Electoral Bonds

Why in news?

The government announced the sale of the 28th tranche of electoral bonds from October 4 to 13 at all authorised branches of the State Bank of India.

About Electoral Bonds

• State Bank of India is authorised to issue and encash these bonds.
• Electoral bonds are purchased anonymously by donors and are valid for 15 days from the date of issue.
• As debt instruments, these can be bought by donors from a bank, and the political party can then encash them.
• These can be redeemed only by an eligible party by depositing the same in its designated account maintained with a bank.
• The bonds are issued by SBI in denominations of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh and Rs 1 crore.
• The bonds are available for purchase by any citizen of India for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.

Eligibility:

• Only the political parties registered under Section 29A of the Representation of the People Act, 1951 and have secured not less than 1% of the votes polled in the last general election to the House of the People or the Legislative Assembly, are eligible to receive electoral bonds.

Features of Electoral bond

• Election-related bonds are made to be bearer instruments, much like promissory notes. It will resemble a banknote that is interest-free and receivable to the bearer upon demand.
• Any Indian individual or organisation with an Indian corporation that has a KYC-compliant account may purchase it.
• In accordance with the Central Government’s instructions, the bonds will be on sale for 10 days at the beginning of each quarter, that is, in January, April, July, and October. The Central Government shall specify a further period of thirty days during the Lok Sabha election year.
• The Central Government should specify an additional term of fifteen days in the year of general elections to the Legislative Assembly of States and Union Territories with the Legislature, according to a recent revision (November 2022).

Benefits of Electoral Bond

Transparency:

• The plan calls for developing a transparent bond-purchasing system with verified KYC and an audit trail.
• The electoral bonds will encourage contributors to make donations through banking, allowing the issuing authorities to collect their identities.
• Encourage clean political donations from individuals, businesses, HUFs, nonprofit organisations, and other entities, breaking the link between business and politics.

Get rid of black money:

• Its employment as a counter currency would be rendered impossible by a small window and a brief maturity period.
• Details about the amount of money political parties obtained through electoral bonds must be submitted.

Donor privacy:

• By introducing some measure of confidentiality, contributors will be protected from vengeful politics, such as harassment by one party for supporting its rivals.

Reduces tax evasion:

• Strict eligibility requirements will deter attempts to create political parties under the guise of tax avoidance.

Concerns over Electoral Bond

• Neither the donor nor the political party is required to disclose the source of the donation.
• So, it infringes on the right to know.
• The Supreme Court ruled that the “right to know,”, particularly in regard to elections, is a complement to the freedom of expression (Article 19) right.
• Due to the anonymity of donors, electoral bonds don’t provide any information to the public about how elections are funded.
• It affects the notion of impartial and free elections.
• An update has removed the requirement to identify the donor’s identity to income tax law.
• Additionally, businesses no longer need to disclose in their financial accounts the donations they make to political parties.
• This makes anonymous donations possible.
• The government is always able to identify the donor because the bonds are bought through the SBI.
• The procedure could potentially be skewed in favour of the political party in power as a result of the knowledge imbalance.

Source: The Hindu

Windfall Tax

Why in news?                             

Government hikes windfall tax on crude petroleum.

About Windfall Tax

• Windfall taxes are designed to tax the profits a company derives from an external, sometimes unprecedented event— for instance, the energy price-rise as a result of the Russia-Ukraine conflict.
• These are profits that cannot be attributed to something the firm actively did, like an investment strategy or an expansion of business.
• A windfall is defined as an “unearned, unanticipated gain in income through no additional effort or expense”.
• Governments typically levy a one-off tax retrospectively over and above the normal rates of tax on such profits, called windfall tax.
• One area where such taxes have routinely been discussed is oil markets, where price fluctuation leads to volatile or erratic profits for the industry.
• There have been varying rationales for governments worldwide to introduce windfall taxes, from redistribution of unexpected gains when high prices benefit producers at the expense of consumers, to funding social welfare schemes, and as a supplementary revenue stream for the government.

When did India introduce a windfall tax?

• In July 2022, the government of India enacted windfall taxes amid domestic crude producers making exceptional gains due to the global impact of the Russia-Ukraine war.
• Domestic players gained tremendous profit by selling crude to refiners at internationally bench-marked pricing.
• Also, due to the confrontation between Russia and Ukraine the central excise charge was reduced, and there were additional expenditures on food and fertilizer.
• These factors led to an increase in government spending. In order to close the shortfall, the government levied a windfall tax on the oil industry.
• While ₹6/litre was added to petrol and ATF (aviation turbine fuel), ₹13/litre was imposed on diesel.

Why are countries levying windfall taxes now?

•  Petrol, crude oil, gas and coal prices have seen major increases since late last year and the increase has been exacerbated by COVID-19 and the Ukraine-Russia conflict (and the subsequent sanctions on Russia).
• As a result, energy companies have made windfall gains at the cost of customers who have had to pay much higher prices for their energy consumption.
• Therefore, the UN Secretary General urged countries to impose windfall taxes on such companies that have profited massively from rise in fossil fuel prices. Therefore, not just India, but many other countries such as the UK, Germany etc. are contemplating imposition of windfall taxes.

Reasons for Implementing Windfall Tax

• India’s record-high trade deficit and a depreciating rupee have raised the value of imports, which is the economic justification for implementing windfall taxes.
• Additionally, the government’s spending increased as a result of the recent reduction in Central Excise Duty and increased spending on fertilizers and food.
• In order to close this imbalance, it subsequently decided to impose a windfall tax on the oil industry, which increases the government’s revenue.

Call from International Organisation:

• Restitution of these in excessive profits was demanded by the IMF, World Bank, and UN Secretary-General.

Conflict between Russia-Ukraine:

• Oil prices are now fluctuating due to the fighting, and Russian oil is now less expensive.

Raise the trade surplus:

• These actions can reduce the trade deficit that the nation now experiences as a result of its high oil import costs.

Benefits distribution:

• The general public should receive a portion of the company’s revenues.

Protect people from inflation:

• The nation will protect its inhabitants from global inflation by enacting taxes.

Social welfare program funding:

• The profits can be put toward a social welfare program.

Increase the revenue:

• The government’s revenue will rise as a direct result of these taxes.

Issues with imposing such taxes

• Companies are confident in investing in a sector if there is certainty and stability in a tax regime.
• Since windfall taxes are imposed retrospectively and are often influenced by unexpected events, they can brew uncertainty in the market about future taxes.
• IMF says that taxes in response to price surges may suffer from design problems—given their expedient and political nature.
• It added that introducing a temporary windfall profit tax reduces future investment because prospective investors will internalise the likelihood of potential taxes when making investment decisions.
• There is another argument about what exactly constitutes true windfall profits; how can it be determined and what level of profit is normal or excessive.
• Another issue is who should be taxed — only the big companies responsible for the bulk of high-priced sales or smaller companies as well— raising the question of whether producers with revenues or profits below a certain threshold should be exempt.

Source: The Hindu