China will raise the sales tax on small cars to 7.5% in 2017.
New methodology used by Turkstat to measure Turkish GDP has led to significant upward revisions.
Turkish authorities are growing more concerned about the weak lira.
Fitch moved the outlook on Chile.
Chile’s central bank shifted to an expansionary policy bias.
Colombia selected Juan Jose Echavarria to be the new central bank governor.
Fitch revised the outlook on Mexico’s BBB+ rating from stable to negative.
Banco de Mexico hiked rates by a larger than expected 50 bp.
In the EM equity space as measured by MSCI, Hungary (+4.3%), Russia (+3.2%), and Turkey (+2.3%) have outperformed this week, while Brazil (-3.8%), China (-3.6%), and Chile (-3.5%) have underperformed. To put this in better context, MSCI EM fell -2.3% this week while MSCI DM fell -0.1%.
In the EM local currency bond space, Poland (10-year yield -15 bp), Korea (-4 bp), and Czech Republic (-4 bp) have outperformed this week, while the Philippines (10-year yield +41 bp), Indonesia (+32 bp), and Hong Kong (+32 bp) have underperformed. To put this in better context, the 10-year UST yield rose 12 bp this week to 2.59%.
In the EM FX space, RUB (+1.4% vs. USD), HUF (+0.9% vs. EUR), and PLN (+0.7% vs. EUR) have outperformed this week, while CLP (-2.7% vs. USD), EGP (-2.7% vs. USD), and ZAR (-1.7% vs. USD) have underperformed.
China will raise the sales tax on small cars to 7.5% in 2017. The tax will be increased further to 10%, according to the Finance Ministry. The government cut this tax rate from 15% in October 2015 after lobbying from China’s auto association. Automakers had asked for the tax cut to be made permanent.
Both India Inc and financial bureaucrats have quietly started opposing many elements of the proposed GST structure.
They fear GST’s multiple rates, complex reporting and tax payment modes may not be what they had bargained for.
They are also realising that the GST council will be forever free to change slabs, add cesses and include or exclude items from slabs at their will, putting long-term business plans in disarray.
“GST was initially conceived as a two-slab tax regime capped at 12 per cent. It was supposed to bring down taxes, make goods and services cheaper for the consumer, give a fillip to demand and push up economic growth by around 2 per cent. The slabs were later rethought and stretched to a three-slab regime capped at 16 per cent. Now, we are staring at a 5-6 slab regime whose cap may be at 40 per cent,” a top North Block economist said.
It is feared that GST may not be able to spur the gross domestic product the way it was supposed to as the new rate structure more or less corresponds to the current total tax on a commodity. Hence, the bureaucracy feels GST may not be as successful as VAT (value-added tax) in the absence of any major economic benefit and the added burden of a complex tax structure with its paperwork.
India moved a step closer to creating a national sales tax but a deal on rates reached on Thursday will hit some businesses harder than others, while its complexity will dilute any boost to growth and undermine its reliability as a revenue generator.
The Goods and Services Tax (GST), due to be rolled out from April 1, 2017, had been billed as the one reform that could help Prime Minister Narendra Modi deliver on his jobs and growth agenda. In a key Modi win, parliament amended the constitution in August to clear the way for the GST, which would unify Asia’s third-largest economy into a common market for the first time.
But Thursday’s bargain between Finance Minister Arun Jaitley and his counterparts from India’s 27 state governments has exposed the difficulties of dealing with so many stakeholders.
The GST Council, set up to oversee the tax, agreed on a more steeply progressive structure for goods than earlier foreseen with rates of 5, 12, 18 and 28 percent, depending on the kind of product involved. The top rate, Jaitley said, would apply to the kind of goods bought by middle-class Indians.
The GST Council has announced the final tax structure ranging from 5 percent to 28 percent and in general that isn’t good news for all of the automotive industry. As per the GST Council’s announcement, the tax rates decided under the GST structure are 5 %, 12 %, 18 % and 28 %. All cars except the luxury segment will fall under in the segments below 28 percent. Clarity on which segments will be subjected to what rates is yet to be made clear but small cars could benefit from incentives and fall in the smaller brackets.
Luxury car, a segment that hasn’t been defined yet, will be subjected to 28 % tax plus cess. This could result in the cost of CBUs (Completely Built Units) being pushed north further from an already high rate. Every other car though will be taxed under the 28 percent slab but the segment classification is awaited.
The end result of the GST tax structure on various classifications of cars is yet to be seen. However, if the classification of luxury includes carmakers, who are assembling vehicles in India and also localising components, it could force them to redraw their Indian strategy. Mass market cars are not expected to be affected much by the new tax structure.
Stay tuned for more details on how the new GST tax structure will affect car prices across segments.
The arduous task of arriving at the rate structure for the Goods and Services Tax regime begins tomorrow as the GST Council meets to finalise the rate and the compensation formula.
The indirect tax regime is scheduled to roll in from April 1, 2017. The finance ministry has set November 22 as the deadline to reach a consensus on all issues in the council.
The three-day meeting is significant as it will decide on the most crucial aspect of the tax which will have a bearing on the common man.
A panel headed by chief economic adviser Arvind Subramanian had suggested 17-18 per cent as the rate for the bulk of goods and services, while recommending a lower rate of 12 per cent for certain necessary items and 40 per cent for demerit items such as luxury cars, aerated beverages, pan masala and tobacco. For precious metals, it had recommended a range of 2-6 per cent.
Finance minister Arun Jaitley last week said the tax on environment-unfriendly products would be “distinct” from others.
With most states seeking a median rate of between 20 per cent and 24 per cent, officials said the government would try to negotiate a rate close to 20 per cent with them.
Agreeing to a rate of 20 per cent is crucial as North Block calculations showed that fixing a median rate between 18 per cent and 20 per cent would have a negligible impact on the inflation rate.
The proposed GST has exempted alcohol from its purview. Other indirect taxes such as excise duty, service tax, value added tax and central sales tax will be subsumed once GST is rolled out.
Petroleum and petroleum products are exempt as of now but shall be subject to the levy at a later date based on the recommendation of the council.
Petroleum will be on the Centre’s watchlist once the goods and services tax (GST) regime comes into effect.
Initially, GST will not be applicable on petroleum and liquor – two major sources of revenue for state governments. However, it is also felt that the new tax structure will not be effective if these products are left out.
Arjun Ram Meghwal (left) with Hemant Bangur, senior vice-president of MCCI, in Calcutta on Sunday.
“Ideally, we want petroleum to be included in GST because without it the concept of the new tax regime is not fulfilled. But states are opposed to it as their fiscal autonomy can get affected and they fear revenue loss. So, we will watch for some time and then take a call,” Arjun Ram Meghwal, Union minister of state for finance and corporate affairs, said at an event of the MCC Chamber of Commerce & Industry.
“In my opinion, GST will not affect the revenue of states,” he said.
Last month, the government released much sought-after tax data. The data fell short in that a break-up of taxes by income categories was only available for 2012-13, but it did confirm apprehensions on two counts: first, India remains a low-tax country despite the acceleration of economic growth in the past decade, and second, income inequality has risen in the past two decades.
One of the reasons the tax data had been sought after was for an understanding of the trends in income distribution. The time series data on tax returns, which was published by the government until 1999-2000, was stopped and since then, researchers such as Thomas Piketty have been demanding a break-up of tax data by income classes. While releasing the data, the government provided this only for one financial year with no data for the intervening years. But even with this limited data, the results confirm what had been known from other sources of data. These are presented in this year’s economic survey.
According to the economic survey, the share of the top 1% of the population in the country in the total national income was around 10% in the 1950s, but came down to less than 4% by the end of the 1970s before steadily climbing to 7% by the end of the 1990s. By the latest estimates, this went up to 13% for 2012, the highest since independence, but also, importantly, it almost doubled in the past 15 years. The same is true for the share of the top 0.1% of the population, whose share was 5.1% in 2012, up from an average of 2.5% in the latter part of the 1990s.
Clearly, the increase in inequality has been one of the highest since independence and is much more than in any other country with a comparable per capita income or among developed economies. Most of these conclusions had been expected; the data only confirmed what was already known from other sources.
For example, while the National Sample Survey consumption surveys have consistently shown an increase in consumption inequality, the income surveys of the India Human Development Surveys have also shown an increase in income inequality.
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