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  • 17th June 2021 | Prelims Daily with Previous Year Questions

    [WpProQuiz 677]

    [WpProQuiz_toplist 677]

  • Direct Tax collections surge in 2021-22

    India’s direct tax collections in the first two and a half months of 2021-22 stand at nearly ₹1.86 lakh crore, double the collections over the same period of last year that was affected by the national lockdown.

    Surge in direct tax collections

    • The jump in the direct tax collections reflects healthy exports and a continuation of various industrial and construction activities.
    • This supports our expectation that GDP will record a double-digit expansion.

    What are Direct Taxes?

    • A type of tax where the impact and the incidence fall under the same category can be defined as a Direct Tax.
    • The tax is paid directly by the organization or an individual to the entity that has imposed the payment.
    • The tax must be paid directly to the government and cannot be paid to anyone else.

    Answer this PYQ in the comment box:

    Q.All revenues received by the Union. Government by way of taxes and other receipts for the conduct of Government business are credited to the:

    (a) Contingency Fund of India

    (b) Public Account

    (c) Consolidated Fund of India

    (d) Deposits and Advances Fund

    Types of Direct Taxes

    The various types of direct tax that are imposed in India are mentioned below:

    (1) Income Tax

    • Depending on an individual’s age and earnings, income tax must be paid.
    • Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid.
    • The taxpayer must file Income Tax Returns (ITR) on a yearly basis.
    • Individuals may receive a refund or might have to pay a tax depending on their ITR. Penalties are levied in case individuals do not file ITR.

    (2) Wealth Tax

    • The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property.
    • In case an individual owns a property, wealth tax must be paid and does not depend on whether the property generates an income or not.
    • Corporate taxpayers, Hindu Undivided Families (HUFs), and individuals must pay wealth tax depending on their residential status.
    • Payment of wealth tax is exempt for assets like gold deposit bonds, stock holdings, house property, commercial property that have been rented for more than 300 days, and if the house property is owned for business and professional use.

    (3) Estate Tax

    • It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.

    (4) Corporate Tax

    • Domestic companies, apart from shareholders, will have to pay corporate tax.
    • Foreign corporations who make an income in India will also have to pay corporate tax.
    • Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India is taxable.
    • The below-mentioned taxes are also included under Corporate Tax:
    1. Securities Transaction Tax (STT): The tax must be paid for any income that is earned via security transactions that are taxable.
    2. Dividend Distribution Tax (DDT): In case any domestic companies declare, distribute, or are paid any amounts as dividends by shareholders, DDT is levied on them. However, DDT is not levied on foreign companies.
    3. Fringe Benefits Tax: For companies that provide fringe benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them.
    4. Minimum Alternate Tax (MAT): For zero tax companies that have accounts prepared according to the Companies Act, MAT is levied on them.

    (5) Capital Gains Tax:

    • It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments. Investments in farms, bonds, shares, businesses, art, and home come under capital assets.
    • Based on its holding period, tax can be classified into long-term and short-term.
    • Any assets, apart from securities, that are sold within 36 months from the time they were acquired come under short-term gains.
    • Long-term assets are levied if any income is generated from the sale of properties that have been held for a duration of more than 36 months.

    Advantages of Direct Taxes

    The main advantages of Direct Taxes in India are mentioned below:

    • Economic and Social balance: The Government of India has launched well-balanced tax slabs depending on an individual’s earnings and age. The tax slabs are also determined based on the economic situation of the country. Exemptions are also put in place so that all income inequalities are balanced out.
    • Productivity: As there is a growth in the number of people who work and community, the returns from direct taxes also increases. Therefore, direct taxes are considered to be very productive.
    • Inflation is curbed: Tax is increased by the government during inflation. The increase in taxes reduces the necessity for goods and services, which leads to inflation to compress.
    • Certainty: Due to the presence of direct taxes, there is a sense of certainty from the government and the taxpayer. The amount that must be paid and the amount that must be collected is known by the taxpayer and the government, respectively.
    • Distribution of wealth is equal: Higher taxes are charged by the government to the individuals or organizations that can afford them. This extra money is used to help the poor and lower societies in India.

    What are the disadvantages of direct taxes?

    • Easily evadable: Not all are willing to pay their taxes to the government. Some are willing to submit a false return of income to evade tax. These individuals can easily conceal their incomes, with no accountability to the law of the land.
    • Arbitrary: Taxes, if progressive, are fixed arbitrarily by the Finance Minister. If proportional, it creates a heavy burden on the poor.
    • Disincentive: If there are high taxes, it does not allow an individual to save or invest, leading to the economic suffering of the country. It does not allow businesses/industry to grow, inflicting damage to them.

  • Ordinance Factory Board corporatization gets Cabinet approval

    Addressing a long-pending reform, the Union Cabinet has approved a plan to corporatize the Ordnance Factory Board (OFB).

    Ordnance Factory Board (OFB)

    • OFB consisting of the Indian Ordnance Factories is a government agency under the control of the department of defence production (DDP).
    • It is engaged in research, development, production, testing, marketing and logistics of a product range in the areas of air, land and sea systems.
    • OFB comprises 41 ordnance factories, nine training institutes, three regional marketing centres and four regional controllers of safety, which are spread all across the country.

    Why are OFBs significant?

    • OFB is the world’s largest government-operated production organization and the oldest organization in India.
    • It has a total workforce of about 80,000.
    • It is often called the “Fourth Arm of Defence” and the “Force Behind the Armed Forces” of India.
    • OFB is the 35th largest defence equipment manufacturer in the world, 2nd largest in Asia, and the largest in India.

    Why corporatization?

    • Once implemented, the OFB, the establishment of which was accepted by the British in 1775, will cease to exist.
    • It is a major decision in terms of national security and also make the country self-sufficient in defence manufacturing as repeatedly emphasized by PM.
    • This move would allow these companies autonomy and help improve accountability and efficiency.
    • This restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepening specialization in the product range, enhancing competitiveness, improving quality and achieving cost efficiency.

    Adhering to past recommendations

    • There have been several recommendations by high-level committees in the past for corporatising it to improve efficiency and accountability.

    What about employees?

    • All employees of the OFB (Group A, B and C) belonging to the production units would be transferred to the corporate entities on deemed deputation.
    • The pension liabilities of the retirees and existing employees would continue to be borne by the government.

    How would this be accomplished?

    • The 41 factories would be subsumed into seven corporate entities based on the type of manufacturing.
    • The ammunition and explosives group would be mainly engaged in producing ammunition of various calibre and explosives, with huge potential to grow exponentially.
    • Similarly, the vehicles group would mainly engage in producing defence mobility and combat vehicles such as tanks, trawls, infantry and mine protected vehicles.

  • Loss of Safe Harbour for Twitter

    Twitter has reportedly lost the coveted “safe harbour” immunity in India after failing to appoint statutory officers on time, as mandated by the new Information Technology (IT) Rules, 2021.

    What is the news?

    • With this, the social media giant becomes the only American platform to have lost the protective shield – granted under Section 79 of the IT Act.
    • Its rival platforms such as YouTube, Facebook and WhatsApp remain protected.
    • The new development could mean that Twitter’s senior executives that include its India managing director, face legal actions under relevant IPC for ‘unlawful’ activities on the platform – even if conducted by users.

    Why such a move?

    • Earlier this week, Twitter said it appointed an interim Chief Compliance Officer (CCO), and the details of the officer were not yet shared with the government.
    • The company also posted job openings for a Nodal Officer and Resident Grievance Officer – the two key positions mandated by the central government’s IT Rules, 2021.

    What is safe harbour protection?

    • According to Section 79 of IT Act, 2000, “an intermediary shall not be liable for any third party information, data, or communication link made available or hosted by him,” therefore providing Safe Harbour protection.
    • To put it simply, the law notes that intermediaries such as Twitter or your Internet Service Providers (ISPs) are not liable to punishment if third parties (users) misuse the infrastructure, in this case, the platform.
    • However, the protection is guaranteed only when the intermediary does not ‘initiate the transmission,’ ‘select the receiver of the transmission,’ and ‘modify the information contained in the transmission.’
    • It means that as long as the platform acts just as the medium to carry out messages from users A to user B, that is, without interfering in any manner, it will be safe from any legal prosecution.

    Inception of the concept

    • In its original form, the IT Act 2000 provided little or no Safe Harbour protection to internet intermediaries as the definition of the intermediary was restricted.
    • However, things began changing in 2004, in a case where a student posted an obscene clip for sale.
    • The student and the CEO of that company were both held later for letting pornographic material circulate online.
    • The CEO challenged the proceedings against him, contending that he could not be personally held liable for the listing and that the MMS was transferred directly between the seller and buyer without the intervention of the website.
    • The executive was acquitted, the case eventually resulted in the addition of Section 79 in the IT Act to provide immunity to intermediaries.

    Why has Twitter lost the protection?

    • Over the years, social media platforms have evolved and often tend to act as gatekeepers.
    • For instance, Twitter banning Donald Trump and adding “manipulated media” label on select posts have been questioned by excerpts.
    • In other words, an intermediary’s ability to “modify the information contained in the transmission,” opens rooms for revision of the law, experts believe.
    • Hence, the government introduced the IT Rules 2021 in December last year and implemented it in May 2021.
    • As per the new order, all social media platforms with more than 50 lakh (five million) users will need to appoint a Chief Compliance Officer, a Nodal Contact Person, and a Resident Grievance Officer from India to smoothen the grievance mechanism for citizens.
    • The officers will need to acknowledge queries with 24 hours and resolve them in 15 days from the date of receipt.

    What can happen next?

    • Once a company loses the Safe Harbour protection, technically, officials are liable to punishment if a post even by a third user violates local laws.
    • The new IT Rules 2021 do not mention any ban for non-compliance.
    • But with an estimated 1.75 crore users in India, Twitter would likely fill key positions soon to comply with the new norms laid by the government.
    • As mentioned, the company already appointed an interim Chief Compliance Officer earlier.
    • This, according to the government, means that the protection under Section 79 of the Information Technology (IT) Act, accorded to Twitter for being a social media intermediary, now stands withdrawn.

    How does this impact Twitter?

    • If someone puts out any content on Twitter that leads to some form of violence, or violates any Indian law with respect to content, not only the person that has put out the tweet will be held responsible.
    • Even Twitter will be legally liable for the content as it no longer has the protection.

    Is there something else that can happen subsequently?

    • In the longer run, there is also the theoretical possibility that Twitter might be subjected to the 26 per cent cap of direct foreign investment in media and publishing.
    • This in turn means that the platform may be forced to look for an Indian buyer for the remaining 74 per cent stake.

  • Annual Review of State Laws Report, 2020

    The COVID-19 pandemic and the consequent lockdown had a huge impact on the working of the state legislatures in India.  The PRS Legislative Research’s “Annual review of state laws 2020” shows that the productivity and efficacy of State legislatures are poor.

    Annual Review of State Laws

    • This report focuses on the legislative work performed by states in the calendar year 2020.
    • It is based on data compiled from state legislature websites and state gazettes.
    • It covers 19 state legislatures, including the union territory of Delhi, which together accounts for 90% of the population of the country.

    Highlights of the report

    (1) Sittings of states

    • Compared with its average number of sitting days of 32 from 2016 to 2019, the Karnataka legislature, which is bicameral, met on 31 days last year, the highest for any State in 2020.
    • The southern State was followed by Rajasthan (29 days) and Himachal Pradesh (25 days). For comparison, Parliament met for 33 days last year.
    • In 2020, the average number of sitting days for the 19 States was 18, which was 11 less than the four-year (2016-19) average of 29.
    • Kerala, which had the distinction of remaining at the top in the four years with an average of 53 days, had only 20 days of sittings of the legislature last year.

    (2) Number of bills

    • As for the number of Bills passed last year, Karnataka again topped the list with 61 Bills, followed by Tamil Nadu (42) and Uttar Pradesh (37). For this purpose, Appropriation Bills were excluded.
    • Among poor performers under this category, Delhi passed only one Bill; West Bengal passed two Bills and Kerala three Bills.

    (3) Time taken for passing bills

    • On the duration of time taken to pass Bills, the previous year saw 59% of the Bills being passed by the legislature of the States on the day of introduction.
    • A further 14% was adopted within a day of being introduced.
    • Only 9% of the Bills were passed more than five days after introduction, some of which were referred to committees for further examination.

  • India to launch Deep Ocean Mission

    The Union Cabinet has approved the long-pending Deep Ocean Mission since 2018.

    Deep Ocean Mission (DOM)

    • Nodal Agency: Ministry of Earth Sciences (MoES)
    • The mission proposes to explore the deep ocean similar to the space exploration started by ISRO.
    • Underwater robotics and ‘manned’ submersibles are key components of the Mission which will help India harness various living and non-living (water, mineral and energy) resources from the seabed and deep water.
    • The tasks that will be undertaken over this period include deep-sea mining, survey, energy exploration and offshore-based desalination.
    • These technological developments are funded under an umbrella scheme of the government – called Ocean Services, Technology, Observations, Resources Modelling and Science (O-SMART).

    Six major components

    (1) Development of Technologies for Deep Sea Mining, and Manned Submersible:

    • A manned submersible will be developed to carry three people to a depth of 6000 metres in the ocean with suite of scientific sensors and tools.
    • Only a very few countries have acquired this capability.
    • An Integrated Mining System will be also developed for mining Polymetallic Nodules from 6000 m depth in the central Indian Ocean.

    (2) Development of Ocean Climate Change Advisory Services:

    • A suite of observations and models will be developed to understand and provide future projections of important climate variables on seasonal to decadal time scales under this proof of concept component.
    • This component will support the Blue Economy priority area of coastal tourism.

    (3) Technological innovations for exploration and conservation of deep-sea biodiversity:

    • Bio-prospecting of deep-sea flora and fauna including microbes and studies on sustainable utilization of deep-sea bio-resources will be the main focus.
    • This component will support the Blue Economy priority area of Marine Fisheries and allied services.

    (4) Deep Ocean Survey and Exploration:

    • The primary objective of this component is to explore and identify potential sites of multi-metal Hydrothermal Sulphides mineralization along the Indian Ocean mid-oceanic ridges.
    • This component will additionally support the Blue Economy priority area of deep-sea exploration of ocean resources.

    (5) Energy and freshwater from the Ocean:

    • Studies and detailed engineering design for offshore Ocean Thermal Energy Conversion (OTEC) powered desalination plant are envisaged in this proof of concept proposal.
    • This component will support the Blue Economy priority area of offshore energy development.

    (6) Advanced Marine Station for Ocean Biology:

    • This component is aimed at the development of human capacity and enterprise in ocean biology and engineering.
    • This component will translate research into the industrial application and product development through on-site business incubator facilities.
    • This component will support the Blue Economy priority area of Marine Biology, Blue trade and Blue manufacturing.

    Why need such a mission?

    • Oceans, which cover 70 per cent of the globe, remain a key part of our life. About 95 percent of the Deep Ocean remains unexplored.
    • For India, with its three sides surrounded by the oceans and around 30 per cent of the country’s population living in coastal areas.
    • The ocean is a major economic factor supporting fisheries and aquaculture, tourism, livelihoods and blue trade.
    • Oceans are also a storehouse of food, energy, minerals, medicines, modulator of weather and climate and underpin life on Earth.

    Pre-requisites to this mission

    • India has been allotted a site of 75,000 square kilometres in the Central Indian Ocean Basin (CIOB) by the UN International Sea Bed Authority for the exploitation of polymetallic nodules (PMN).

    Hunt for PMNs

    • These are rocks scattered on the seabed containing iron, manganese, nickel and cobalt.
    • Being able to lay hands on a fraction of that reserve can meet the energy requirement of India for the next 100 years.
    • It has been estimated that 380 million metric tonnes of polymetallic nodules are available at the bottom of the seas in the Central Indian Ocean.
    • India’s Exclusive Economic Zone spreads over 2.2 million square kilometers.

  • [pib] Nutrient Based Subsidy (NBS) for Phosphatic & Potassic (P&K) Fertilizers

    The Union Cabinet has approved the proposal of the Department of Fertilizers for fixation of Nutrient Based Subsidy Rates for P&K Fertilizers for the year 2021-22.

    Key Points

    About Di-Ammonium Phosphate (DAP):

    • DAP is the second most commonly used fertiliser in India after urea.
    • Farmers normally apply this fertiliser just before or at the beginning of sowing, as it is high in phosphorus (P) that stimulates root development.
    • DAP (46% P, 18% Nitrogen) is the preferred source of Phosphorus for farmers. This is similar to urea, which is their preferred nitrogenous fertiliser containing 46% N.

    About Subsidy Scheme for Fertilisers:

      • Under the current scheme, the MRP of Urea is fixed but the subsidy can vary while MRP of DAP is decontrolled (i.e subsidy is fixed but the MRP can vary).
      • All Non-Urea based fertilisers are regulated under Nutrient Based Subsidy Scheme.

    About Nutrient-Based Subsidy (NBS) Regime:

      • Under the NBS regime – fertilizers are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers.
      • Also, the fertilizers which are fortified with secondary and micronutrients such as molybdenum (Mo) and zinc are given additional subsidy.
      • The subsidy on Phosphatic and Potassic (P&K) fertilizers is announced by the Government on an annual basis for each nutrient on a per kg basis – which are determined taking into account the international and domestic prices of P&K fertilizers, exchange rate, inventory level in the country etc.
      • NBS policy intends to increase the consumption of P&K fertilizers so that optimum balance (N:P:K= 4:2:1) of NPK fertilization is achieved.
        • This would improve soil health and as a result the yield from the crops would increase, resulting in enhanced income to the farmers.
        • Also, as the government expects rational use of fertilizers, this would also ease off the burden of fertilizer subsidy.
      • It is being implemented from April 2010 by the Department of Fertilizers, Ministry of Chemicals & Fertilizers.

    Issues Related to NBS:

    1.Imbalance in Price of Fertilisers:

    • Urea is left-out in the scheme and hence it remains under price control as NBS has been implemented only in other fertilizers.
    • There is an imbalance as the price of fertilizers (other than urea) — which were decontrolled have gone up from 2.5 to four times during the 2010-2020 decade.
    • However, since 2010, the price of urea has increased only by 11%. This has led to farmers using more urea than before, which has further worsened fertilizer imbalance.

    2.Costs on Economy and Environment :

    Fertilizer subsidy is the second-biggest subsidy after food subsidy, the NBS policy is not only damaging the fiscal health of the economy but also proving detrimental to the soil health of the country.

    3.Black Marketing :

    • Subsidised urea is getting diverted to bulk buyers/traders or even non-agricultural users such as plywood and animal feed makers.
    • It is being smuggled to neighbouring countries like Bangladesh and Nepal.

    Implications of Increasing the Subsidy on DAP :

    • As farmers will start sowing operations for Kharif Crops, it is highly important for them to get the fertilisers at subsidised rate so as to keep inflation at check.
    • Politically, too, to turn down the farmer protests, during the time of the Covid’s second wave, is the last thing the government would want.

  • [RSTV ARCHIVE] Ethanol Blending: Significance & Road Ahead

    The Central Government has resolved to meet the target of 20 percent ethanol blending in petrol by 2025. This will help India strengthen its energy security, enable local enterprises and farmers to participate in the energy economy and reduce vehicular emissions.

    In this article we shall discuss and analyze all aspects of this issue.

    What is Ethanol Blending?

    • An ethanol blend is defined as a blended motor fuel containing ethyl alcohol that is at least 99% pure, derived from agricultural products, and blended exclusively with petrol (gasoline).
    • Ethanol, anhydrous ethyl alcohol having a chemical formula of C2H5OH, can be produced from sugarcane, maize, wheat, etc. which are having high starch content.
    • In India, ethanol is mainly produced from sugarcane molasses by the fermentation process. Ethanol can be mixed with the gasoline to form different blends.
    • As the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions and thereby reducing the occurrence of environmental pollution.
    • Since ethanol is produced from plants that harness the power of the sun, ethanol is also considered a renewable fuel.

    Ethanol Blended Petrol (EBP) Programme

    • Ethanol Blended Petrol (EBP) programme was launched in January, 2003 for supply of 5% ethanol blended Petrol.
    • The programme sought to promote the use of alternative and environment friendly fuels and to reduce import dependency for energy requirements.
    • OMCs are advised to continue according priority of ethanol from 1) sugarcane juice/sugar/sugar syrup, 2) B-heavy molasses 3) C-heavy molasses and 4) damaged food grains/other sources.
    • At present, this programme has been extended to whole of India except UTs of Andaman Nicobar and Lakshadweep islands with effect from 01st April, 2019 wherein OMCs sell petrol blended with ethanol up to 10%.

    Ethanol blending in India

    • Ethanol now is blended 10% to petrol, which started with 5% when the EBP was launched
    • Last year 173 crore liters of petrol was blended with ethanol.

    Why need 20% blending?

    Mixing 20 percent ethanol in petrol holds multiple attractions for India.

    • First, it can potentially reduce the auto fuel import bill by a yearly $4 billion, or Rs 30,000 crore.
    • Second, it also provides for farmers to earn extra income if they grow to produce that helps in ethanol production.
    • Third, and no less important, is the fact that ethanol is less polluting than other fuels and, per the NITI Aayog paper, “offers equivalent efficiency at a lower cost than petrol”.

    What is needed to meet the blending target?

    • Till 2014 an average of only 1.5 percent ethanol could be blended in India, that proportion has now reached about 8.5 percent.
    • So, while in 2013-14, about 38 crore liters of ethanol were purchased in the country, that figure now stands at more than 320 crore liters.
    • A majority of the ethanol units are concentrated in 4 to 5 states where sugar production is high but food grain-based distilleries are now being set up across India.
    • There have been efforts to make ethanol from agricultural waste.

    Response from automobile sector

    • All automobile materials produced after 2009 are compatible with 10% ethanol. However they are not compatible with E20 (20 percent ethanol blend with petrol).
    • The NITI Aayog paper said that two-wheelers and passenger vehicles that are now being made in the country “are designed optimally for E5 while rubber and plastic components are “compatible with E10 fuel”.
    • The industry body the Society of Indian Automobile Manufacturers (SIAM) has guaranteed that “once a road-map for making E10 and E20 available in the country is notified… they would gear up to supply compatible vehicles in line with the roadmap”.
    • All the components required can be made available in the country” and that “no significant change in the assembly line is expected”.

    Why is 20% blending a significant decision?

    • Ethanol blending will also, to a large extent, solve the problem of agricultural waste as well as sugar rates plummeting due to excess production, therefore providing security to sugarcane farmers.
    • It can help accomplish dual goal of strengthening energy security with low carbon emission.
    • It will enable local enterprises and farmers to participate in the energy economy.
    • Reducing import bill is another significant benefit. India imports 85% of crude oil.
    • Ethanol blending increases octane number thereby increasing fuel quality in terms of anti-knocking tendency (engine sound)

    Hurdles in implementation

    • In the previous fiscal, 87 per cent of ethanol used for India’s ethanol blending program was produced using sugar.
    • The price of ethanol production in India ranges from $0.63 – $0.87 a litre, significantly higher than the US and Brazil where it is about $ 0.61 per litre.
    • The procurement of ethanol by OMCs is governed by an administered pricing mechanism that fixes prices every year based on the raw material used.
    • This fixing of the price of raw materials for production had led to India producing ethanol at prices higher than other countries.
    • The report also highlighted the excessive use of water — estimated at 2,860 litres — for the production of one litre of ethanol from sugar.

    Hence there is a need to move to more environmentally sustainable crops.

    Way forward

    • For attaining E100 i.e. cent percent clean mobility, ambitious ethanol blending program is a must.
    • Emphasis should be laid on alternative of ethanol. Methanol with some modifications can also be used for blending.
    • Major source of producing ethanol is sugarcane which is a water intensive crop. Hence we need more sustainable sources to produce Ethanol.

    Source:

  • Why India must bargain hard on G7 tax reforms

    The article deals with the issue of global minimum tax and how it matters to India in the changing digital landscape where data is the new oil.

    Two pillars of global taxation reforms endorsed

    • In the just-concluded G7 summit in the UK, the leaders endorsed the global taxation reforms premised on two pillars.
    • One, that the multinational companies with at least a 10 per cent profit margin pay tax in countries where they operate and that would be 20 per cent of any profit above the 10 per cent margin.
    • Two, a global minimum tax rate that envisages that multinational companies pay a tax of at least 15 per cent in each country they operate.

    How companies monetise data

    • The concept of tax on electronic transmission of data across borders was expressly prohibited under multiple WTO declarations.
    • However, in the changed digital landscape, multinational corporations are mining big data, which has economic value, but not paying their fair share of taxes.
    •  Many of these tech firms provide their product for free to users, and based on user engagements, create a detailed profile of the user that would be used to sell ad space to the clients.

    Efforts to find solution to tax avoidance

    • The Union government had rightly introduced an equalisation levy at 2 per cent, targeted at non-resident e-commerce operators with a turnover greater than Rs 2 crore in the Union budget of 2020.
    • India had an equalisation levy since 2016, initially at 6 per cent on specified services like online advertisement or provision of digital advertising space and was levied on non-resident firms, deducted by the payer.
    • In the case of the amended equalisation levy, the responsibility lay with the operator and was applicable to earnings that have been made by selling advertisements based on the data collected within the country.
    • The member-states of the OECD have been trying to find a solution to tax avoidance by multinational corporations under the Base Erosion and Profit Shifting Project since 2015.
    • OECD had built a model around two pillars on which the G7 position has been announced.

    Way forward for India

    • India has to stand its ground.
    • With the largest user base for Facebook, WhatsApp and YouTube, India will not be adequately compensated by the above two steps in global minimum tax.
    • The government must also pass the Personal Data Protection Bill 2019 quickly so that provisions for data localisation, requiring Indian data to be stored and processed in the country are in place.
    •  This could be the ideal way to force tech firms to correctly evaluate the revenue generated from our sovereign data and thus tax it.

    Consider the question “As the world moves towards the global taxation reforms, what are the factors India needs to consider? Also, mention the previous efforts made to find the solution to tax avoidance by the multinational companies.”

    Conclusion

    India must negotiate hard to come to an equitable position on the global tax and avoid as it harbours the largest user base of the social media companies.

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