Greenvissage Explains – July 2024

Greenvissage explains, Can we reduce fuel costs by bringing them under GST?

The high cost of fuel in India pinches the pockets of everyday citizens. With petrol and diesel prices near record highs, many believe bringing these fuels under the Goods and Services Tax (GST) could be a magic bullet. However, a closer look reveals a more intricate situation. A significant hurdle to including fuel under GST is the substantial tax revenue it generates for both the central and state governments. Taxes constitute nearly 40% of the final price at the pump. This revenue stream is critical for funding essential government programs and infrastructure development projects. If fuel were brought under GST, the government would need to impose a correspondingly high GST rate to maintain its current tax collection. The highest GST slab of 28% might not even suffice, potentially creating a revenue shortfall. To bridge this gap, the government might have to raise taxes on other goods and services, negating the potential benefit for consumers and pushing up the overall cost of living.

Another concern is the impact on consumers if the government opts for a lower GST rate to minimize the burden on households. While a lower GST rate might lead to a slight decrease in fuel prices, it would also result in a significant drop in government revenue. This could force cutbacks in essential services or necessitate finding alternative sources of income, potentially leading to higher taxes elsewhere. The issue becomes even more intricate when considering the dependence of state finances on fuel tax revenue. Fuel contributes a substantial portion – ranging from 11% to 17% – to the total tax revenue collected by various states. Bringing fuel under GST would significantly impact their financial health. The central government had previously addressed this concern by creating a temporary compensation fund for states. However, this measure is set to expire in 2026, leaving a question mark on how the central government plans to manage the financial health of states if fuel is brought under GST. Furthermore, including fuel under GST might not address the root causes of high fuel prices. Global crude oil prices, international refining costs, and currency fluctuations all play a role in determining the final price at the pump. Even under GST, these factors would continue to influence fuel prices in India.

The Indian government needs to find a sustainable solution that goes beyond simply including fuel under GST. This solution could involve a multi-pronged approach that includes – negotiating favourable terms with oil-producing nations to bring down crude oil import costs, investing in and expanding domestic refining capacity to reduce dependence on imported refined fuel, exploring alternative fuel sources such as biofuels and electric vehicles to lessen reliance on traditional fossil fuels, and promoting fuel efficiency through stricter emission standards and incentives for fuel-efficient vehicles. By implementing a combination of these measures, the government can work towards a more sustainable and long-term solution for managing fuel prices in India. This would not only benefit consumers but also ensure the financial stability of the government and states.

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Greenvissage Explains, Is Global Tax on Billionaires a Right Foot Forward?

Brazil’s leadership of the G20 this year has ignited a firestorm of debate with its proposal for a global minimum tax on billionaires. The plan, spearheaded by French economist Gabriel Zucman, advocates for a 2% annual levy on the wealth exceeding USD 1 billion held by the world’s estimated 3,000 richest individuals. This wealth tax aims to tackle the escalating issue of wealth inequality and generate substantial revenue streams that could be directed towards social programs and initiatives combating climate change. The proposal borrows heavily from the recently established global minimum corporate tax agreement. Similar to that initiative, this plan wouldn’t necessitate a formal treaty. Instead, participating countries would have the flexibility to implement the tax through various domestic mechanisms. These mechanisms could include wealth taxes, presumptive income taxes that assume a minimum level of income based on wealth, or even capital gains taxes levied on unrealized income – income earned from assets that haven’t yet been sold. This flexibility is seen as a key factor in encouraging broader international participation.

The path to implementation is fraught with challenges. Achieving international cooperation, especially in the current geopolitical climate with ongoing conflicts and domestic political struggles, can be a herculean task. Additionally, accurately assessing the often-murky wealth of billionaires, particularly assets with nebulous market values, presents a significant hurdle. Proponents, however, remain optimistic. They point to the recent global minimum corporate tax agreement as a testament to the possibility of forging new pathways for international tax cooperation, even if the process is slow and arduous.

Brazil’s commitment to taxing the wealthy extends beyond the G20 proposal. The Lula da Silva administration has already taken concrete steps domestically, implementing measures to tax offshore investments – a haven for the super-rich to park their wealth and potentially avoid taxes – and limiting the size of exclusive pension funds used by these high-net-worth individuals. These domestic efforts underscore Brazil’s seriousness about addressing wealth inequality and its willingness to take action, even if the global proposal faces an uphill battle. While the global billionaire tax faces an uncertain future, its significance shouldn’t be understated. It represents a bold step towards tackling the widening wealth gap and generating resources for pressing global challenges. The success of this proposal hinges on garnering international support and developing robust mechanisms for wealth assessment and tax collection. Additionally, the potential for extending the tax bracket to centi-millionaires, further broadening the tax base, is also being explored.

The different implementation methods – wealth tax, presumptive income tax, capital gains tax on unrealized income – each have their advantages and disadvantages, which will be a focal point of discussions moving forward. Even if not immediately adopted, the long-term impact of the proposal on shaping future tax policies and international cooperation cannot be ignored. Brazil’s proposal may not be an immediate silver bullet, but it has undeniably sparked a crucial conversation on international tax reform. The world is watching to see if this initiative will become a paradigm shift or remain a stalled start.

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Greenvissage explains, Why is Koo, the Indian Twitter Alternative, Shutting Down?

Koo, a microblogging platform launched in 2020, aimed to be the desi (local) alternative to Twitter in India. It gained initial traction during a political standoff between the Indian government and Twitter, attracting prominent figures and enjoying a surge in popularity. However, after four years, Koo announced its closure due to financial struggles. Founded by Aprameya Radhakrishna and Mayank Bidawatka, Koo capitalized on the tensions between the Indian government and Twitter in 2020. The government’s concerns over content regulation and alleged non-compliance by Twitter provided an opening for a domestic alternative. Koo, with its focus on supporting Indian languages, gained the support of government officials, celebrities, and media houses. This initial backing helped establish brand recognition and attract users.

Despite a promising start, Koo faced significant challenges. The social media landscape is fiercely competitive, and Twitter, with its established global user base and network effects, remained dominant. Koo struggled to differentiate itself beyond its language support, especially as other platforms like ShareChat already catered to regional language needs. Furthermore, building a successful social media platform requires substantial investment in infrastructure and user acquisition. While Koo received funding, it wasn’t enough to sustain long-term growth. The founders attributed their closure to the “funding winter” – a period of decreased investor appetite for startups. This limited their ability to compete with Twitter’s resources and marketing muscle.

Koo’s founders revealed that a significant portion of their funding went towards user acquisition strategies like advertising. While attracting users is crucial, a sustainable social media platform thrives on organic growth – users join because of the existing user base and the value proposition. Over-reliance on paid acquisition can be a risky strategy, especially for a new platform with limited user engagement. One of Koo’s goals was to create a more civil and less “toxic” online environment compared to Twitter. However, social media thrives on a balance between open expression and responsible moderation. While excessive negativity can be off-putting, overly curated platforms can struggle to attract and retain users accustomed to the unfiltered nature of social media. Koo might not have found the right balance between these competing forces.

Koo’s closure highlights the difficulties faced by Indian social media platforms in challenging established global giants. Patient capital, long-term vision, and a differentiated user experience are all essential ingredients for success. Investors need to be willing to support homegrown platforms through the initial growth phase, understanding the challenges of competing with entrenched players. The founders expressed confidence that Koo could have been a global success story with sufficient funding. They point to their rapid user growth and claim they were close to surpassing Twitter in India within a short timeframe. Whether this is entirely accurate is debatable. However, their closure underscores the importance of a sustainable financial strategy for social media startups.

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Greenvissage explains, Can MSP be legalized in India?

The Minimum Support Price (MSP) is a critical policy tool employed by the Indian government to safeguard the livelihoods of millions of farmers. Established in 1965, it sets a guaranteed price at which the government will procure crops from farmers if market prices fall below this benchmark. This intervention aims to shield farmers from volatile market fluctuations and ensure a minimum level of income. However, the recent increase in MSPs for Kharif crops has reignited the debate surrounding its effectiveness and potential drawbacks. While the government maintains that the MSP hikes are a step towards doubling farmers’ incomes, critics argue that the increase fails to account for the significant inflation in farm inputs. This disparity between rising input costs and stagnant MSP translates to meagre gains for farmers, leaving them vulnerable to financial distress. The recent protests by farmers demanding legal guarantees for MSP highlight the urgency of addressing these concerns.

The Indian government’s primary objective in implementing MSP is to ensure national food security. By providing a safety net for farmers’ incomes, the policy encourages continued production of essential food grains, thereby safeguarding the nation’s food supply. Agriculture is inherently susceptible to price fluctuations due to factors like weather patterns and global market forces. MSP acts as a buffer, protecting farmers from drastic drops in income during periods of low market prices. A predictable minimum price incentivizes farmers to invest in better seeds, fertilizers, and irrigation techniques, potentially leading to increased productivity and overall agricultural growth. MSP can be strategically used to encourage the cultivation of crops beyond staples like rice and wheat. This diversification helps maintain soil health and reduces dependence on a limited set of crops.

Despite its noble intentions, implementing MSP effectively presents a multitude of challenges. Procuring vast quantities of crops at MSP places a substantial strain on the government’s budget. The sheer number of farmers and the wide variety of crops covered under MSP make it a financially demanding exercise. Efficient procurement across the vast and diverse agricultural landscape of India is a logistical nightmare. Ensuring the smooth functioning of procurement centres and timely payments to farmers requires a robust infrastructure and administrative capacity. Critics argue that MSP can distort market dynamics by creating a disincentive for private sector investment in agriculture. Additionally, MSP for certain crops can lead to overproduction and subsequent price slumps, impacting overall market stability.

Finding a fair MSP requires a multi-pronged approach. We need to consider all farm costs, not just some. Streamlining procurement with technology can save money. Empowering farmers through cooperatives gives them bargaining power to access better markets. Upgrading infrastructure reduces waste and improves market access, lowering reliance on MSP. A more flexible system combining MSP with market-based profit margins could be explored. Encouraging high-value crops can boost farmer income and reduce dependence on MSP for staples.

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