05 March 2014, 04:52 PM IST
At the core of the ongoing controversy over raising gas prices is the concern that a higher price of gas would mean excessive profits for the contractor (while ONGC, GSPC and others also stand to gain from higher gas prices, the focus of public attention is Reliance Industries Ltd), leaving the nation at large poorer.
Loot, of course, is the emotive term for a process that enriches someone at the expense of others. One way to address this concern is to introduce a windfall gains tax for all mineral resources, not just hydrocarbons.
In India, all natural resources belong to the people, with the state acting as custodian — says the law. This is why, if you suddenly discover gold while digging to lay the foundation for your dream house, the government would take away your land and your house, indeed, turn into a dream. In the US, the mineral wealth under the belongs to the owner of the land.
Untaxed Mineral Wealth In practice, though, India has a very shabby record in managing its mineral wealth, either to make it available for the economy or to generate revenues for the state. Royalty collections are paltry in all minerals save hydrocarbons.
People whose main talent lies in bribing babus and netas and hiring goons turn overnight into mining barons, buy private jets and fly themselves into membership of state legislatures and Parliament. The main reason is that India does not have a policy to tax windfall gains.
This is easily amended. The government's take from minerals consists, at present, of licence fees for exploration, mining lease proceeds, cess, royalty, share in profits and tax on corporate profits.
It needs to be complemented with a sliding rate of windfall gains tax, so that the government's share of the total value generated by any mineral deposit is three-fourths or thereabout. A quarter of the mineral's value should be more than worth the contractor's effort to locate and extract the mineral.
Making money from minerals is different from making money from, say, iPods. Nobody knew that consumers wanted something like an iPod, till Steve Jobs designed it in conjunction with iTunes. Apple's creativity and skill drive the sale of iPods, iPhones, etc and it is not chance that drives its revenues and profits.
Normal Vs Windfall Profits Take oil. The cost of producing oil in a shallow field in Saudi Arabia is next to nothing. When global growth is good and the demand for energy goes up, so does the price of oil. It went up tenfold over 2000-10.
The price of oil also goes up when there is a terror strike, when war clouds gather over any part of West Asia, when Tsunami closes down nuclear reactors in Japan or when the US Fed prints additional dollars by the truckload to keep US interest rates extra low, sending speculative waves of cash into commodities.
The owners of oil wells reap the benefit of the rise in price without having done anything to deserve it. Such windfall gains should be appropriated by the government through a windfall profit tax. The UK has done this.
This policy does not rule out a contractor (the one who gets the contract to develop a mineral field) getting high returns over its investment. In fact, such returns are the only way to attract large companies to India, to explore and develop India's mineral wealth. In the absence of such vigorous exploration and development of hydrocarbon resources, India's dependence on imported oil and gas would grow to perilous levels.
Sharing The Gains However, even as the contractor gains from a price rise, the government would also gain, with a windfall gain tax. This would remove the fear of contractors looting the nation. Why does the government get into fixing the price of gas, while it lets the market find the price for crude oil, steel, cement, houses, computers and movie tickets? Because there is no real market for gas where demand and supply can do their normal job.
Only those along a gas pipeline can realistically express demand for gas. So until India builds an extensive gas pipeline network, demand will remain artificially depressed. India also lacks supply — too few terminals to bring in gas in its liquefied form (LNG) and no supply pipelines so far from Iran or central Asia or other sources of gas.
So, the government has to fix the price of gas. And adjust the rate of sliding windfall gain tax to ensure that the cumulative government take is something like 75% of the value. And above a range, all the gain can be taxed away.
If the government's share is fixed, on what basis will oil and gas companies bid to take up exploration and development licences? The government's share can deviate around 75%, depending on how difficult or easy it is to develop a field.
There is no shortcut to the government developing the needed expertise to vet complex costs in exploration and development, within its own arms or by hiring reliable consultants.
Such expertise is needed to assess allowable expenses and, therefore, taxable revenues. The same expertise can guarantee against cost padding as well, in a cost recovery regime where the contractor is allowed to recover costs before sharing revenue with the government.
Anda sedang membaca artikel tentang
Windfall gains tax: How to avoid controversy in gas price changes
Dengan url
http://osteoporosista.blogspot.com/2014/03/windfall-gains-tax-how-to-avoid.html
Anda boleh menyebar luaskannya atau mengcopy paste-nya
Windfall gains tax: How to avoid controversy in gas price changes
namun jangan lupa untuk meletakkan link
Windfall gains tax: How to avoid controversy in gas price changes
sebagai sumbernya
0 komentar:
Posting Komentar