Current economic issues and Related Economics

Economic Development and Economic Growth

2020-06-03T15:34:00.005+05:30

Economic Development and Economic Growth

by Snigdha Chatterjee

We often used the word Economic Development and Economic Growth as a parameter of economic indicator of a country. Most of the cases we used the two words for the same meaning, but there are a number of differences between the two words, Economic development and Economic growth.

Here mainly we discuss the differences of the Economic development and Economic growth and also discuss the important terms of Economic development.

What do we mean by Economic growth?

Different economists have used the term economic growth to convey different meaning. In some cases the concept differ in essence, whereas the other only emphasis. Though economic growth is very much vital measurement to indicate the economic well-being of a nation but economic development is used as a vast sense than the economic growth. In simple sentence, it can be say that if the Gross domestic product (GDP) of a nation increases, than the per capita income of the population increased. So the consequences changes of national income, per capita increase in income, price stability, balance of payment equilibrium and low level of unemployment are the indicator of economic growth.

So in definition we can say that increase in GDP and continuously increase in national income, per capita income, going towards the price stability, balance of payment equilibrium and low level of unemployment indicate the economic growth of a nation

Economic growth Indicator

National Income – National income will be increased due to the continuously increased of GDP and GNP (Gross national product). So if the rate of growth of national income increases than the citizen of the country get better benefit from the earlier and a stable investment is possible for the nation.

Per capita income- Due to the increase of national income per capita income of the population also increased. But if the population increased faster rate than the national income than the per capita income decreases and does not show as an indicator of economic growth.

Per capita consumption- Per capita consumption is related with economic growth but quietly different in developed and under developed countries. We know most of the under developed countries make not sure of their stable investment towards growth. In that case if the per capita income increases in an underdeveloped country, and people postpone their consumption with this extra income and save more than it will able to invest more .But the case is different for developed countries, if people save more in developed countries than demand will be low and investment low so consequently growth rate will be low.

So where in an under developed countries saving is an important factor for growth while in developed countries consumption is an important factor to generate demand.

What is Economic development?

Economic development is a broader aspect than economic growth. Through GDP we can measure economic growth, so it can be say that economic growth is a quantitative parameter. But in Economic development we consider the parameters like literacy, population growth, malnutrition, health facilities, housing facilities, law and order etc. So economic development is a qualitative parameter of a country rather than the quantitative.

In Developed countries like America European countries attain economic development through high rate of economic growth but underdeveloped countries like, India, Pakistan, Bangladesh does not able to attain economic development through economic growth. Because most of the resources remain unused and people of those countries have not such capabilities to utilize the resources .So if these countries attain a high level of economic growth its benefits derived by a small portion of population and income inequalities increases. So where as developed countries attain economic development through high level of economic growth, underdeveloped countries have to be concentrate on economic development with economic growth to eliminate inequalities.

Economic development Indicator

Literacy level- the benefits of economic growth will not be spread all section of society if the population till illiterate and do not able to use the resources which they have, due to the lack of knowledge. So literacy is an important factor to utilize the resources optimally and to develop the human capacity to produce more within a time.

Population growth rate- Growth rate of population is an important factor to reach the economic development or economic growth. If the population growth rate is higher than growth rate of GDP, there is no change of per capita income and the situation will remain the same. This case is often happened in under developed countries and the benefit of growth enjoys only a small portion of the society. So the income inequality increases. In developed countries population growth rate is minimal so the population enjoy the increase per capita income due to the increase of GDP.

Decrease the income inequality- In developed countries income inequalities decreases due to the increase of GDP and the nation attain economic growth due to the increase of GDP. So it can be say that in developed countries economic development achieved due to the higher Economic growth.

Increase the importance of other sector- In under developed countries land is the important factor of production and the main share of income comes from the agriculture sector. So there is huge chance to concentrate the income in fewer section of the society. AS the economy growing towards development and people able to use their knowledge, the share of income increases from industry and service sector.

So in Economic development and in Economic growth GDP is the important factor/term. But only increase in GDP indicates the Economic growth it does not indicate Economic development. Economic development indicates the sector where the share of income or GDP comes from. Larger the share comes from Industry or service sector indicate it is a Developed country. Larger the share comes from agriculture sector indicate it is a under developed countries.

You may go through

Land reform in India

Deed of settlement or patta

The importance of land in under developed countries

Covid-19 Protection Village Level, India

2020-05-24T08:15:00.006+05:30

Maintain Social distancing in Village level

Today I am telling you some of the silent workers who help us to overcome the situation of Covid-19 during the lockdown situation in village level. During the last few years I was associated with a civil society organization of development work. During the time I used to go various remote villages in the Jharkhand region to enhance their livelihood and develop structures of institution through various programs. Here structures and organization means community based organization like Self help groups, Village organization etc. Those who are in corporate sector hardly know about these, but in the current situation these structures play a vital role throughout the country. In these community based organization (CBOs) leading role have been played by the village women. Most of the members are illiterate but the unity and activeness to do something is surprised you. On the one hand they do their daily household work on the other hand they handle their kids, earning some amounts to work as a labor and attend these CBOs to get more opportunities in livelihood and somehow secure their futures by getting loans and save a small amount of money in their self help groups . Villages are the back bone of every industrial cum agriculture based countries and now these tribal women villagers take big responsibilities towards development of the country.

In economics we read various types of theory but practically we see that the uses of these theories are limited in our copies and survey sheets. The outcome of the research take a nice look of articles but the benefits of the outcome merely comes towards the grassroots levels .In these contest I would like to say that civil society organization and NGOs immensely work with these community levels and regularly develops various strategies to assemble these structures. In these lines I want to bold that if these organizations (CBOs) get more support from us, then there must be a flashing scenario develops.

During the Covid -19 pandemic breakdowns, when most of the world compels to stay at home, at this time these CBOs built a wonderful example as an Indians. All we know that In India we have 130 crore populations and when we heard the news of broke out of these pandemic in the western countries then most of the experts worried about to imagine the broke out of this pandemic in India due to huge population and limited availability of infrastructures. Our central and state Governments, Doctors, nurses, police, and administration set brilliant examples to handle this situation. In the meantime this CBO structures which does not come into the flash light but worked silently.

Making Masks in Village

In the village level SHG members made masks and distributed among the villagers, maintaining social distance and aware their natives about the covid-19.Moreover they support the distress peoples by contributing food from their limited resources. They distributed foods from village organizations (V.O) funds and set example of, “where there is wish there is way”. The unity which tells us to do something is really addressable and more focus needed to cheer up this affords.

Kitchen Didi Program

Most of the state Governments with the help of these structures reaches among the remote villages. Mukhya mantra didi kitchen is one of the examples of that. Active V.O members take the responsibilities to make the food and served among the distress, workless labors and who have not food. V.O members provide the services throughout the panchayet within a block. Day and night services which lend a hand to feed a number of hunger people of these villages really remarkable. They also aware the common protectiveness such as wash hands, use masks and maintain social distancing to overcome the situation of Covid -19 .I Salute their relentless effort which protect us from starvation and help to step up one stair to win the war from Covid-19.

Zamindari,Ryotwari, Mahalwari system In India

2018-05-18T09:38:00.001+05:30

t the time of independence there were three types of land tenure prevailing in India. They were the Zamindari system, the Ryotwari system and the Mahalwari system. The basic difference between these systems was made of payment of land revenue. But in this three systems the usual practice was, land cultivated by the tenants.

Tenants themselves were three types

1) Occupancy tenants ---- enjoyed permanent and heritable rights on land, eligible to claim compensation from the land lord.

2) Sub tenants ----- appointed by the occupancy tenants. They did not have any security as tenure.

3) Tenant at will ---- appointed by the land lord and did not have security as a tenure could be evicted from the land at any time.

Now we discuss the three main intermediaries system of land one by one.

Zamindari system ---- This system was started during the British period in India. The pioneer of this system was Lord Cornwallis. This system came in to its form when in 1973 British government entered in to permanent settlement with land lords with an interest to increase the revenue of the company. Under the system the landlords (Zamindars) were full proprietors of this large area of land and they were responsible to collect the rent from the farmers. Actually Zamindars played a role of intermediaries between the cultivators and the state. But this system suffered from a numbers of defects. Zamindars snatched a large portion of produce as a form of tax without participating personally in the productive process. During the time of independence this system prevails in West Bengal, Bihar, Orissa and Uttar Pradesh. Due to this kind of exploitation cultivator was left with no surplus to invest for better implement.

Mahalwari System -----William Bentinck introduce this system in 1833.At the time of independence the system was extended at the large area of north west frontier of India, Agra, Madhya Pradesh, Punjab. In this system land was divided in to mahals each mahal comprise one or more village. The responsibility to collect the land revenue and depositing it in the treasury was on the village head man.

Ryotwari system ------Under this system the responsibility for paying the tax to the government was on individual rayot or cultivator himself. In this system cultivators had full power on their land they could not be evicted from the land as long they were paid land revenue. This system was initially introduced in Tamil Nadu and latter extended on the other area. Though this system emerge some satisfactory result, but cultivators were failing on the trap of Mahajans and money lenders. In this area Mahajans and money lenders granted loan to the cultivators for cultivation and social purpose by mortgaging their valuable lands. If the cultivators were unable to return the amount then a substantial portion of land slipped out from their hand. The cultivators then enforced to cultivate as a tenant on their own land and the new Zamindars class emerged in Ryotwari system also.

After independence it was found that these intermediaries systems were the main cause of stagnation of our agriculture system. Poor farmers were exhausted and they are unable to do better implementation on agriculture sector. More over due to slip out a large portion of produce the capital to reinvest on land was limited.

Types of Patta or Deed of settlement prevail in India

2018-05-06T08:53:00.004+05:30

Types of Patta

he special lands which government holds are distributed among the landless family in four ways. So we can say that there are four types of deed of settlement or patta prevail in India.

They are 1) Agriculture patta , 2)Nijo Griho Nijo Bhumi (NGNB) 3) Forest patta and 4)Refugee Patta

1) Agriculture Patta –Agriculture patta mainly given for agriculture purpose to share copper and tenant farmers.(maximum amount of land that have given by the government is one acre, depending upon how much barga farmers actually hold.)Agriculture patta really motivates the landless farmer and encourage to implement the new technique to produce more. Before the agriculture patta where share copper bound to produce only paddy and potato for the demands of land lord .Now they are free to cultivate the new crops, like sweet potato (scientific name pachyrhizus erosus), tomato, cash crops on their own field and enjoy a cash-able amount .Agriculture patta turn their life and secure the minimum amount of food security and social security to these family.

2)NGNB(Nijo Griho Nijo Bhumi)- NGNB prakalpo(own house own land program) was launched on 18^thOctober ,2011 in West Bengal by the hon’ble chief minister .Government providing maximum 5 decimal land to each identified family who are really eligible for that. Family who are landless homestead less, village artisans , fisherman ,agriculture laborers belong in rural area are eligible(depending on their income level and social status).This type of patta being distributed jointly in the name of both husband and wife or in the name of woman who is the head of the family. The objectives of these types of patta to secure their ownership and transform their life from poverty to prosperity.

3) FRA(Forest right act,2006)-This type of patta given to the tribal and traditionally forest dwellers ,who are entirely depend on forest for their lively hood(like collecting wood, honey ,leaves from the forest).In case of non tribal family ,who are habitant in the forest area more than 75 years are also eligible for these type of patta. This type of tribal family also engaged themselves in agricultural works in forest fringe area.

4) Refugee relief and rehabilitation patta –These type of patta started mainly after the partition of India (1947).When a large number of people forced to leave their homeland and came to India.

In most of the cases government distributed special land, which government hold after the ceiling of the land holding, in the form of patta. But in some special cases if government has not any special land in this area then government purchase land and distributed among them. In both of the cases prohibition applied that beneficiary cannot right to transform the classification of land, or sale the land.(Change the classification of land means changing the land structure, like if the land is low land you change it in pond or if you use agriculture land as a homestead land.)

Government provide various training program to the patta beneficiary to develop their livelihood and to use this land up to level, such as how they make use of their agriculture land ,which types of crop cultivation give them more benefit, rearing of backyard animal, how to utilize their kitchen garden etc.

Conclusion-Though government takes various steps to develop the life of the vulnerable family and want to mainstream their life with the society, but some vigorous steps needed to reform the life of such marginalized segment of the society ,like there must be some skill building training on dominant livelihood activities such as agriculture, animal rearing ,horticulture, sericulture, mushroom cultivation or hand and craft training followed by some inputs from the respective line of departments so that the beneficiaries can utilize the skill in a productive way.

Deed of settlement or "patta"

2018-04-16T23:14:00.000+05:30

India is one of the fastest growing developing countries in the world. As we see that its GDP growth rate is growing year after year. But is India developed with its growing economy? This is one of the big questions. Development of a country not only depends on its GDP growth rate. Development means total economic and social structural growth of an economy like health, education, sanitation, fertility rate, mortality rate etc.

As India belongs to mixed economy structure a largest portion of its percapita income enjoy a smallest portion of people. So a large portion of people suffering a miserable situation without having proper food, education and health. This creates a massive difference between the upper and lower portion of society.

The higher income group of society holding a large portion of land while most of the lower income group unable to secure their day today meal. This creates a black shadow on India’s GDP growth rate. To eradicate this type of shadow proper distribution of land consider an important steps to secure the minimum income and rehabilitation of this vulnerable people. As we know the importance of land in under developed countries.

Now a family get the ownership of land in four ways 1) Through warison certificate 2) If s/he purchases the land.3) gifted land 4) through the land reform.

The rural tenant, share cropper, carpenter, laborer are actually works on others land generation after generation .So they have not their own land. A family of a share copper does not able to claim these land after the death of the share copper ,where the share cropper spend his whole life. To secure this type of land less family and tribal family land reform took significant steps.

In the post of independence through land reform Indian Government abolish the Zamindari ,Mahalwari and Rayotwari system and implement the ceiling of land holding. Government took this extra land which is upper portion of the ceiling through proper legal action.

This large portion of land which government gets through ceiling of land is known as special land. The portion of land which arises on the bank of the river side is also considered as a special land and government is the owner of this land. Government distributes this special land as per the need of the landless people with proper paper and settlement, this is known as “deed of settlement” or patta. Government has given this patta for agriculture and living purpose. The tribal community who are living in the forest area and inhabitant in this area are eligible to get forest patta for agriculture and living. Government also gives patta for settlement of the vulnerable, vagabond and refuges family.

Land is a productive capital and to secure the minimum food security government arrange this type of procedure. Landless poor farmer, share cropper, tenant, laborer ,fishermen, carpenter who have not their own land for survival are eligible to get patta as per the rule of the government with proper papers. Government gives patta on the name of the both husband and wife. In case where woman is the head of the family patta has given in her name also. Patta beneficiary can’t eligible to sell this special land as per the rule. If patta beneficiary have no child then the land automatically transferred in the name of the government after their death. Otherwise they can enjoy the ownership of their land through generation.

Some time government buys land to give patta for those families who live in the area where there is no special land in the name of the government. It has been observed that in rural area women are the main workforce in agriculture sector, though we ignore their presence .In present situation government try to distribute this did of settlement in the name of the women member of the family.a This action will also enforce the women empowerment of the society and secure their ownership.

Distributions of land are the first part of filling the gap and secure minimum needs of this family. But proper use of this land is an essential matter in this respect. Government and different N.G.O’s arrange different training programs to give basic information about land related issues. So proper information and use of land is essential part to eradicate this type of gap and boost up our economy towards development.

Land reform in India

2018-04-16T07:35:00.000+05:30

Land Reform

India is an agrarian country. A large part of income comes from the agriculture sector. Though the agrarian structure was not so good in India and considers the main obstacle to economic development. The main hindrance which was considering the impediment of agriculture sector is ……..

1) existence of intermediaries between the state and the cultivators.2) tenants are very much insecure here, due to huge pressure of debt, absence of ownership rights, minimum subsistence level output remain in their hand.. 3) Small and fragmented land hindering to implement of techniques for better production. 4) Uneven distribution of land holding create miserably huge difference between upper and lower section of the society.5) foremost lack of effective organization of the peasantry.

Objectives of land reforms

The main objectives of land reform are to growth oriented of agriculture sector. According to planning commission of India this objectives may be achieved through different measures. 1) Abolition of intermediaries.2) Tenancy reforms.3) consolidation of land holding. 4) Co-operative farming.5) Updating of land records. 6) Ceiling of land holding.

1) Abolition of intermediaries

There were three different types of land system prevailing during the time of independence (1947).Zamindari system, Ryotwari system, and Mahalwari system. In this three system cultivators own the land and cultivates the land but they are not the owner of the land, and also they are not responsible for paying land taxes to the government.

In this three system cultivators suffers a lot. In Zamindari system Zamindar mainly snatched the surplus above the minimum subsistence level. In Mahalwari and Rayotwari system cultivators lend money from the Mahajon and slipped out their valuable land. So the condition of agrarian structure in this era miserable once and consider the main stagnant point in the economy.

Government gave top priority to abolish the intermediaries system on the eve of the independence.

2) Tenancy reforms

The second aspect of land reform was tenancy reform .Without strengthen the tenant and gave them proper security it was impossible to transform the agrarian structure.

a) Fixation of rent-Planning commission suggested that rent payable by cultivating tenants to the landlord should not exceed one fifth - one forth to the total produce.

B) Conferring the ownership right on tenants-Tenants need some ownership to produce more and to work on land more effectively. In some states tenants are enabling the ownership right on land after the payment of land revenue out of net income from the land to the land owner.

c) Security of tenure-Several states promoted legislation to secure the tenants. Such as 1) prevention a large scale ejection of tenants.2) a minimum amount of land assured for the tenants in case of resumption.

3) Ceiling of land holding-To reduce the huge difference in the agrarian structure in India, government had taken these steps. Ceiling of land holding means fixation of the maximum size of holding land. Beyond this maximum size all land belonging to the land lord taken over by the government to redistribute among the landless laborers.

4) Consolidation of holding-Consolidation holding means pooling together all the scattered pieces of land belonging to a single land owner. These steps minimize the waste, resulting from the fragmentation of land holding. Fragmentation and sub-division of holding lead to wastage of land in the form of boundaries. Small size of holding land prevent farmer to apply better quality inputs and technology. More over human and cattle energy is also waste in small piece of land.

5) Co-operative farming- Co-operative farming means organize the cultivated land. ie. Pooled the fragmented land in to a single unit. Management of land carried on jointly and they are paid jointly.Net profit distributed among the members after deducting money for building up resources and for security.

6) Updating land records- Non availability of land records are the main hindrance to implement the land reform activities. After the green revolution and adoption of new technology it has become very necessary to maintain proper records.

Conclusions- land reform consider a very significant instrument to change the rural disparities and to develop the agrarian system. But we point out some obstacle and poor performance of land reform like lack of political will, absence of correct land records, absence of pressure and unorganized farmer unable to claim their legal rights. Overall economic backwardness is another reason for proper implementation of land reform in the country.

The importance of land in underdeveloped countries

2018-02-10T08:28:00.000+05:30

Land is considered a valuable asset for all of us. In simple term if we define what is land we can say that it is that part of earth surface which is not covered by water and which is dry, but in real sense we are bothered that part of the land which is usable for human survival and development. We know that earth is containing three part of water and one part of land. But in this one part of land people are not able to use that part of land which is situated in high hill area, desert area and the area which is covered with dense forest. So, the land which is near the river is very much valuable and precious for human being.

For survival land is considered a productive capital. History tell us that many war had been happened to protect own motherland, but due to its fixed nature the pressure on land increased day by day with increasing population .Though our modern technology try to increase the portion of land artificially in the earth surface through land reclamation or land fill (is the process creating new land from ocean riverbed and earth bed).

In economic sense our economic sector is divided in to three sectors. Primary sector, secondary and tertiary sector .In primary sector agriculture plays a vital role and in this sector it is the main source of income. In secondary and tertiary sector production and service sector plays their role. As per our economic structure in underdeveloped and developing countries the percentage of income mostly comes from agriculture sector. On the contrary in developed countries most of the income comes from secondary and tertiary sector. So in developed countries we can observe that the facilities of banking sector, railway services, airway services, new invention are more than the underdeveloped countries.

In this three sector though land is an important factor of production, but pressure on land is comparatively high in primary sector which is the main source of income of underdeveloped countries and developing countries. More over high population rate, illiteracy, disguised unemployment creates a massive pressure on land. In short in underdeveloped countries families like labour, tenant, agriculture laborers faced a miserable condition as they have not their own land and without agriculture they have also not any other options of income.

To release this type of pressure on land, land reform in India reform plays an important role. In the post of independence through land reform government try to minimize the disputation of land. The basic objectives of land reform is to abolish Zamindari, Mahalwari and Ryotwari system, Confirm the ownership of land holding and implement the ceiling of land holding.

A large portion of land which government gets through ceiling of land holding is known as special land. Government redistributes this land as per the need of this landless people with proper papers. This System is known as “Did of settlement” or locally known as “Patta”, through this the land less family now able to confirm their meal through farming.

It is really need to judge the matter in how much this type of government steps eradicate poverty and push the under developed economy towards developed once.

GST Good OR Bad

2017-09-22T21:49:00.000+05:30

GST GOOD OR BAD

After completion of so many months of implementation of GST in India, lots of confusion question, litigation came out. But one question commonly come to all of us that ‘is really GST boost our economy?’ or ‘It is needed or not to implement of GST?’

In this blog we are focus here ,what problem the common people faces after implementation of GST and try to find out the answer why Government implement GST in our developing economic background in India context.

The current Problem that we face after the implementation of GST

We know from the earlier blog How GST works that GST reduces the tax burden from the common people and eliminate cascading of taxes and give transparency in our tax structure, but after its immediate implementation traders are faces lots of problems .Due to the lack of knowledge consumers are also confused when they went to the market.

In the earlier stages complicated registration process creates so many problems. Many traders don’t understand the Reverse charge mechanism and input tax credit. More over the software process confused the traders. Especially GST hits the small traders. Small traders are not able to sale their product to the big traders because they do not able to complete their registration under GST. In this puzzled some situation small traders do not able to supply their product to the big seller, and who have able to complete their registration also get small orders due to the fluctuation of the market. So the supply and demand both are hampered after the immediate implementation of GST.

Three times tax return fill up also create a headache of the traders moreover they do not get tax return in time. So this hit the cash flow in the business so badly.

Demonetizations and implementation of GST hits our GDP growth rate also.

Is GST really boost our Indian economy , this big question is arise in our mind when we face a big problem in our day today life after the implementation of GST ,though Our PM elaborate the term GST as "Good and simple tax" to simplify its meaning.In short it can be said that GST is a structured tax system and to build a well framed tax system in India it is really needed.

Firstly, the problem which our nation faces is primary problem. It is not sustain for longer period. When the problem of registration and confusion over we get a one tax one nation system through GST. It is easy to calculate and transparent in nature.

Secondly, Government also aware about the problem arises due to GST and try to remove in a quick service process, through formation a special teams and carry out drivers to increase the number of traders registered under GST.

Thirdly, e-way bill is one more initiative of the government to solve out the GST night mare. May be the new tax system take time to solve this indirect taxation process but it is not impossible one.More over e-way bill rules will be ruled out on a trial basis on 24th GST meeting.

Fourthly, a transparency and well formed taxation obviously attract foreign investors to invest, which will help to improve our economic condition.

Fifthly, Businessman who are earlier migrated from VAT, service tax, excise duty are now forced to registered under GST and pay the tax.

Sixthly, one tax regime all the states will also enhancing domestic investor to invest.

India is a developing country mainly suffering because of lack of capital, infrastructure, health, education issues. If the capital flow through investment and proper infrastructure through government intervention will happen then it may be said that GST will help to boost our economy over time.

On the other way it not be overlook and said that before the implementation of GST some structured process needed.

REVERSE CHARGE MECHANISM (RCM)

2017-08-14T17:23:00.001+05:30

After the implementation of GST there are lots of confusions arises among the common people, traders, business man and manufacturer about the taxation system, the main confusion surrounded between the two taxation terms that is input tax credit and reverse charge mechanism (RCM).

As our GST rule all we know in a business, if the annual turnover in a financial year is within Rs 20 lakh (Rs10 lakh for north eastern and hill states) then he have not required paying GST. But the confusion arises when the rule is going to the market.

From the earlier discussion How GST works it was shown that the whole GST process is actually a chain system. That means if manufacturer pay GST when he buy inputs and wholesaler buy the finished product with the proper GSTN(GST registration number),then wholesaler are eligible to claim input tax credit from the government.

The Indian industrial sector are divided two parts organized sector and unorganized sector. Many big industrial sectors depend on small and unorganized sector. For example in textile industry some material which is mainly hand stitching and where embroidery is needed has come mainly from the unorganized sector where large number of house hold engaged with it as a part time job. But after the implementation of GST when this unregistered seller supply their product to the registered seller then registered seller have to pay the whole tax when he sale the product because unregistered seller was not paying GST when he sale to the registered seller and here the reverse charge mechanism come into action .About this bitterness many registered and large seller disagree to buy product from their unorganized seller and pruning their buying.

The concept of reverse charge mechanism actually borrowed from the service tax. In earlier tax system reverse charge mechanism exists in service tax but we do not accustom with the term. Reverse charge is completely new tax on goods after the implementation of GST. Actually it is an initiative to take organized and unorganized sector into under a one umbrella .But in present scenario small suppliers are facing panic with the new taxation system.

Existence of Reverse charge on service tax

To clear our idea how reverse tax exist in service tax take an example suppose you are a client and you borrow a lawyer , here lawyer is a service provider and you are a service receiver. Here lawyer pay tax to the government because he provide the service and moreover you pay the tax as a service receiver. Same way in insurance also reverse charge exists.

Reverse charge on goods

The term reverse charge is completely new for goods after the implementation of GST. From the Input tax credit we know that goods comes in the hand of the final consumer through crossing multiple stages .i.e manufacturer sale the finished product to the wholesaler ,wholesaler sale the labeled product to the retailer and retailer sale the labeled product to the final consumer. In the new GST system if every stage i.e manufacturer ,wholesaler ,retailer pay GST with GST registration number then wholesaler ,retailer are eligible to claim input tax credit from the government .So this is a chain and in this chain manufacturer ,wholesaler ,retailer must be registered and they have to be GSTN. But the confusion arises if you are a small and unregistered supplier and the buyer of your product are registered. In that case if he buy product from you at RS100 and sale the product including his cost at RS120, then he have to pay GST on Rs120 and in that case he is not eligible to claim input tax credit because you are a unregistered seller and you have not paid GST on RS100.So here the buyer of your product pay the reverse charge.

Now for that reasons in current scenario in India registered and big manufacturer are unwilling to buy the product from the small unregistered supplier, moreover the billing system confused the traders as they are not so much habituated. But it will be expected that continuous intervention of the government and the introduction of the e-billing system by the central government have made some relief of the traders.

Input tax credit

2017-07-26T21:07:00.002+05:30

After the implementation of GST it is clear to us that it is a single tax system throughout the country, replace all type of indirect taxes of states, union territories and central. In GST system there are four types of collecting tax is introduced that is SGST-tax collected by states, CGST-tax collected by central ,UGST-tax collected by union territories and IGST-collected by central government for interstate sale. That is GST eliminates the cascading of taxes that is ‘tax on tax’ system. Now the main confusion arises when the term input tax credit comes. It is closely linked with the estimation of GST system.

Now, what is input tax credit?

It is the credit that an individual received for the tax on the inputs used in manufacturing the product .i.e if 10% tax he paid to buy an inputs then next step when the finished product he sale, he must be subtract the amount he has paid in taxes at the time of purchase of inputs and submit the balance amount to the government as a tax of finished product. Now elaborating the concept we can say that

A product is produced and crossed the multiple stages to come on the hand of the final consumer. i.e the stages are,

Input seller ---------- Manufacturer-------- Wholesaler------- Retailer---------- Final consumer

In every stages buyer have to pay tax .ie. Manufacturer pays tax to the government when he buys the inputs; again wholesaler pays tax to buy the finished product. Retailer also pay tax when he buy the product from the wholesaler and lastly final consumer pays tax when he buy the final product with packaged and labeled from the retailer. Before the implementation of GST wholesaler pay the tax twice of inputs which earlier once paid the manufacturer. For simplicity take an example, suppose the manufacturer buys inputs of Rs100, and suppose tax rate is 10%.Then for the inputs manufacturer pay Rs10 as a tax. In the next stage manufacturer produced goods with this inputs and added Rs50 as a cost of production. So, now wholesaler buys this finished product at

Rs{Input cost(100)+Tax(10)+production cost(50)}=Rs160+ 160*10%=Rs(160+16)=Rs176.[ For more details go to How GST works ]

Here manufacturer once pays the tax when he buys inputs but wholesaler pays the tax twice of the same inputs when he buys the finished product. In this way the cost of the final product when it comes on the hand of final consumer increases. Government looks ‘tax on tax ‘matter through the implementation of GST. Now, wholesaler can demand input tax credit from the government as a return tax .i.e Wholesaler now pay Rs{Input cost(100)+Input tax(10)+production cost (50)+tax on production cost(50*10%)}=Rs(100+10+50+5)=Rs165 to the manufacturer instead of Rs176.

The return tax of Rs11 is called input tax credit.

In the case of the input tax credit in GST system it is compulsory that each and every step we have to pay the tax .i.e Manufacturer must pay tax to the government when he buy inputs from the input seller .If manufacturer buy the inputs without paying tax to the government then how could wholesaler demand the return tax? In that case wholesaler must be paid the whole tax when he buys the product from the manufacturer.

So, it is mean to say that if you answered your question paper you have to verify that other also do the same and no one cheating in the exam.

For related topic-1) GST its advantages and disadvantages

2) Tax and its types

3) Tax and its principles

Tax and its principle

2017-07-12T18:21:00.001+05:30

Canon of taxation

A good taxation system must achieve some major objectives from the justification ground, which is able to turn the taxation system more equitable for the public and at the same time decrease inequality from the society. This principle must be fit for social welfare context also. To achieve this criteria the great economist Adam Smith suggested four important set of principle. This is popularly known as Canon of taxation.Some other economist also suggested some more canon of taxation.

The major four canon of taxation which is prescribed by Adam Smith are

1) Canon of equality- taxation is not a process of collection of tax only rather it has some major objectives also. To erase inequality from the society it may takes an important steps. In realistic situation we face income is subject to diminishing marginal utility .That means if income increases the utility derived from the additional unit is decreases. In that case if same percentage of tax is applicable to all it will be burden some effect more on poor than on rich. So for the justification ground richer should pay more tax than the poor. i.e. the tax should be progressive in nature.

2) Canon of certainty-The tax which individual pay as a compulsory levy must be certain not random. He has full knowledge of the mode of payment, quantity and time he pay.i.e. All the tax related criteria in front of the tax payer should be clear .That means transparency and certainty of tax payment is necessary for a country taxation system.

3) Canon of convenience-The canon of convenience is nothing but the extension of canon of certainty. It means when individual pay tax he should know all the tax related things.i.e mode, timing and quantity to be paid. If he is not aware about all this things various ill effects may arise.

4) Canon of economy-It means the cost of collection of tax must be minimum possible. So that maximum amount of yield would be used for welfare purpose. Moreover there should not be any leakage in the collection of tax procedure.

The other canons of taxes are….

1)Canon of productivity-The tax system may be productive in two way firstly, from the view point of financial theory tax system may be collect enough money through taxation that could help the government to spent lots of money for social wellbeing. But from the justification ground the tax system not so much heavy that it would discourage the productivity. So the second view is the tax system may be that much burdensome that it would be encourage the producer to produce more.

2) Canon of elasticity and flexibility-Canon of elasticity means the tax system so much elastic that in any situation the government can easily increase or decrease the yield of tax through taxation system.

On the other hand flexibility means the tax authority can revise the tax structure at any circumstance if the government feels the requirement of change is needed for current economic situation.

3) Canon of Diversity-Government should not depend on a few source of public revenue, because if any situation the tax rate is lower the yield of tax is decreases. So that diversified of taxation system is prescribed, i.e. any reduction in tax revenue should not able to affect the total tax. However, too much multiplicity of taxes is also to be avoided.

4) Canon of co-ordination-Tax mainly levied by central government, state government, and local government. If among this tax authority there are no co-ordination then there may be causes unveil effect .so co-ordination among different authority is needed for a good tax structure.

5) Canon of Expediency-The tax should be based on some sound principle .So that the tax payers fully rely on the tax authority and there is no justification needed from the side of government.

6)Canon of simplicity- The last but most important canon of tax is simplicity of taxation system .i.e. the tax payer could easily understood the nature ,the aim, time of payment and basis of estimation of tax. If the tax system is transparent and simple the tax payer should have no doubt about it.

So these are the major fundamental canon of taxation. The government should have take consideration this canon of taxation when he imposed the levy of tax on the public.

Tax and its types

2017-07-06T21:53:00.000+05:30

Tax & its types

Tax is a compulsory levy which government imposed on us and we are bound to pay from personal obligation without expecting of any return of service or good from the government.

Tax is a public revenue. There are small distinctions between public revenue and public receipt.Public revenue is a narrower concept than public receipt. Public revenue includes income from tax, administrative revenue, tax on goods and services, gifts and grants etc.While public receipt include income from all sources, like borrowing, income from sell of asset etc.

Public receipt=public revenue+income from all other sources+public borrowing from bank+income of the sale of public asset etc.

Public revenue is divided in to two parts. Tax revenue and Non tax revenue.

(A) Tax revenues are

1) Tax on income, expenditure tax, corporation tax and all other taxes related to income.

2) Gift and grant tax, estate duty, wealth taxes are considered as property tax.

3)Indirect tax like good and service tax, Earlier which is known as custom duty(Tax on import or export of good within the country or outside the country),excise duty(Tax on production by companies).Now all indirect tax is known as GST only.

(B)Non tax revenues are

1) Revenue from various government activities and services such as police, administrative service, transport and communication public work etc.

2) Interest receipt from loan given by government to other entities. Income receipt on government investment in companies.

3) Income receipt from fiscal services like post and telegraph, telephone etc.

4) Grants received from foreign country or state received grants from central government.

Direct and indirect burden of taxation

From the earlier discussion it is clear that Direct and Indirect tax both are tax revenue of the government. The example of direct tax are income tax, wealth tax,gift tax ,corporate tax etc.In case of direct tax the tax burden are impose on a particular individual and he/she is bound to pay the tax. In that case the tax burden is not shifted to any other .If the marginal utility of income is constant then in direct tax regime every individual have to pay a percentage of his income. This is known as proportional tax structure. But in real situation marginal utility of income is diminishing. That is as income increases marginal utility of the additional unit of income decreases and vise versa. Therefore for equality in sacrifice, the tax burden should be more on rich than on poor. This is known as progressive tax structure. If we go through the budget we will see that in income tax after a certain slab the percentage of tax rate is high.

But the matter is different for the indirect tax .In indirect tax the price is levied on goods and services are the same for all. Moreover the tax burden is shifted from producer to consumer .Here the tax burden is imposed on producer but the ultimate tax burden bear the consumer.So indirect tax is called regressive tax. In India income tax is progressive tax and indirect tax is regressive tax in nature.

Though taxation in these days is not used as means of raising revenue only, but it is an important instrument for achieving socio economic objectives also. Such as regulation of consumption and production, controlling inflation, promoting economic growth removing inequality of incomes and so on.

How GST works

2017-06-23T08:02:00.001+05:30

Now a day’s GST is the most important topic to discuss .As our prevailing Government has change the total indirect tax structure through GST. All we know the full form of GST is Good and service tax but the confusion arises when some commodity is cheaper and some are dearer.

In our federal structure there are two types of tax, direct tax and indirect tax. Income tax, interest tax, wealth tax corporation tax all are fall under the direct tax regime &custom duty, excise duty, sales tax, service tax all are example of service tax. As GST is implemented on indirect tax so we have to clear it that our income tax is not takes effect through it.

Indirect tax is called regressive tax because when a tax levied to someone it will be passed to the other & the weaker section bear a heavy tax burden than the richer section. So to minimize the tax burden & for more transparency GST is a better way.

GST is a single tax system which unified our tax structure &give us more transparency on taxses.GST will also remove the cascading of taxes& boost up Indian economy towards equality of tax burden.

How GST brings more transparency?

GST is likely to replace service tax, surcharge related to supply of good &services, central excise duty, other hidden tax & for transparency introduced, CGST-Central good &service tax, SGST-stae good &service tax, IGST-Integrated good &service tax UGST-Union territory good and service tax CGST &SGST have levied when a product is produced & sale within the state .For interstate sale there will be now only IGST levied. Earlier if a product is produced within a state ,state Govt levied VAT ,excise duty, custom duty, service tax,octroi duty(local tax).More over central Govt levied CENVAT(central value added tax) on some product. So GST gives us more transparency which is simple & easy to administer backed by a robust IT system.

Ø SGST --------- State good &service tax(Collected by state)

Ø CGST -------- Central good &service tax(Collected by central)

Ø IGST -------- Integrated good &service tax(collected by central)

What is cascading of taxation?

When a product is produced it crossed multiple stages& ultimately reached to the hand of final consumer. Firstly manufacturer buys the raw material for the product. He produced product with this raw material. Secondly, wholesaler buys this finished product & tag labels on it.Thirdly, retailer buys this product from the wholesaler & after packing, it reached to the hand of final consumer. In each stage where the value is added Govt levied tax on it. Let’s take an example,

Suppose a pair of shoe is produced & the tax rate is fixed at 10% at each stage & there are no profits or loss involve in it. Suppose, the manufacturer buys RS100 of leather as a raw material & pay RS 10 as a tax. So now the raw material cost is RS110.Manufacturer produced product with this raw material & his production cost is R S 50.so the total cost is now RS(110+50)=RS160.Wholesaler pay 10% VAT when he buy it. So wholesaler pay RS160+RS16=RS176 for this product. Again wholesaler spent RS40 on it due to labeling cost & sell it to retailer at RS (176+40)=RS216+10% tax=RS237.6.Retailer packed this finished product & add Rs30 for packaging cost. Now the finished product go to the hand of final consumer at RS (237.6+30) =RS267.6+10 %( which is mentioned on the bill).For simplicity here we are not adding the tax of excise duty, custom duty, service tax, local tax. But in reality all tax are added with this pair of shoe. Currently, a consumer is not aware the total amount of taxes s/he pays for the product.

How GST eliminates cascading effect of tax?

GST address this cascading effect of tax and introduce input tax credit which will allow seller to claim the tax already paid. So the final liability to the end of the consumer decreased.

At first when manufacturer buy raw material he pay10% tax on it& pay Rs110.secondly manufacturer added Rs 50 for production cost. Now wholesaler buy the product from the manufacturer at Rs160+10%tax=Rs (160+16) =Rs176.Here we have to need a look back, here the tax of raw material paid earlier when manufacturer buy it. So like double counting we are double count tax here .To revised it, GST introduced the tax system where tax is levied only on, where value is added.

Here manufacturer added value Rs50 as a production cost. So tax is levied on Rs50 only rather thanRs160.Now the value of the pair of shoe is Rs (110+50+50*10%) =Rs (110+50+5) =Rs165.Likewise wholesaler added value Rs40.Here the tax is Rs4 only & comes in the hand of retailer at Rs (165+40+4) =Rs209.Finally retailer added Rs30 & the tax levied 10% on Rs 30 isRs3 so the final cost is Rs (209+30+3) =Rs242.

Total cost of the pair of shoe is -------------------100+50+40+30=220

Actual taxes as10% rate is-------------------10+5+4+3= 22

Final cost is--------------Rs220+Rs22=Rs242

So it is clear that GST is an initiative to eliminate cascading of tax & create a unified national market, which boost up our export &improve our competitiveness.