The Debate over Freebies
- The Prime Minister’s recent comment on “freebies” handed out by governments has reignited the debate on the economic rationale for granting subsidies.
- The Supreme Court’s invitation to debate subsidies must be viewed as the beginning point for addressing a problem that is in fact multifaceted. A detailed study of the Union Budget and the way that the individual governments have presented information on subsidies and transfer payments both make this clear. Understanding why the government must maintain agricultural subsidies and increase funding to guarantee that everyone has access to health and educational services is a more crucial issue.
- Even if “subsidy” is one of the topics that is most frequently debated, it is difficult to find a definition that is acceptable in court. The World Trade Organization’s Agreement on Subsidies and Countervailing Measures (ASCM) is one exception. According to ASCM, a financial contribution by a government or any public body is considered to be a subsidy if it involves a direct transfer of funds (such as grants, loans, and equity infusion), a government forgoes or fails to collect otherwise due revenue, and/or a government provides goods or services.
- The level and distribution of taxes are impacted by a variety of tax policy initiatives, such as special tax rates, exemptions, deductions, refunds, deferrals, and credits. These policies—often referred to as “tax preferences”—are included into both direct and indirect taxation systems in order to achieve particular benefits that serve the greater good of society. For instance, the Income-tax Act has “tax incentives” to encourage individual saving as well as to boost exports, the building of infrastructure facilities, and business investment in scientific research and development. Conversely, customs duty exemptions are meant to encourage exports. The most important aspect to note here is that tax preferences are viewed as implicit (indirect) subsidies to preferred tax payers; as a result, they should be discussed in the ongoing discussion about the justification of subsidies.
SOURCE: THE HINDU
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