsewhere. If the total greenhouse gasses emitted is equal to the total amount avoided or removed, then the two effects cancel each other out and the net emissions are ‘neutral’.
    • Reducing emissions: Reducing carbon emissions can be done by moving towards energy sources and industrial processes that produce fewer greenhouse gases, thereby transitioning to a low-carbon economy. Shifting towards the use of renewable energy such as hydro, wind, geothermal, and solar power, as well as nuclear power, reduces greenhouse gas emissions.

    Agreement and Target

    • The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016.
    • Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.
    • Article 4.1 of the Paris Agreement asks countries to reach global peaking of greenhouse gas emissions as soon as possible.
    • It also requires countries to undertake rapid reductions in carbon emissions to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases.

    Back2Basics:  Panchamrita

    • ‘Panchamrita’ is a traditional method of mixing five natural foods — milk, ghee, curd, honey, and jaggery.
    • These are used in Hindu and Jain worship rituals. It is also used as a technique in Ayurveda.
    • The PM euphemistically termed his scheme as ‘Panchamrita’ meaning the ‘five ambrosia’.
    • Under Panchamrita’, India will:
    1. Get its non-fossil energy capacity to 500 gigawatts by 2030
    2. Meet 50 percent of its energy requirements till 2030 with renewable energy
    3. Reduce its projected carbon emission by one billion tonnes by 2030
    4. Reduce the carbon intensity of its economy by 45 percent by 2030
    5. Achieve net-zero by 2070

     

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  • What is different now in communal violence in India

    Context

    India has a long history of communal violence. Just how similar or different are the recent episodes? And what kind of dangers do they pose to the polity and society?

    What is different this time?

    • Religious processions: It should first be noted that such processions have historically been some of the largest triggers for communal riots.
    • Such processions can be, and have been, intensely political, often morphing from the religious to the communal.
    • Communalism Vs. Religiosity: Communalism in South Asia has always been distinguished from religiosity.
    • Religiosity may be about deeper meanings of life, but communalism is about a coercive assertion of power or a bloody search for retribution, often historically construed and presented.
    • Thus, it is not the coexistence of religious processions and riots that is surprising today.
    • What is different this time? Ram Navami and Hanuman Jayanti are not the principal religious processions touching off riots.
    • Eroding neutrality of state: The second difference that in the past, processions might have caused riots, but the state rarely gave up the principle of neutrality in dealing with them.
    • When a state either explicitly favours a community or looks away when a particular community is hounded, intimidated and attacked, it is no longer a riot, but a pogrom.
    • The rapidly eroding religious neutrality of the government in several states is one of the most alarming political developments.
    • In recent months, there have been spectacles of calls to murder in Dharam Sansads (religious assemblies).
    • Such speech is criminally liable. India’s Constitution prohibits speech that endangers “public order”.
    • In the past, it was invariably hard to find clear evidence of who led the riots.
    • The riot leaders now openly proclaim call for violence.
    • Such leaders are either not punished, or are merely given a slap on the wrist and some of them are even celebrated as heroes and rewarded with high office.
    • New research on vigilantism makes it clear that vigilantism, especially lynchings, cannot flourish unless the state provides impunity to vigilante groups.

    Conclusion

    Even though India has a long history of communal violence the recent episodes of violence are different and pose grave dangers to the polity and society.

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  • [Sansad TV] Mudda Aapka: India–Mauritius Relations

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    Context

    • Mauritius Prime Minister Pravind Kumar Jugnauth is on an eight-day visit to India.
    • The purpose of this visit is to further strengthen the relations between the two countries. Mauritius is becoming an integral part of the goals of India’s maritime diplomacy.
    • Mauritius is very important for India’s security from the point of view of the Indian Ocean and yet being highest FDI investor.

    As Mauritius becomes a key part of India’s renewed Ocean Diplomacy at a time when the world is changing in fundamental ways, what should be India’s approach to this island-nation?

    India-Mauritius Relations: A Backgrounder

    • Connections between India and Mauritius date back to 1730, diplomatic relations were established in 1948 before Mauritius became an independent state.
    • For far too long, Delhi has viewed Mauritius through the prism of diaspora. This was, perhaps, natural since 68% of the Mauritian population comprise of Indian origin.
    • More recently, Delhi has certainly begun to see the strategic significance of Mauritius thanks to the renewed great power contestation in the Indian Ocean.
    • In 2014, Prime Minister Modi saw Mauritius as part of India’s neighbourhood and invited its leaders to join his inauguration along with other South Asian leaders.
    • In 2015 that Modi unveiled an ambitious policy called the SAGAR (security and growth for all). It was India’s first significant policy statement on the Indian Ocean in many decades.

    Significance of Mauritius to India

    [A] Geostrategic significance

    • In 2015, the Indian Prime Minister signed an agreement to set up eight Indian-controlled coastal surveillance radar stations
    • Mauritius is part of India’s security grid including Coastal Surveillance Radar (CSR) station of Indian Navy’s National Command Control Communication Intelligence network.
    • The Head of Mauritius Navy and the Mauritian National Security Advisor are Indian officers.
    • India is also building a secret naval base in Agalega Islands of Mauritius.
    • If Delhi takes an integrated view of its security cooperation in the southwestern Indian Ocean, Mauritius is the natural node for it.

    [B] Economic opportunities

    • The Mauritius pivot can facilitate a number of Indian commercial activities in the southwestern Indian Ocean — as a banking gateway, the hub for flights to and from Indian cities and tourism.
    • India could also contribute to the evolution of Mauritius as a regional centre for technological innovation.
    • Companies registered in Mauritius are the largest source of foreign direct investment (FDI) into India.
    • Mauritius and India signed a Comprehensive Economic Cooperation and Partnership Agreement (CECPA) on 22 February 2021, during the visit of the External Affairs Minister Dr. Subrahmanyam Jaishankar.

    [C] Geo-economics

    • India is Mauritius’s largest trading partner and has been the largest exporter of goods and services to the Indian Ocean island nation since 2007.
    • The French description of the island as a “central geographic point” holds equally true for commerce and connectivity in the Indian Ocean.
    • As a member of the African Union, Indian Ocean Rim Association and the Indian Ocean Commission, Mauritius is a stepping stone to multiple geographies.
    • As new investments pour into Africa, Mauritius is where a lot of it gets serviced. Mauritius can be the fulcrum for India’s own African economic outreach.

    [D] Mauritius as pivot of New Delhi’s island policy

    • Until now India has tended to deal with the so-called Vanilla islands of the southwestern Indian Ocean — Comoros, Madagascar, Mauritius, Mayotte, Reunion and Seychelles — on a bilateral basis.
    • If the Indian establishment thinks of them as a collective, it could make Mauritius the pivot of Delhi’s island policy.

    [E] Indian Community

    • There are nearly 11,000 Indian nationals in Mauritius. There are around 750 OCI Card holders and about 3500 PIO Card holders.
    • To increase tourism inflow from India, Mauritian Government had introduced a visa-free regime for Indian tourists in October 2004.
    • Indian tourists visiting Mauritius for a period up to 60 days do not require a visa, provided they can show sufficient funds to cover their stay.
    • Mauritian nationals visiting India are entitled to gratis E-Tourist Visa.

    [F] Institutional collaboration

    • The Mahatma Gandhi Institute (MGI) was established in 1976 as a joint venture between the Government of India and the Government of Mauritius for the promotion of Indian culture and education. It also hosts the ICCR Chair in Sanskrit and Indian Philosophy.
    • The Rabindranath Tagore Institute (RTI) was established with the assistance of the Government of India in 2000 as a Centre of Studies on Indian culture and traditions.
    • Mauritius also hosts the World Hindi Secretariat, an India-Mauritius bilateral organization which was inaugurated during the visit of President in March 2018.  

    Common challenges

    • Some existential challenges for Mauritius and the neighbouring island states are:
    • Climate change
    • Sustainable development and
    • Blue economy
    • The impact of natural disasters, the degradation of coastal and marine ecosystems and sea level rise are their biggest security threats as these threaten their very existence.
    • According to a World Bank Report in 2018, Mauritius Ranks 16th highest disaster risk country, being highly vulnerable to the adverse effects of climate change.

    Why India needs to revamp its neighbourhood strategy?

    • Responsiveness against China: India has often been accused of being self-centred in its relations with its smaller neighbours, as well as being interested in them only when China becomes a big enough presence in these countries. This is not an unfair criticism.
    • IOR Strategy: As the power dynamic in the Indian Ocean Region (IOR) is changing, India has come to view Mauritius as an integral part of the new security architecture that it would like to see emerge here.
    • Security-centric: Mauritius is dotted with naval outfits, communication and surveillance outposts, and/or port facilities/developments, from Tanzania, Kenya, to Oman, Iran, Pakistan, Sri Lanka, Maldives, Bangladesh and Myanmar.
    • Multiple identities: Mauritius, much like India, sees itself in many dimensions. It sees itself as a sovereign nation, as a vibrant democracy; as multi-ethnic, multi-cultural and multi-religious nation too. It is important for India in its approach towards Mauritius to embrace its multitude of identities.

    Way forward

    • The urgent need for New Delhi is to discard the deep-rooted perception that Mauritius is simply an extension of India.
    • Delhi must take a fresh and more strategic look at Mauritius.
    • One way of getting there is to have an early Indian summit with the leaders of the Vanilla Islands.
    • India, with its strong intelligence network, will also be helpful in maritime law enforcement by Mauritius and Seychelles.
    • While declaring support for India’s maritime security plans, there is need to pointed out that small nations are equally important in the contemporary world order and need to be taken seriously for the sake of preserving the security and order.

    Conclusion

    • Our close multifaceted relations have steadily developed over the years, based on the secure foundations of kinship and family ties, and of shared values of democracy, tolerance, peace and development.
    • It is time that both nations take it forward with mutual cooperation.
    • Jugnauth’s visit is a good moment for India to visibly demonstrate its respect for the sovereignty of Mauritius.

  • Digital Service Tax

    Context

    Over the past four years, 137 countries have engaged intensively with the OECD to find a solution to the tax challenges arising from digitalisation. Like any international agreement, finding a middle ground has been difficult and a series of compromises have been made.

    What makes it difficult to tax the digital economy?

    • Operation across the border: The unique feature of the digital economy is that firms can operate seamlessly across borders and users and their data contribute to their profits.
    • However, this made it harder to tax such an economy.
    • It was not clear how profits were to be pinned down to any jurisdiction.
    • Political issues: Taxing digital economy became a political issue because the largest technology firms are tax residents of developed countries and redefining digital presence as the basis of taxation would potentially allow large markets like India more right to tax.
    • Developing vs. developed countries: Developing countries wanted that profits from digital operations should be fractionally apportioned to markets while developed countries believe that a fraction of residual profit, mainly arising from marketing functions, should be taxed in markets.

     Equalisation levy and DST issue

    • The divergence in developed and developing countries as explained above compelled countries to implement unilateral measures.
    • India was the first country to implement a gross equalisation levy on turnover.
    • This is not covered by tax treaties.
    • So, while the income tax act does not apply to the levy, credit is available for the tax paid by the company in its home country.
    • Similarly, several other countries have announced or implemented a digital services tax (DST).
    • In 2021, India expanded the scope of the equalisation levy.
    • The US initiated the US Trade Representative investigations which found DST to be discriminatory, and then announced retaliatory tariffs.

    Two-pillar approach and issues with its adoption

    • The DSTs encouraged the US to actively participate in finding a consensus-based solution.
    • As talks progressed, the OECD announced that the issue of allocation of taxing rights would be actively considered and adopted a two-pillar approach.
    • Pillar One approach: The first pillar was to define the rules for taxing digital companies.
    • Sovereignty issue: Pillar One was to go beyond digital companies and apply to large companies with annual revenue over € 20 billion. To ensure certainty to taxpayers, the solution will require excessive global coordination.
    • Whether this will undermine sovereignty, remains to be seen.
    • Therefore, it is important to consider if the consensus approach is worth pursuing.
    • EL may still apply to companies not covered by OECD proposal: In fact, the EL may apply to companies that are not covered by the OECD proposal, leaving one to wonder whether it will truly address the tax challenges from digitalisation. 
    • Complications: Corporations that argue in favour of simplicity must also consider the potential benefits from an EL like tax that sets aside the complications of attributing profits to complex functions.
    • The OECD approach creates a fiction of reallocation, where the profits reallocated through Pillar One could in fact be compensated for by taxing back global profits taxed below 15 per cent.

    Conclusion

    As per Pillar One proposal, DSTs will be removed once the OECD approach is ratified in 2023. It is imperative therefore that countries assess the price of compromise.

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