[op-ed snap] Tech taxes are the wrong solution to real problemsop-ed snap
Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth
Mains Paper 3: Economy | Effects of liberalization on the economy
From UPSC perspective, the following things are important:
Prelims level: Tech tax, SEP, Finance bill, OECD
Mains level: Levy of tech taxes in various countries and how it would affect digital economy
Increased focus on tech taxes
“Tech tax” can be described as finding ways to tax capital income and IP [intellectual property] income
The concept of a tech tax is gathering momentum
The European Union (EU) has been grappling with it since March this year India introduced it in the Finance Act 2018
Australia is considering it and so are a number of other countries
These moves take aim at legitimate problems which will grow in scale as IP comes to play an increasingly important role in traditional sectors such as automobile
Problems in taxing digital economy
The digital economy’s combination of intangible capital and disaggregated business models creates an almighty headache for governments when it comes to taxation
Businesses that depend on monetizing user data for revenue, for instance, may realize millions of dollars of value from a tax jurisdiction without having a significant, taxable presence in it
The revenue can be registered to dummy head offices set up in low tax jurisdictions
The difficulty of pricing intangible capital accurately undercuts measures such as the arm’s length principle meant to keep companies reasonably honest when indulging in transfer pricing for tax avoidance purposes
Digital economy does not favour developing countries
New technologies can have downsides for developing economies
They show a bias towards skill and education when it comes to job creation
This reduces the labour arbitrage advantage developing economies have
The overall shift in income distribution from labour to IP doesn’t help
Other issues that have affected trust in the digital economy
The Russian misinformation campaign via social media during the 2016 US presidential election
The difficulty of keeping fake news in check
User data privacy missteps
The disconnected realities that tech evangelists seem to inhabit
Raises urbanization but at the cost of poor
In 2011, San Francisco city phased out the payroll tax and replaced it with a gross receipts tax—a popular move with tech companies since they often have large workforces before they have revenue
The tactic worked and tech companies flooded into formerly blighted parts of the city
The unemployment rate fell by almost two-thirds over the next few years
But with the growth came disruption as gentrification pushed poor residents out of their houses and home prices rocketed to well over the national average
India’s position in this regard
India has introduced the ‘significant economic presence’ (SEP) concept in the Finance Act this year
It means that if a company has a SEP in India, it has tax liabilities here whether it is based here or not
The problem in applying SEP concept
The problem is creating thresholds that don’t stifle competition or open New Delhi up to accusations of protectionism
An even bigger problem is finalising such a regulatory change without becoming entangled in existing bilateral tax treaties
The transnational nature of digital businesses demands a multilateral response rather than a patchwork of rivalrous measures
This is difficult at a time when protectionism is on the rise, but all the more important for it
The Organisation for Economic Co-operation and Development’s work on a new framework for base erosion and profit shifting could be used to shape an effective response to the digital economy
Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
From UPSC perspective, the following things are important:
Prelims level: Particulars of new telecom policy
Mains level: Debate of net neutrality in India
TRAIs Recommendation on net neutrality
Internet access in India will remain unfettered with the government accepting the telecom regulator’s recommendations to introduce one of the strongest net neutrality protections in the world.
To implement Net neutrality, the regulator had recommended that the terms of licence agreements that govern the provision of Internet services in India be amended “to incorporate the principles of non-discriminatory treatment of content along with the appropriate exclusions and exceptions.”
It had then suggested that Internet of Things, as a class of services, should not be excluded from the scope of restriction on non-discriminatory treatment but certain critical services should be exempt from these rules.
DoT will also frame a policy on traffic management practices for service providers and separately set up a body of industry representatives and civil society to monitor and enforce net neutrality norms.
It has further recommended establishing a multi-stakeholder not-for-profit body for the monitoring and enforcement of these principles.
Net neutrality approved
In a move that will ensure open and free internet in India, the government has approved the principle of net neutrality.
This means that telecom and Internet service providers must treat all data on the Internet equally, and not discriminate or charge differently by user, content, site, platform, or application.
They cannot engage in practices such as blocking, slowing down or granting preferential speeds to any content.
The Telecom Commission (TC) — which is the highest decision-making body in the Department of Telecom, approved the recommendation made by the Telecom Regulatory Authority of India (TRAI)
Critical services are exceptions to this
Certain emerging and critical services will be kept out of the purview of these norms.
A separate committee has been set up under the Department of Telecom (DoT) to examine what these critical services will be.
These may include autonomous vehicles, digital healthcare services like remote surgeries or disaster management.
Mains Paper 2: Polity | Statutory, regulatory & various quasi-judicial bodies
From UPSC perspective, the following things are important:
Prelims level: National Company Law Appellate Tribunal (NCLAT), Competition Commission of India
Mains level: Rules governing business competition in India and their enforcement measures
Appeal against ‘abusing its dominance’ charge
Online search giant Google has filed an appeal at the National Company Law Appellate Tribunal (NCLAT) against a judgment from India’s competition watchdog that found it guilty of “search bias”
The antitrust watchdog had fined the U.S. firm ₹1.36 bn for ‘abusing’ its dominance
In February, the Competition Commission of India (CCI) had imposed a ₹1.36 billion fine on Google, saying it was abusing its dominance in online web search and online search advertising market
The Commission found that Google, through its search design, had placed its commercial flight search function at a prominent position on the search results page to the disadvantage of businesses trying to gain market access
National Company Law Appellate Tribunal (NCLAT)
National Company Law Appellate Tribunal (NCLAT) was constituted under Section 410 of the Companies Act, 2013 for hearing appeals against the orders of National Company Law Tribunal(s) (NCLT), with effect from 1st June 2016
NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by Insolvency and Bankruptcy Board of India under Section 202 and Section 211 of IBC
NCLAT is also the Appellate Tribunal to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India (CCI)
The President of the Tribunal and the chairperson and Judicial Members of the Appellate Tribunal shall be appointed after consultation with the Chief Justice of India
The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee consisting of—
(a) Chief Justice of India or his nominee—Chairperson;
(b) a senior Judge of the Supreme Court or a Chief Justice of High Court— Member;
(c) Secretary in the Ministry of Corporate Affairs—Member;
(d) Secretary in the Ministry of Law and Justice—Member; and
(e) Secretary in the Department of Financial Services in the Ministry of Finance— Member
Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth
From UPSC perspective, the following things are important:
Prelims level: Competition Commission of India
Mains level: Provisions for securing consumer interests in India
Google penalised for unfair business ways
The Competition Commission of India (CCI) has imposed a fine of ₹136 crore on search engine major Google for unfair business practices in the Indian market for online search
The penalty is being imposed on Google for “infringing anti-trust conduct”
Globally, this is one of the rare cases where Google has been penalised for unfair business ways
The complaints were filed back in 2012
It was alleged that Google is indulging in abuse of dominant position in the market for online search
This is being done through practices leading to search bias and search manipulation
Competition Commission of India
Competition Commission of India is a statutory body of the Government of India responsible for enforcing The Competition Act, 2002 throughout India
It is responsible to prevent activities that have an appreciable adverse effect on competition in India
CCI consists of a Chairperson and 6 Members appointed by the Central Government
It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India
The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws
The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and Merger and acquisition), which causes or likely to cause an appreciable adverse effect on competition within India
Mains Paper3 | Awareness in the fields of IT, Space, Computers, robotics
The following things are important from UPSC perspective:
Prelims: Net Neutrality, TRAI
Mains level: This article talks about the recommendation given by TRAI with regard to net neutrality.
The Telecom Regulatory Authority of India (TRAI) recommended upholding the basic principle of net neutrality by keeping the Internet open and prohibiting any service provider from discriminating on the basis of content by either blocking, throttling, or “fast-laning” any apps, websites or web services.
The recommendations follow a consultation process, after the Department of Telecommunications (DoT) sought TRAI’s views on the issue with an aim to “finalise a viewpoint” on net neutrality.
The regulator’s proposal to adhere to the tenets of net neutrality comes days after the US Federal Communication Commission said it would repeal the 2015 laws that aimed at upholding this broad principle of neutrality.
No one owns the Internet, so it should be open and accessible to everyone.
Service providers have the power of becoming gatekeepers of the Internet but they should not indulge in doing so with this important platform
The use of Internet should be facilitated in such a manner that it advances the free speech rights of citizens, by ensuring plurality and diversity of views, opinions and ideas.
The recommendations also call for keeping Internet of Things (IoT) within the purview of non-discriminatory restriction, with the exception of critical services.
TRAI has also suggested allowing telecom and Internet service providers to deploy “reasonable” traffic management practices from time to time, given that such interventions are proportionate, transient and transparent in nature.
To monitor and investigate whether service providers are adhering to the rules, the regulator also suggested that a multi-stakeholder body be set up, led by industry, and comprising members representing different telecom and Internet service providers, large and small content providers, representatives from research, academia, civil society organisations and consumer bodies.
The regulator has also suggested exempting content delivery networks (CDNs) from the scope of net neutrality rules, arguing that CDNs add efficiency to the network by reducing latency, mitigating congestion and freeing up network capacity for other purposes.
CDNs are a layer in Internet networks (outside public Internet), used by content generators to store their data at suitable geographical locations.
Experts suggest that the CDN exemption could strengthen the position of integrated operators which also provide content.
The proposed regulations are likely to give integrated operators an upper hand versus pure play connectivity providers.
But according to telecom companies, CDN exemption would be taken care of by the regulator’s recommendation that the service providers should be restricted from entering into any arrangement, agreement or contract that has the effect of discriminatory treatment based on content, sender or receiver, protocols or user equipment.
Concerns over Consultation process
However, Cellular Operators Association of India (COAI) said the suggestion to form a committee to review and decide on network management violations is “unnecessarily bureaucratic”, and not in keeping with “light touch regulation or the ease of doing business”.
The DoT is already well positioned to investigate any violation of license conditions and it already has all the necessary enforcement mechanisms in place.
Hence, such a heavy-handed approach is not necessary, as is now being proposed by TRAI.
The differential pricing paper by the TRAI has been at the centre of a storm about net neutrality, with Facebook and its zero-rated platform called Free Basics on one side, and supporters of an unfettered internet.
Differential pricing (as defined by TRAI) is the practice of telecom companies offering tariff plans at zero or discounted tariffs to certain contents of certain web sites/applications/platforms.
Such models come at a cost of lowering consumer choice and giving rise to oligopolistic competition.
Poor and non-internet web savvy users will never know the advantages of the internet in its entirety under such limitations.
Wider internet access is a noble goal, but we will not achieve it by betraying the goal of an innovative, fair, transparent and vibrant internet.
With the government’s decision to call for public comment and response, the recent consultations on net neutrality are a step in the right direction.
Countries such as the U.S. and Germany have advocated a ‘multi-stakeholder’ model that consults governments, industry, civil society and technical community while making decisions that affect the Internet.
Before publishing the net neutrality report this month, the Department of Telecommunications conducted a series of consultations.
Although these consultations were closed and only for invited parties, the committee reached out to a wide range of experts and stakeholders.
The department’s decision to call for public comment and response to the report is commendable, especially since the department is under no legal obligation to do this.
Can you think of other local areas where such models can be implemented? Pros/ Cons?
The Department of Telecommunications’ recent report on net neutrality has recommended to bring over services that provide voice calls via the Internet (like WhatsApp) under licensing.
This means the govt can impose conditions for granting of licenses, and this might turn out to be an exercise in curbing free expression.
The DoT’s report is by no means final and binding. But still it’s a travesty of logic according to some.
The report is laced with quotes, including this one from Archibald Putt: “Technology is dominated by two types of people: those who understand what they do not manage, and those who manage what they do not understand.” It is to be hoped India doesn’t live up to this.
We all know the cons of doing away with Net Neutrality. Broadly, we do. Add to this – when an uninformed citizenry gets to decide on bigger matters like this – Flipkart ends up getting 1 rating in plenty 😉
But let’s for a moment – take a step back and see a possible rationale to this.
In the telephone networks, 1-800 toll-free numbers allow businesses to subsidize users’ access fees, but that same mechanism is missing for Internet data services.
This is possibly what Airtel Zero wanted to achieve? Maybe!
Should we have fast lanes for different services – Video on Demand vs. Content only?
Yes, because certain type of traffic need faster delivery, such as video streaming, while others such as emails and file transfer don’t!
But will the network providers chide away from the lower tier/ slower lane services?
The Telecom providers need to assess the Impact of Voice over Internet protocol (VoIP) on their traditional voice telephony.
But having said that, if operators start to treat the same type of traffic differently for different websites, e.g., slowing speeds or charging differently for access to Google versus Yahoo, then it can be a slippery slope.
And this is precisely what the public opinion was in the last few days.
Another aspect: The creation of fast lanes and paid prioritization with two tiers of service. Video streaming v/s Content streaming.