One Nation, Two Elections





How to stop parties from always being in campaign mode and get them to govern

There is much to be proud of in the democracy that India has become, not only the world's largest but also its most diverse.Over the decades, we have disproved the many critics who doubted India could remain democratic. But despite this success, our republic suffers from a worrisome shortcoming: too much campaigning, too little governance.

The continual cycle of elections, with several at the state level every year, inevitably impacts governance at the national level. Every such election is a significant distraction for the Union government, since it is inevitably seen as at least a partial referendum on the government's policies and functioning.

That often leads to policy announcements being held up, lest they impact the outcome. And in frequently requiring senior members of the government to be off campaigning, it also acts as a drag on the bandwidth available for governance.Frequent elections impact opposition parties as well, for similar reasons, thus repeatedly polarising political discourse and reducing the room available for compromise.

For India to adequately grapple with its many challenges, the ratio between governing and campaigning must improve at both its national as well as state levels. Certainly, no other democracy has anything quite like this in terms of continual elections.

The first four general elections, held in 1951-52, 1957, 1962 and 1967 saw largely simultaneous nationwide exercises for both Parliament and state assemblies.The only two exceptions were Kerala and Odisha, which had midterm elections in 1960 and 1961 respectively .

Thereafter, this broad alignment got further disrupted due to frequent use of Article 356 of the Constitution (President's Rule of a state), and also a use of Article 352 (Emergency and extension of Lok Sabha's term by a year).

While Supreme Court judgments have narrowed the scope for application of Article 356, there still continue to be examples of its use, such as in Uttara khand and Arunachal Pradesh in recent months. Moreover, the lack of a clear mandate, or a midterm collapse, of both Union and state governments have happened often enough to be another major cause of disrupting an aligned election cycle.

The disadvantages of misaligned, continual elections have been long understood, with many proposed solutions mooted over the years by credible individuals and institutions.These have included the Law Commission's recommendations from as far back as 1999, to more recent ones by a parliamentary standing committee, a white paper by the Election Commission, not to mention exhortations by both the prime minister and president.

Some of these proposals largely focus on a one-time reset. With this aim, they include detailed consideration of how to overcome constitutional hurdles, such as extending or curtailing the ongoing terms of various state assemblies in order to synchronise all elections.

While that would indeed serve the immediate purpose, it would only buy time, due to the likely resurgence of misaligned elections. Even if, say , the use of Article 356 becomes passé, the odds are high that over time several state and national elections would yield fractured mandates and mid-term elections.

However, the Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice in its report a year ago has suggested a two-cycle election process. Though all would have the usual five-year terms, one election cycle would include polls for the Lok Sabha and about half the states, and the other cycle would be two and a half years later for the rest of the states.

This elegant alignment would serve multiple objectives. First, it would do a better job of overcoming hurdles. For example, the EC's earlier idea of a one-cycle election, where a state with a fractured mandate would have a reelection only for the balance of its original five-year term, would likely generate resentment and objections. It would also be less cost-effective.

A two-cycle system would simply align such a state's election to the next cycle, getting it closer to a full five-year term. And that would work just as well for the Lok Sabha, if needed.

Second, a two-cycle alignment of all state and national elections would serve a fundamental democratic purpose, that of rendering broad public opinion to the Union government of the day .As mentioned above, this happens inefficiently today , with its continual distraction and even small, one-state elections creating disproportionate drag on governance.

The proposed alternative of a second election cycle would have voters of about half the country voicing their opinion at the mid-point of the Union government's term. This would serve as an appropriately sized referendum, congealed together rather than in distracting dribs and drabs.

The US has a somewhat similar system ­ though their mid-term cycle includes elections for some senators and states, and all Congressmen ­ and it often serves as a wake up call to the federal government.

Finally , a two-cycle election system would serve yet another aim of democracy , that of furthering check and balance in the polity . That too happens inefficiently today , stretched out over many individual elections.

Following the parliamentary standing committee report, the Niti Aayog has done a creditable job of going into the nitty-gritty of how such two-cycle elections could work. It is worth taking that forward.

The catchphrase “One India, one election“ has been gaining traction. In fact, India would be better served by “One nation, two elections“.

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Transfer Pricing may Come Back to Haunt Investors from Cyprus



No clarification from govt over issue in amended tax treaty
The government on Monday afternoon clarified that according to the amended Cyprus treaty , investors need to pay only 10% tax with retrospective effect from November 1, 2013, instead of the 30% tax they have already paid. While bringing in clarity on this matter, a lacuna over transfer pricing still remains. The genesis of the problem lies in 2013.
The government had, on November 1, 2013, blacklisted Cyprus as an investment destination through a notification. So, investments made through Cyprus attracted 30% tax (TDS) instead of 10% tax under the original India-Cyprus treaty . The government had blacklisted Cyprus after the island country had refused to share some data related to investors with India.

The government also said that transfer pricing could also apply on returns given to Cyprus investors by Indian companies.

However, the government later amended the treaty (through a notification on December 14, 2016) after Cyprus agreed to cooperate on sharing investor data. Under the amended treaty , the higher taxation part was rescinded. But the transfer pricing portion still remains unclear.

What led to a cause of worry was the fact that many private equity investors had paid 30% tax between 2013 and 2016 on returns from Indian investments.The government clarification on Monday came as many foreign investors were worried that the 10% tax would not be applicable for the three years between 2013 and 2016. However, following Monday's clarification, they can now claim refunds from the tax department. Most of the investors used Cyprus as a pooling vehicle to invest in India's real estate. Most of the investments were in debt vehicles.

TRANSFER PRICING ISSUE

Transfer pricing is normally only applied in cases where two companies -one an Indian and another multinational -do a merger or acquisition.

People close to the development said that some of the transfer pricing adjustments could be made in the coming months. In cases where the tax officers have already gone ahead with the transfer pricing procedures, it may not be possible to undo it, say experts.

“Even though the transfer pricing compliances (that is the transfer pricing documentation and accountant's report) cannot be undone, the taxpayers can benefit from the withdrawal of notification for their ongoing transfer pricing assessments,“ said Amit Maheshwari, partner, Ashok Maheshwary & Associates.

“The November 1, 2013, notification had also created a deeming fiction of “associate enterprise (AE)“ between the parties and transfer pricing (TP) provisions were artificially made applicable. There are several cases where the references to the TP officer were already made by the assessing officer for the TP assessment pursuant to the notification,“ said Punit Shah, partner, Dhruva Advisors.

Industry trackers say that transfer pricing adjustments could lead to litigations going ahead.

“It is unclear whether transfer pricing references by tax officials will survive after the retrospective rescission of the notification. This lack of clarity may lead to some litigation with regard to validity of the TP proceedings initiated under the notification,“ said Shah.

ET VIEW

Make Clear Tax Rules

This is absurd, that too after India demonstrated flexibility and lifted the so called sanctions after Cyprus agreed to share information on tax evaders.The reworked tax treaty between India and Cyprus for effective information sharing is also a step towards global cooperation on tax transparency. It will provide relief to genuine investors in Cyprus. But investors loathe uncertainty. The need is for stability and certainty in the tax system, and therefore tax rules must be clear.

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TRAI RECOMMENDATIONS ON FREE DATA - Free Data Plan Fails to Impress Stakeholders





Telcos say ideas would raise complexity; free data backers say aggregator model puts small cos at a disadvantage

Telecom companies and backers of net neutrality are both unhappy over the sector regulator's latest recommendations on free data. While carriers said an additional aggregator layer would create unwarranted complexity , backers of an open Internet raised concerns over what they called a model resembling zero-rating.

According to net neutrality advocates, the free data aggregator guidelines also create a non-level playing field as they may put small content providers at a disadvantage as they may not have the wherewithal to register with an aggregator. Therefore, they said, these ran afoul of the discriminatory pricing rules issued in February , which banned zero-rating initiatives such as Facebook's Free Basics and Bharti Airtel's Airtel Zero.

“There is every possibility that the aggregators may create a high entry barrier to entry through higher costs for signing up, or a long wait-time and selecting partners,“ Nikhil Pah wa, cofounder of the Net Neutrality campaign in India, wrote in a personal opinion note. The Cellular Operators Association of India that represents telcos such as Bharti Airtel, Vodafone India, Idea Cellular and Reliance Jio Infocomm said the Telecom Regulatory Authority of India (Trai) should use existing framework of rules to take data to the rural areas, instead of complicating matters further.

“The authority should keep it simple and, therefore, it should rather recommend giving incentives to telecom service providers to go deeper into rural or remote areas,“ Rajan Mathews, director-general of the Indian carrier lobby group, said.

Trai on Monday suggested two methods of giving out free data. The first involves the government giving out free 100 MB data to each rural subscriber per month, with the Universal Service Obligation Fund subsidising the cost.In the second, third-party aggregators will be allowed to disburse data free of charge on several conditions, including one where they must deal in a telco-agnostic manner and conform to the rules barring discriminatory pricing of data services. The schemes to be offered on top of the aggregator model must also be telco-agnostic and aggregators should not have an arrangement with telcos. A data reward could be given for download of an app or for visiting a particular website, the regulator suggested.

Net neutrality backers have red flagged the recommendations, saying a model which reimburses a user for visiting a pre-selected website has the same impact as zero-rating, and hence violates net neutrality , a concept of allowing free access to Internet.

“The third-party aggregator scheme should not result in the sender or the content owner paying for data to enable customers getting free access to the content,“ said Prasanth Sugathan, counsel at Software Freedom Law Centre in New Delhi. “If the sender has to pay for the data, even if it is telco-agnostic, this will result in the level playing field getting distorted. Any free access provided should be to the entire Open Internet and not to parts of it,“ he added.

Pahwa said there was no specific restriction for a telco subsidiary or an investee, like Hike, to offer or create free data platforms. Further, since aggregators will be dependent on telco data packs, no rules explicitly say that telcos must provide data recharges or recharge plans to the aggregators.

“Facebook and Google are now best positioned to allow apps to offer databacks as rewards,“ Pahwa said, adding that the two were earlier looking to offer a service that allowed Android apps on the Play Store to be zero-rated.