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Why in News?

1. Recently, the central government had formed a task force to draft a new Direct Tax law which seeks to replace the existing Income Tax Act, 1961.
2. The Task Force will submit its report to the government on how to fix the more-than-50-year-old Income Tax Act, 1961.

What is the flat tax rate?

It is an income tax system in which everyone pays the same tax rate irrespective of income level. Therefore it is also named as proportional taxation system.

What is the Need?

1. India’s current tax system is progressive in nature, with tax rates going up when the income level goes up. To meet the changing economic needs of the country, and to fix the more than 50-year-old Income Tax Act, 1961 which is not consistent with present times, a flat tax rate system is necessary.
2. To reinstate the Direct Tax Code (DTC) in a new structure.

Arguments in favour

1. A flat tax rate of 12% would be appealing even for low-income people.
2. The compliance rate will increase by eight percentage points to 33%.
3. While simplification and better administration of the law are major reforms that India needs, according to economists, some even suggest going for a flat tax system or lower tax system.
4. The classic case of the flat tax system is of Hong Kong, Russia and New Zealand.

• One of the poorest country during the World War II, Hong Kong adopted a flat tax in 1947 which led to higher compliance and dramatic economic growth.
• Russia adopted a 13% flat tax, which went into effect in 2001 and Russia’s economy has expanded by about 10 percent since then. Russia’s income tax revenue has grown to more than 50% as people found it fair and easier to pay.
• New Zealand is called BBLR — broader bases and lower rates — country. In New Zealand, the tax law experts focus on taking a lot of actions at a low rate, or flat rate and most importantly at the simpler tax code. New Zealand in 1980 did away with deductions and write-offs and instead applied the lowest rates on average workers. With higher compliance, New Zealand is one of the countries with the best income tax practices. Instead of imposing a progressive tax scheme, it gives it as an option for people.

Arguments against

1. India’s current tax system is progressive in nature, with tax rates going up when the income level goes up. India is a democratic country and is expected to invest in social welfare and infrastructure. Hence progressive tax rate is necessary.
2. For a developing country like India, which is in the lower middle-income bracket, a flat tax structure may not be an equitable one. Income inequality in India is one of the highest, with 22 per cent of the national income going to top 1 per cent.
3. Only with a progressive tax system, such wide income inequalities can be addressed. Hence a flat tax system will be regressive, considering India’s current situation.
4. A system prescribing the higher rate of income tax for a higher income group helps garner revenue without becoming burdensome on lower income taxpayers
5. The great success of Russia not just through the imposition of flat tax rate but through several changes in both the structure and the administration of taxes. The reforms widened the tax base by eliminating many exemptions and deductions as well as increasing taxes on capital income.

India’s attempts to impose a flat rate

1. An attempt to redraft the Income Tax Act made by the ex-finance minister P. Chidambaram in 2009 through the Direct Taxes Code (DTC). It proposed a simpler tax code and did away with unnecessary exemptions and created space for lower tax rates. However, the bill lapsed with the dissolution of the 15th Lok Sabha in 2014.
2. The NDA government, since coming to power in 2014, has already implemented general anti-avoidance rules GAAR.
3. In 2016 Finance Minister promised to lower corporate tax rate to 25% in 5 years.
4. Currently, income up to Rs 2.5 lakh per annum is exempt from tax for individuals.

Way forward

Flat income tax rate has many success stories from many countries. Hence it is high time that India also adopts it. However, it should be implemented as a pilot project to monitor various impacts and come up with effective solution to prevent various challenges in the actual implementation. And the government should also ensure that the poor are not affected from this reform.

Practice question

1. What do you understand by the flat income tax rate? Discuss whether implementing a flat income tax rate in a democratic country like India is feasible or not.

Why in News?

India ranks 177 among 180 countries in the Environmental Performance Index 2018.

A drop in the rank from the last index demands a relook at the country’s environmental policy.

About Environmental Performance Index?

1. It is a biennial report published by Yale and Columbia Universities in collaboration with the World Economic Forum.
2. It ranks 180 countries based on 24 performance indicators.
3. It is divided into 10 categories covering environmental health and ecosystem validity.
4. Top rank in sustainability taken by Switzerland, followed by France, Denmark, Malta and Sweden in the recent EPI.

India’s status

1. India at the 177th place is one of the bottom 5 countries on the index.
2. The 177th place is a drop of 36 points from 141 in 2016.
3. Emerging economies like Brazil and China ranks at 69 and 120.
4. India is at the bottom of the environmental health category.
5. In terms of air quality, India is at third last.
6. Poor performance in the environmental health policy and high pollution-related deaths are the major factors in the overall drop.
7. Other major causes include pollution from solid fuels, coal and crop residue burning and emissions from motor vehicles.
8. Increasingly degrading air quality in India is attributed to the growth in population, industrial production, and automotive transportation.

Concerns

Health

1. Air quality is the leading environmental threat to public health
2. Over the past decade, the deaths due to a large rise in ultra-fine PM 2.5 particles in the country.
3. An estimated 1.4 million premature deaths in India is due to Air pollution.

Economy

1. Health impacts cause a serious loss in welfare equivalent to about 8% of GDP in 2013.
2. The cost of labor productivity became 1.8% of GDP.
3. Environmental degradation particularly affects the poor and further degrades their standard of living.

Measures taken

Over the past few years, the government has set some ambitious targets for environmental protection as follows

1. Strict environmental standards for coal-fired power plants.
2. Bharat Stage VI emission norms to be implemented from April 1, 2020.
3. Initiatives to manufacture and sell electric vehicles in the country by 2030.
4. Revision of National Solar Mission.
5. Encouraging transition to renewable energy.
6. The target for solar capacity revised from 20GW to 100 GW by 2022.
7. Target to clean highly polluted Ganga by 2018.

Challenges

1. There is a huge gap between policy goals and enforcement.
2. On solar targets, India seems to be moving in the right path. However, balancing it with other goals is seriously lacking.
3. For example,

• The government has relaxed its promise of implementing strict power plant emission norms by December 2017.
• The 30% annual E-waste collection target by manufacturers has been relaxed to 10%.

1. The automobile industry has stated that full conversion to electric vehicles is possible only by 2047 which is in contrast to the government’s targets.
2. In the clean Ganga initiative, there have been delays in creating an action plan and lack of proper fund utilization.

Way forward

1. In order to address the environmental problems, there is a need to recognize the environmental costs of development.
2. Subsidies shall be given in order to accelerate the transition to renewable, particularly solar energy.
3. More polluting fuels should be priced higher.
4. The environmental standards for coal power plants should be strict.
5. Petrol and Diesel should be priced higher in order to aid the transition to electric vehicles.
6. More political will is required to effectively implement the existing environmental laws and regulations.
7. Considering India’s poor performance in the index, the government should take forward the environmental targets seriously.

Practice question

1. “India’s performance in the recent Environmental Performance Index was poor”. Discuss various reasons for the same and suggest suitable measures to improve India’s ranking.

Why in News?

1. Recently, India’s draft space activity bill, 2017 was unveiled
2. It aims at promoting and regulating the space activities in India
3. The legislation is expected to encourage both public and private players to participate in India’s space programme.

Why is there a need for a space law?

1. Currently, space activities are regulated by policies like Satellite communication policy, 2000 and Remote Sensing Data Policy, 2011. But there is a need for the proper legal environment for orderly performance and growth of the space sector.
2. Nations such as the USA, Russia, UK, etc. have their own space legislation. Even China and Japan are in the process of formulating their own domestic space legislation.
3. Earlier, ISRO was the sole player in the space sector. However lately, there have been many start-ups mushrooming in this sector, which calls for a regulatory mechanism and legislation to govern their activities.
4. Furthermore, the demand for Indian space products has been growing both in the country and outside the country. So it is necessary to include Indian industry and service providers in space activities under the technical guidance of the Department of Space (DOS) and the growth of the Indian space sector.
5. A legislation is required as India is obligated to UN outer space treaties which require signatories to have a national legislation in place.

What are the key features of the bill?

1. The provisions would be applicable to all citizens and also to those sectors which are engaged in space activity either inside or outside the country.
2. It provides for the grant of a non-transferrable license to those people engaged in commercial space activity.
3. It provides for the appropriate mechanisms for licensing, eligibility criteria and fees for the license.
4. Union government will have to maintain a register of space objects that are launched or to be launched around the earth.
5. It provides for technical support in order to facilitate commercial space activity.
6. It also provides for regulatory procedures for conduct and operation of space activity.
7. It provides for restrictions in sharing of details regarding the pricing of products created through space activity with any person or agency.
8. It provides for punishment for persons involved in illegal commercial space activities with imprisonment up to 3 years or fine more than Rs 1 crore or both
9. It also has provisions for the protection of IPR created through space activity.

Arguments favouring the bill

1. Definition: The bill clearly defines space players, licenses, violations, objects, people, and geography. It is also proposed to define detailed guidelines in consultation with stakeholders and industry bodies.
2. Promotion: The bill encourages non-governmental players to take the risk and invest in space activities in India. This will make India a commercial hub for space activities and generate jobs in the country.

Arguments against the bill

1. Clarity: Experts have criticized the bill for its lack of clarity on the use of space objects.
2. Regulation: It gives arbitrary power to the government for monitoring the research activities. This would scare away international investors from investing in the space sector of India.
3. Liability: The bill made the government non-liable for any harm caused by the commercial activities by the non-governmental players in space even though the government gives clearance for their involvement in the space activities.

Way forward

The bill is a welcome step in promoting the space sector. But to enable competitive ecosystem in the space sector there is a need to conduct a review of international best practices in managing the space value chain and inducting them within the Act.