The issue of the General Anti Avoidance Rule (GAAR) has dominated the news recently and there are fears that GAAR will discourage foreign investment in India. However, tax avoidance can hinder public finance objectives and it is in this context GAAR was introduced in this year’s Budget. Last week, the Finance Minister pushed back the implementation of GAAR by a year. What is GAAR? GAAR was first introduced in the Direct Taxes Code Bill 2010. The original proposal gave the Commissioner of Income Tax the authority to declare any arrangement or transaction by a taxpayer as ‘impermissible’ if he believed the main purpose of the arrangement was to obtain a tax benefit. The 2012-13 Finance Bill (Bill), that was passed by Parliament yesterday, defines ‘impermissible avoidance arrangements’ as an arrangement that satisfies one of four tests. Under these tests, an agreement would be an ‘impermissible avoidance arrangement’ if it (i) creates rights and obligations not normally created between parties dealing at arm’s length, (ii) results in misuse or abuse of provisions of tax laws, (iii) is carried out in a way not normally employed for bona fide purpose or (iv) lacks commercial substance. As per the Bill, arrangements which lack commercial substance could involve round trip financing, an accommodating party and elements that have the effect of offsetting or cancelling each other. A transaction that disguises the value, location, source, ownership or control of funds would also be deemed to lack commercial substance. The Bill as introduced also presumed that obtaining a tax benefit was the main purpose of an arrangement unless the taxpayer could prove otherwise. Why? GAAR was introduced to address tax avoidance and ensure that those in different tax brackets are taxed the correct amount. In many instances of tax avoidance, arrangements may take place with the sole intention of gaining a tax advantage while complying with the law. This is when the doctrine of ‘substance over form’ may apply. ‘Substance over form’ is where real intention of parties and the purpose of an arrangement is taken into account rather than just the nomenclature of the arrangement. Many countries, like Canada and South Africa, have codified the doctrine of ‘substance over form’ through a GAAR – type ruling. Issues with GAAR A common criticism of GAAR is that it provides discretion and authority to the tax administration which can be misused. The Standing Committee responded to GAAR in their report on the Direct Taxes Code Bill in March, 2012. They suggested that the provisions should ensure that taxpayers entering genuinely valid arrangements are not harassed. They recommended that the onus should be on tax authorities, not the taxpayer, to prove tax avoidance. In addition, the committee suggested an independent body to act as the approving panel to ensure impartiality. They also recommended that the assessing officer be designated in the code to reduce harassment and unwarranted litigation. GAAR Amendments On May 8, 2012 the Finance Minister amended the GAAR provisions following the Standing Committee’s recommendations. The main change was to delay the implementation of GAAR by a year to “provide more time to both taxpayers and the tax administration to address all related issues”. GAAR will now apply on income earned in 2013-14 and thereafter. In addition, the Finance Minister removed the burden upon the taxpayer to prove that the main purpose of an alleged impermissible arrangement was not to obtain tax benefit. These amendments were approved with the passing of the Bill. In his speech, the Finance Minister stated that a Committee had also been formed under the Chairmanship of the Director General of Income Tax. The Committee will suggest rules, guidelines and safeguards for implementation of GAAR. The Committee is expected to submit its recommendations by May 31, 2012 after holding discussions with various stakeholders in the debate.
In Budget Session 2018, Rajya Sabha has planned to examine the working of four ministries. The Ministry of Drinking Water and Sanitation is one of the ministries listed for discussion. In this post, we look at the key schemes being implemented by the Ministry and their status.
What are the key functions of the Ministry of Drinking Water and Sanitation?
As per the Constitution, supply of water and sanitation are state subjects which means that states regulate and provide these services. The Ministry of Drinking Water and Sanitation is primarily responsible for policy planning, funding, and coordination of programs for: (i) safe drinking water; and (ii) sanitation, in rural areas. From 1999 till 2011, the Ministry operated as a Department under the Ministry of Rural Development. In 2011, the Department was made an independent Ministry. Presently, the Ministry oversees the implementation of two key schemes of the government: (i) Swachh Bharat Mission-Gramin (SBM-G), and (ii) National Rural Drinking Water Programme (NRDWP).
How have the finances and spending priorities of the Ministry changed over time?
In the Union Budget 2018-19, the Ministry has been allocated Rs 22,357 crore. This is a decrease of Rs 1,654 crore (7%) over the revised expenditure of 2017-18. In 2015-16, the Ministry over-shot its budget by 178%. Consequently, the allocation in 2016-17 was more than doubled (124%) to Rs 14,009 crore.
In recent years, the priorities of the Ministry have seen a shift (see Figure 1). The focus has been on providing sanitation facilities in rural areas, mobilising behavioural change to increase usage of toilets, and consequently eliminating open defecation. However, this has translated into a decrease in the share of allocation towards drinking water (from 87% in 2009-10 to 31% in 2018-19). In the same period, the share of allocation to rural sanitation has increased from 13% to 69%.
What has been the progress under Swacch Bharat Mission- Gramin?
The Swachh Bharat Mission was launched on October 2, 2014 with an aim to achieve universal sanitation coverage, improve cleanliness, and eliminate open defecation in the country by October 2, 2019.
Expenditure on SBM-G: In 2018-19, Rs 15,343 crore has been allocated towards SBM-G. The central government allocation to SBM-G for the five year period from 2014-15 to 2018-19 has been estimated to be Rs 1,00,447 crore. Of this, up to 2018-19, Rs 52,166 crore (52%) has been allocated to the scheme. This implies that 48% of the funds are still left to be released before October 2019. 
Construction of Individual Household Latrines (IHHLs): For construction of IHHLs, funds are shared between the centre and states in the 60:40 ratio. Construction of IHHLs account for the largest share of total expenditure under the scheme (97%-98%). Although the number of toilets constructed each year has increased, the pace of annual growth of constructing these toilets has come down. In 2015-16, the number of toilets constructed was 156% higher than the previous year. This could be due to the fact that 2015-16 was the first full year of implementation of the scheme. The growth in construction of new toilets reduced to 74% in 2016-17, and further to 4% in 2017-18.
As of February 2018, 78.8% of households in India had a toilet. This implies that 15 crore toilets have been constructed so far. However, four crore more toilets need to be construced in the next 20 months for the scheme to achieve its target by 2019.
Open Defecation Free (ODF) villages: Under SBM-G, a village is ODF when: (i) there are no visible faeces in the village, and (ii) every household as well as public/community institution uses safe technology options for faecal disposal. After a village declares itself ODF, states are required to carry out verification of the ODF status of such a village. This includes access to a toilet facility and its usage, and safe disposal of faecal matter through septic tanks. So far, out of all villages in the country, 72% have been verified as ODF. This implies that 28% villages are left to be verified as ODF for the scheme to achieve its target by 2019.
Information, Education and Communication (IEC) activities: As per the SBM-G guidelines, 8% of funds earmarked for SBM-G in a year should be utilised for IEC activities. These activities primarily aim to mobilise behavioural change towards the use of toilets among people. However, allocation towards this component has remained in the 1%-4% range. In 2017-18, Rs 229 crore is expected to be spent, amounting to 2% of total expenditure.
What is the implementation status of the National Rural Drinking Water Programme?
The National Rural Drinking Water Programme (NRDWP) aims at assisting states in providing adequate and safe drinking water to the rural population in the country. In 2018-19, the scheme has been allocated Rs 7,000 crore, accounting for 31% of the Ministry’s finances.
Coverage under the scheme: As of August 2017, 96% of rural habitations have access to safe drinking water. In 2011, the Ministry came out with a strategic plan for the period 2011-22. The plan identified certain standards for coverage of habitations with water supply, including targets for per day supply of drinking water. As of February 2018, 74% habitations are fully covered (receiving 55 litres per capita per day), and 22% habitations are partially covered (receiving less than 55 litres per capita per day). The Ministry aims to cover 90% rural households with piped water supply and 80% rural households with tap connections by 2022. The Estimates Committee of Parliament (2015) observed that piped water supply was available to only 47% of rural habitations, out of which only 15% had household tap connections.
Contamination of drinking water: It has been noted that NRDWP is over-dependant on ground water. However, ground water is contaminated in over 20 states. For instance, high arsenic contamination has been found in 68 districts of 10 states. These states are Haryana, Punjab, Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, West Bengal, Assam, Manipur, and Karnataka.
Chemical contamination of ground water has also been reported due to deeper drilling for drinking water sources. It has been recommended that out of the total funds for NRDWP, allocation for water quality monitoring and surveillance should not be less than 5%. Presently, it is 3% of the total funds. It has also been suggested that water quality laboratories for water testing should be set up throughout the country.
