30 DEc 2015 editorials




30 DEc 2015


The hindu:

Only for the rich?


Sometimes, when the state is faced with a legal challenge to its policy, all it needs to impress the judiciary is to make a suitably pious claim. Kerala, a State that accounts for nearly 14 per cent of the country's liquor consumption as well as one that boasts of 100 per cent literacy, has managed to convince the highest court in the land that its policy of restricting bars that serve liquor to five-star hotels will bring down drinking. It has successfully claimed that if liquor is made prohibitively expensive, the State's youth would be "practically compelled to abstain from public consumption of alcohol". The court has accepted its argument that its objective was to prohibit all public consumption of alcohol, and that the only reason it made an exception in favour of five-star hotels was in the interest of tourism. The court sees no arbitrariness or caprice in this, saying even if it appears that there may be close similarities between five-star hotels and four-star or 'heritage' hotels, it is the preserve of the government to differentiate between them. The judgment strikes at the root of non-discriminatory treatment under the Constitution merely on the ground that the issue involved is the business of liquor. At one point, it recognises that a right to trade in liquor exists, and that once the State permits it any restriction on it has to be reasonable. Yet, it goes on to hold that a moratorium on other categories of hotels is not arbitrary or unreasonable because the potable liquor business, given supposed public health concerns, is res extra commercium, or a "thing outside commerce."

The reasoning behind the Supreme Court's decision to uphold Kerala's latest liquor policy is twofold. First, it unexceptionably roots its verdict in the rule that courts ought to be wary of interfering in policy matters. Secondly, and somewhat controversially, it accepts a discriminatory classification in favour of five-star hotels. The exception on the ground of tourism is quite curious because tourists, both foreign and domestic, are not drawn from the upper echelons of society alone. The court notes that no one is barred from upgrading their hotels to five-star grade, yet it seems to have accepted a contention by the government that it was not allowing bars in four-star hotels because three-star hotels may get themselves upgraded to four-star status! While total prohibition may be a laudable objective and one of the Directive Principles of State Policy, it is doubtful whether confining drinking to homes and private spaces by itself will bring down consumption. In a non-permissive society, it may only result in converting drinking into a covert activity, a phenomenon requiring policing and also bringing corruption in its wake. The verdict places a heavy burden on the State to rehabilitate those left unemployed by the closure of hundreds of bars, as well as to make its policy succeed. It also needs to ensure that the sweeping discretion conferred on it to differentiate between classes of licensees is not misused for any extraneous considerations.


Devoutly religious.



Force or oblige (someone) to do something



Flightiness: the trait of acting unpredictably and more from whim or caprice than from reason or judgment; "I despair at the flightiness and whimsicality of my memory"



A sudden and unaccountable change of mood or behavior.



A temporary prohibition of an activity.



Feeling or showing caution about possible dangers or problems.



A level or rank in an organization, a profession, or society.



Fasten (something, especially a door or window) with a bar or bars.



Heated disagreement.



(of an action, idea, or goal) deserving praise and commendation.



The quality of behaving or speaking in such a way as to avoid causing offense or revealing private information.



Grant or bestow (a title, degree, benefit, or right).



Irrelevant or unrelated to the subject being dealt with.



The Hindu:

Short-sighted hike in U.S. visa fee


The Barack Obama administration's decision to raise the visa fee for skilled professionals seeking temporary work in the U.S. is set to hit Indian companies in the IT sector. Nasscom, the trade association, puts the expected losses at about $400 million a year. The development comes in the run-up to the 2016 presidential elections when fear-mongering about American jobs 'going to foreigners' inevitably becomes part of the political rhetoric. The $1.8-trillion tax and spending bill, which authorises the doubling of the fee for certain categories of H1B and L1 visas to $4,000 and $4,500, respectively, and was signed into law by Mr. Obama, has raised concerns in India. Just as capital-surplus countries pitch for easier entry for their capital, India — with over 65 per cent of its 1.25 billion people below the age of 35 — makes the case for free labour movement. Although India has the options to take retaliatory steps or move the World Trade Organisation's dispute settlement panel, the best course would be to amicably resolve the issue at the diplomatic level. To successfully challenge the increase before a WTO panel, India will have to prove the discriminatory nature of the fee hike on Indian firms vis-à-vis their competitors from other countries. That is challenging since some Indian IT majors such as Infosys have said the American move will not impact the sector much. Taking tit-for-tat steps would mean killing the goal of boosting bilateral trade from $100 billion today to $500 billion in the next few years.

American and Indian policymakers need to focus on the larger picture. Just as a labour-surplus India, a nation with high poverty levels (with almost 300 million people, close to the entire population of the U.S., living on $1 a day), will need to gradually ease restrictions on capital inflows, a capital-rich U.S. with a looming labour shortage (due to the growing retiree population) will have to look at removing curbs on labour mobility sooner than later. U.S. authorities and lawmakers must also realise that their own corporations trust Indian IT service providers not just for their quoted rates but for their ability to get the job done. More importantly, as a Nasscom report of September 2015 points out, India-based IT companies providing services to American businesses and other customers invested over $2 billion between 2011 and 2013, and paid $22.5 billion in taxes to the U.S. Treasury in those years; in fact, they supported more than 411,000 direct and indirect jobs in the U.S., including 300,000 held by U.S. citizens and permanent residents. In this period, over 120,000 Americans benefited from philanthropic activities by Indian IT companies, which focussed on educating more Americans in science, technology, engineering and mathematics (STEM) skills. Such contributions apart, the U.S. must absorb the larger point it often makes to others: a globalising world seeks greater interdependence, and not higher walls.



The art of effective or persuasive speaking or writing, especially the use of figures of speech and other compositional techniques



As is certain to happen; unavoidably.



Of or relating to or having the nature of retribution; "retributive justice demands an eye for an eye"



(of relations between people) having a spirit of friendliness; without serious disagreement or rancor.



Appear as a shadowy form, especially one that is large or threatening.





Indian Express: The LPG model


The NDA government's decision to bar taxpayers earning more than Rs 10 lakh per annum from availing of subsidy on LPG cylinder sales is welcome for signalling a clear intent of targeting subsidies to the deserving. This announcement builds on the government's "Give It Up" campaign, personally pushed by Prime Minister Narendra Modi. By insistently advocating the abjuration of the subsidy by the well-off — from the ramparts of the Red Fort on Independence Day and in his radio addresses to the nation — he built a political case for the reform. The prospective gains from the latest announcement may seem modest. This debarment, based on self-declaration of income, would only disqualify about 20.26 lakh income tax assessees, while the "Give It Up" campaign has already resulted in approximately 52 lakh people forgoing the subsidy, saving the government an estimated Rs 1,167 crore this year. But the trajectory of LPG subsidy rationalisation sets a template that other sectors can follow.


Indeed, the LPG sector has been an important testing ground for reforming the subsidy regime. The latest announcement aims to make the subsidy targeted, as opposed to being near-universal. The UPA government had earlier sought to restrict the subsidy entitlement to only six cylinders a year — before backtracking in the run-up to the 2014 election and raising the number to 12, covering purchases by 97 per cent of all consumers. Now, the present government is saying that the 12-cylinder entitlement will be limited to only those families with annual incomes below Rs 10 lakh. Moreover, the subsidy is now being delivered through direct benefit transfers, wherein the consumer pays the market price for the cylinder upfront, and then receives the subsidy directly into her bank account. This reduces the scope for diversion.


The government has rightly capitalised on falling international oil prices. It would have been harder to restrict the scope of the subsidy when the price difference between non-subsidised and subsidised cylinders was Rs 514.50 (in Delhi), as it was on May 1, 2014, before the Modi government came to power, than the Rs 189.5 now. But the critical question is whether the government can stay the course even if global oil prices return to the not-so-benign levels of years past. Also, the true test for the government would be whether it is able to extend the LPG model of targeting and DBTs in other politically sensitive and fiscally significant sectors such as fertiliser and food. The prime minister's skills of persuasion and communication would be much needed there.




A long rod or rigid piece of wood, metal, or similar material, typically used as an obstruction, fastening, or weapon.



Retraction: a disavowal or taking back of a previous assertion



The path followed by a projectile flying or an object moving under the action of given forces.



Retrace one's steps.



At the front; in front.



In financial matters; "fiscally irresponsible



The action or fact of persuading someone or of being persuaded to do or believe something.



Business Standard:

Double taxation fears are real


The draft guiding principles for deciding the place of effective management (POEM) of a company were issued last week as a follow-up to a Budget 2015-16 proposal to plug loopholes that are used by many companies to skip their tax liability. The principles, which would be used to determine whether a company qualifies as a resident taxpayer, say that POEM would mean a place, where key management and commercial decisions necessary for the conduct of a business or an entity as a whole are made. Under the guidelines, a company would be considered to be engaged in "active business outside India" if its "passive" income – transactions of associated enterprises and income from royalty, dividend, capital gains, interest or rental income – is not more than 50 per cent of its total income. Similarly, it would be considered to be a non-resident firm if less than 50 per cent of its total assets are situated in India or less than half of its employees or of payroll expenses are on employees situated in the country. This means many manufacturing and trading subsidiaries of Indian companies may have to pay taxes in India now; the onus will shift to promoters to prove that they are run truly independently.

The situation these rules respond to is genuine. Companies can too easily avoid paying resident taxes by simply holding a board meeting outside India. This facilitates the creation of shell companies which are incorporated outside but controlled from India. Certainly, POEM is an internationally recognised concept for determination of residence of a company incorporated in a foreign jurisdiction. In fact, an OECD commentary (the POEM change is in line with OECD principles) in describing its meaning suggests that it is the place where key management and commercial decisions of an entity are made.

However, there are genuine concerns, too. Although some tax treaties recognise the POEM concept – many countries prefer the POEM test to be an appropriate one for determination of residence of a company – not all do. Thus, fears of double taxation are real. The danger is that, if there are insufficient safeguards, the tax department could end up creating another messy situation. Although the draft aims at providing a comprehensive set of factors to determine POEM for an offshore company, a more detailed listing of parameters might be necessary. India has already seen a spate of high-profile tax litigation in the past few years and an inadequately explained law can attract new controversies. After all, decisions can be taken over telephonic conversations, web or video conferencing, virtual offices, and so on – how will the tax department handle them? Also, though the guidelines have defined active and passive income, what could create confusion is that trading between parent and foreign subsidiary will be considered as passive income. This justification has been questioned; experts say there is also a significant risk of double taxation especially in the case of US companies managed from India, since the India-US tax treaty does not recognise POEM and such companies may not be able to claim treaty relief. There may be a case for sorting out these contentious issues and implementing it from the next financial year, instead of rushing it through.



An ambiguity or inadequacy in the law or a set of rules.



Used to refer to something that is one's duty or responsibility.



Take in or contain (something) as part of a whole; include.



A measure taken to protect someone or something or to prevent something undesirable.



Situated at sea some distance from the shore.



Causing or likely to cause an argument; controversial.



Move with urgent haste.

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