07 Aug 2018: UPSC Exam Comprehensive News Analysis

D. GS4 Related

E. Editorials

• A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically static environment.
• Tax havens also share limited or no financial information with foreign tax authorities.
• Tax havens do not require residency or business presence for individuals and businesses to benefit from their tax policies.
• Due to the globalization of business operations, an increasing number of U.S. corporations, including Microsoft, Apple and Alphabet, are keeping cash in offshore tax havens to minimize corporate taxes.
• Tax haven status benefits the host country as well as the companies and individuals maintaining accounts in them.
• Tax haven countries benefit by drawing capital to their banks and financial institutions, which can form the foundation of a thriving financial sector.
• Individuals and corporations benefit through tax savings resulting from tax rates ranging from zero to the low single digits versus relatively high taxes in their countries of citizenship or domicile.
• The list of tax haven countries includes Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, Hong Kong, The Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, and St. Kitts, and Nevis.
• The Tax Cuts and Jobs Act, which passed in December 2017 set the effective corporate rate of U.S. taxes at 21%.
• Rather than repatriating revenues and earnings from offshore operations, companies including Apple, Microsoft, Alphabet, Cisco, and Oracle maintain billions of dollars in foreign tax haven accounts with tax rates in the low single digits.
• The circumstances of this paradigm make it less expensive for U.S.-based companies to borrow funds for share buy-backs, special dividends, and acquisitions than to repatriate and utilize the cash on their balance sheets.
• For example, rather than use its $100 billion in cash holdings and pay $9 billion in corporate taxes for repatriation, Microsoft opted for debt financing to fund its all-cash acquisition of LinkedIn for $26.2 billion in June 2016.
• To maximize their tax receipts, foreign governments maintain relatively constant pressure on tax havens to release information regarding their citizens’ offshore accounts.
• For the efforts to succeed, however, countries trying to get tax havens to change their ways usually need financial leverage in some form as the advantages of capital inflows seeking tax relief typically outweigh the benefits that might be received due to tax compliance.
• Tax havens help rich corporations and businessmen avoid paying high taxes on their income.
• They have been vilified for supporting the illegal accumulation of wealth.
• Organisations like Oxfam have often characterised tax havens as anti-poor since they help the rich avoid paying taxes to governments.
• Several governments have also come together to crack down on tax havens, for only a collective effort can help.

Why are Tax Havens important?

• The existence of tax havens allowed corporations to invest in the U.S. despite the country’s high tax rates because tax havens helped to lower the effective U.S. tax rate.
• But with the crackdown on tax havens, corporations could no longer serve U.S. consumers.
• Despite the crackdown on tax havens, the practice of shifting profits to avoid paying higher taxes continues unabated.
• About 40% of the profits earned by multinationals each year continue to be shifted to tax havens.
• The authors argue that such profit shifting persists because tax authorities in high-tax countries have been unable to eliminate the influence of tax havens that compete against them for revenues.
• So these tax authorities have instead resorted to competing against other high-tax countries by allowing corporations to shift profits to their jurisdictions.
• In fact, according to the authors, such competition between tax authorities has caused the average global corporate tax rate to fall by more than half between 1985 and 2018.

Industrial Training Institutes and Industrial Training Centers are post-secondary schools in India constituted under Directorate General of Employment & Training (DGET), Ministry of Skill Development and Entrepreneurship, Union Government to provide training in various trades.

• The report of the Standing Committee on Labour (2017-18) headed by Bharatiya Janata Party MP Kirit Somaiya, on the “Industrial Training Institutes (ITIs) and Skill Development Initiative Scheme” of the Ministry of Skill Development and Entrepreneurship (MSDE) was submitted to Parliament few months ago.
• The ITIs were initiated in the 1950s. In a span of 60 years, until 2007, around 1,896 public and 2,000 private ITIs were set up.
• However, in a 10-year period from 2007, more than 9,000 additional private ITIs were accredited.
• What explains this huge private sector scale-up?
• The committee says that it is not efficiency but a disregard for norms and standards.
• The National Skill Development Corporation (NSDC) today has more than 6,000 private training centres.
• Since it has short-term courses and its centres open and close frequently, it is all the more prone to a dilution of standards.
• Private training partners have mushroomed at the rate of five a day (mostly with government support) and it is clear that the government has been unable to regulate private institutions for quality.
• Private sector engagement in skill development has been taken up by standalone private training partners and not employers. The latter could have made the system demand-driven.
• Meanwhile, the lack of a regulator for skill development, with teeth, has led to poor quality affiliation, assessment and certification.
• The Somaiya committee report is scathing in its tone and specific in details.
• It outlines instances of responsibility outsourcing, no oversight, connivance and an ownership tussle between the Central and State governments.
• Private-ITI accreditation troubles started when the Quality Council of India (QCI), a private body, was hired due to “high workload of affiliation and shortage of [government] staff”.
• The QCI did not follow accreditation norms created by the National Council for Vocational Training (NCVT) and it appears that neither scale nor standard was achieved, but only speed.
• ‘Speed’ now risks the future of 13.8 lakh students (on an average, 206 students per ITI) studying in these substandard ITIs, which can be closed any time.
• The ITIs have a unique functioning set-up. While they were formed under the government’s Craftsman Training Scheme scheme, their day-to-day administration, finances and admissions are with State governments. The NCVT performs an advisory role.
• The ITIs often run into issues with no one to take ownership.
• A case in point is the examination process — the question paper is prepared by the NCVT, but administered and evaluated by instructors of the State Councils for VT.
• The NCVT is just a stamp with no role in actually assessing quality. How can quality outcomes be expected without quality assessments?The parliamentary committee has shed light on the ITIs.
• If the same exercise were extended to other skill development schemes, the picture would be grimmer.
• There are 183 cases pending in High Courts on non-compliance of norms by the ITIs.However, the short-term training programmes of the Ministry evade any scrutiny and action.
• For example, the Standard Training Assessment and Reward scheme spent Rs. 850 crore in 2013-14 with no norms for quality. There were no Aadhaar checks, attendance requirements and batch size limitations.
• Private training operators have made a profit with no court cases. The report also reinforces disturbing findings of a national survey by the research institute (NILERD) of the Planning Commission in 2011 about private ITIs: they offered training in less than five trades (in government ITIs it is less than 10); had fewer classrooms and workshops for practice; and their teachers were very poorly paid.

Way Forward: Sharda Prasad Committee recommendations.

• We need better oversight, with a national board for all skill development programmes. The core work (accreditation, assessment, certification and course standards) cannot be outsourced.
• Like every other education board (such as the CBSE), a board is required in vocational training that is accountable.Since we have the NCVT as a legacy, it should be used as a kernel to constitute the board.
• We should also have a mandatory rating system for the ITIs that is published periodically.
• A ranking of the ITIs on several parameters such as the one done by the National Assessment and Accreditation Council in tertiary education can be replicated.
• There should be one system, with one law and one national vocational education and training system. The silos in which vocational training happens in India is unfortunate.
• We need to create a unified national vocational system where the ITIs, NSDC private vocational trainers and vocational education in schools, and the other Central ministries conducting training gel seamlessly and can learn from, and work with each other.
• A unified legal framework can facilitate such a unification. The absence of a law has only weakened regulation and monitoring.
• What we need is a national vocational act that replaces all scattered regulations — recommended in the 12th Five Year Plan.

Micro-institutional reforms

• The ITIs have many internal issues such as staffing and salaries that need attention, as the NILERD nationwide survey in 2011 had found.
• There is also a critical need to reskill ITI teachers and maintain the student-teacher ratio.
• Since technology obsolescence is a continuous challenge, financial support envisaged through the NSDC should be extended to the ITIs.
• The primary reason for hiring the QCI and the mess that followed was this: “huge workload of affiliation and shortage of staff”.
• This is true even today. It is unlikely that without fixing this, the QCI mistake will not be repeated.
• There has been a tremendous push by the government for private sector talent in government; perhaps it is worth considering talent from the open market to fill up higher posts in skill development.
• Institutional reforms such as moving the office of the Directorate General of Employment (the arm that has all data on employment) from the Ministry of Labour to the MSDE would help.
• It would also complement the Directorate General of Training already under MSDE.

Employers and financing

• This is the last but perennial challenge. Given the scale of our demographic challenge, a belief that financing from corporate social responsibility, multilateral organisations such as the World Bank, and the government will meet the financial needs for skill development is wishful thinking.
• The only way to mobilise adequate resources the right way is to do skills training, and have equipment and tools that keep pace with changing needs and ensure that employers have skin in the game.
• This is possible through a reimbursable industry contribution (RIC) — a 1-2% payroll tax that will be reimbursed when employers train using public/private infrastructure and provide data.
• RIC, which is implemented in 62 other countries, was recommended in the 12th Plan and is an idea whose time has come.
• Finally, while there is so much talk of skills for the future and the impact of artificial intelligence and automation, data show that 13.8 lakh students in the ITIs are suffering due to poor institutional accreditation.
• Placement in NSDC training has been less than 15%. Maybe if we take care of the present, we will be better prepared for the future.

F. Tidbits

1. NGT forms panel to monitor rejuvenation project of Ganga

Question 1. Consider the following statements regarding National Mission for Clean Ganga:

1. It is the implementation wing of the National Ganga Council.
2. It is a statutory body.

Which of the statement/s is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

See