Editorial 1 : A fresh start
Context
The GST Council must not lose sight of broader reforms.
The Goods and Services Tax (GST) Council
- The Goods and Services Tax regime came into force after the Constitutional (122nd Amendment) Bill was passed by both Houses of Parliament in 2016.
- The GST Council is a joint forum of the Centre and the states
- It was set up by the President as per Article 279A (1) of the amended Constitution.
- The members of the Council include the Union Finance Minister (chairperson), the Union Minister of State (Finance) from the Centre.
- Each state can nominate a minister in-charge of finance or taxation or any other minister as a member.
- The Council, according to Article 279, is meant to make recommendations to the Union and the states on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws.
- It also decides on various rate slabs of GST.
The recent one
- The council was convened last week for the first time in nearly nine months.
- With 11 new State Ministers on board and a recalibrated NDA government at the Centre, the Council began afresh with a loaded agenda of clarifications, tweaks, forbearances, and other procedural changes, based on industry feedback and vetted by officials, that awaited its nod.
- Yet, it is quite creditable that the Council could, over an afternoon preceded by Union Budget consultations with States, arrive at a consensus on a flurry of issues aimed at easing the lot of taxpayers, reducing litigation, and even providing tax relief on some items.
- To help students, hostel accommodation costing up to ₹20,000 a month has been exempted from GST altogether, along with railway services availed by passengers.
- A uniform 12% rate has been approved for packing cartons, milk cans, and solar cookers, doing away with confusing classification differences based on material or technologies.
- The Council also opted to waive interest and penalty on tax dues for the first three years of GST, provided they are paid by March 2025.
- Moreover, it lowered the stipulated pre-deposits for filing appeals, including those that will be filed with the upcoming GST Appellate Tribunals, and approved a new form for taxpayers to correct errors or oversights in previous returns.
- Beyond nitty-gritties, the Council also signed off on ending the anti-profiteering clause that required firms to pass on any tax cut gains to customers, and mandating biometric-based Aadhaar authentication for all GST registrations in a phased manner across India.
Way forward
- The ground-level impact of these moves may depend on the fine print that may follow, but the intent to simplify and declutter the seven-year old indirect tax regime is clear.
- It is refreshing that the Council also plans to take stock of the 2021 plan to rationalise the multiple-rate GST structure, that has been in cold storage for a while, when it meets next.
- The apex GST body must not only revive and expedite GST rate reforms but also incorporate a road map to bring excluded items such as petroleum and electricity into the GST net while rejigging tax rates.
Editorial 2 : Debt trap
Context
Kenya must find ways to service its debt without punishing its people
The issue
- The Kenyan President’s decision to rush through Parliament an IMF-backed finance Bill that sought to increase taxes on everything from imported sanitary pads and tyres to bread and fuel backfired, with protesters storming a section of the Parliament on Tuesday.
- Earlier this year, the country had reached a deal with the IMF to secure $941 million in additional lending.
- In subsequent talks in Nairobi, they agreed to reforms, including tax increases, to stabilise the country’s debt-battered financial situation.
- The IMF deal triggered street protests. But the government still went ahead with the plan to impose additional taxes on the country of 54 million people, a third of whom still live in poverty.
Mechanisms of Borrowing money from IMF and World Bank
- IMF
Countries borrow money from the International Monetary Fund (IMF) and the World Bank through different mechanisms designed to address various financial needs and economic circumstances.
1. Stand-By Arrangements (SBAs): These are short-to-medium-term lending arrangements that provide financial assistance to member countries facing balance of payments problems. The borrowing country agrees to policy reforms aimed at stabilizing its economy.
2. Extended Fund Facility (EFF): This is similar to SBAs but for countries requiring longer-term assistance due to more deep-seated balance of payments problems. It also includes structural reforms.
3. Rapid Financing Instrument (RFI): Provides quick financial assistance to member countries facing urgent balance of payments needs without the need for a full-fledged program.
World Bank:
1. Development Policy Loans (DPLs): These provide budget support to countries implementing policy and institutional reforms that promote sustainable and inclusive growth.
2. Investment Project Financing: This finances specific projects such as infrastructure development, health, education, and agriculture projects aimed at poverty reduction and economic development.
3. Guarantees: These are provided to support borrowing by governments or private entities for specific projects or programs.
What happens when a country can’t pay the loans borrowed from IMF and World Bank?
- When a country finds itself unable to repay loans borrowed from the IMF or World Bank, it enters into a situation commonly known as a sovereign debt crisis.
- Negotiations for Restructuring: The country and the lending institutions (IMF or World Bank) enter into negotiations to restructure the debt. Restructuring can involve extending the repayment period, reducing the interest rates, or even forgiving a portion of the debt (debt relief).
- Policy Conditions: The lending institutions may require the country to implement additional economic reforms and austerity measures as part of the restructuring agreement. These reforms are aimed at improving the country’s fiscal health and increasing its capacity to generate revenue to repay the debt.
- Economic Impact: A debt crisis can lead to severe economic consequences for the borrowing country. It may face difficulties in accessing further credit from international markets, which can constrain its ability to finance imports, support its currency, and invest in infrastructure and social programs.
- Social and Political Effects: Austerity measures and economic hardship resulting from debt repayment obligations can lead to social unrest and political instability within the country.
- International Relations: A debt crisis can strain the country’s relations with international creditors and may affect its standing in global financial markets.
- Potential IMF Involvement: If the country is unable to resolve its debt issues independently, it may seek assistance from the IMF through a program designed to stabilize its economy and restore its ability to meet debt obligations.
Conclusion
In extreme cases where debt becomes unsustainable and restructuring efforts fail, the country may default on its loans. Defaulting on loans can have profound implications, including legal disputes, credit rating downgrades, and further economic turmoil. Overall, managing sovereign debt crises requires a delicate balance of financial restructuring, policy reforms, and international cooperation to ensure economic stability and sustainable growth in the affected country.
