Call for GST Reform

Why in news?

• Recently, Vijay Kelkar, Chairman of the Thirteenth Finance Commission and a key architect of India’s tax reforms, has called for urgent reforms in the GST regime.

About

• The Goods and Services Tax (GST), introduced in India in 2017, is characterised by multiple tax rates and a compensation cess on certain goods.
• The structure, which was largely designed to maintain revenue neutrality, has been deemed counter-productive.
• High GST rates have led to an increase in tax evasion and fraud.

Key Issues involved in GST Regime

• Multiplicity of Tax Slabs: One of the persistent challenges with the GST regime is the multiplicity of tax slabs.
• The GST regime in India is characterised by multiple tax rates and a compensation cess on certain goods.
• It, largely designed to maintain revenue neutrality, has been deemed counter-productive.
• Compliance Burden: While GST intended to simplify tax procedures, the compliance burden on businesses has increased significantly.
• Frequent changes in tax returns and reporting requirements have turned out to be a compliance nightmare.
• Delayed ITC Refunds & Penalties for Belated Filings: Delayed Input Tax Credit (ITC) refunds and penalties for belated filings are other significant issues faced by taxpayers.
• Ambiguity in Anti-Profiteering: There is ambiguity in the anti-profiteering rules under the GST regime.
• These rules are intended to ensure that businesses pass on the benefit of reduced tax incidence to consumers. However, the lack of clear guidelines has led to confusion.
• Technical Glitches in GST Portal: The GST portal has been a puzzle and cause of concern for many taxpayers since its inception.
• Harmony between the provisions of the law and the functionality offered on the GST portal remains elusive.

Single Tax Rate suggested by Vijay Kelkar

• Vijay Kelkar suggested switching to a single tax rate of 12% and sharing revenues with local governments and municipal corporations.
• He argued that the genesis of the current GST frauds lies in the very structure of the GST rates. High rates of GST make it lucrative for fraudsters to evade taxes.
• A single GST rate of 12%, with revenues shared equally with all tiers of the government and Union Territories, should be introduced at the earliest.

Benefits of a Single GST Rate

• Most developed and emerging market economies have a policy of a single GST or Value Added Tax (VAT) rate on goods and services.
• Countries with a single rate and simple GST or VAT laws have been successful in optimising tax revenue and minimising tax disputes.
• Of countries with GST or VAT systems, 80% have opted for a single tax rate, including Singapore, New Zealand, the United Arab Emirates, and Japan.

Conclusion

The GST regime in India is in urgent need of reform. Simplifying the structure and switching to a single tax rate would not only make the system more efficient but also curb tax evasion and fraud.

It’s time for the government to take decisive action and make the necessary changes to the GST regime.

Semiconductor Chip

Why in news?

• With supply chain disruptions during the pandemic and recent geopolitical tensions, many countries, including India, have realised the importance of investing in chip manufacturing infrastructure.

About the Semiconductor Chip

• A semiconductor has properties between a conductor, which conducts electricity, and an insulator, which does not.
• In its purest form, a semiconductor is a very weak conductor of electricity. However, its electrical properties can be changed by adding small amounts of certain substances called ‘dopants’.
• By taking a pure semiconductor and carefully injecting certain parts with specific dopants, complex circuits can be ‘printed’ on the semiconductor.

The Role of Transistors:

• The transistor, one of the earliest electronic components to be built using a semiconductor, is an extremely versatile device. In its most popular form, it can function as an electronic switch.
• A typical semiconductor chip can have millions/billions of these interconnected switches that work together to perform various logical and computational operations.
• A transistor can also function as an amplifier (to amplify the weak signal received by your cell phone) and is an integral part of circuits that generate and process high-frequency signals (such as those required in wireless communication technologies).

The Manufacturing Process:

It involves several critical steps like deposition, photoresist, lithography, etch, ionisation, and packaging.

• Deposition: It begins with a silicon wafer. Wafers are sliced from a salami-shaped bar of 99.99% pure silicon (known as an ‘ingot’) and polished to extreme smoothness.
• Thin films of conducting, isolating, or semiconducting materials are deposited on the wafer to enable the first layer to be printed on it.
• Photoresist Coating: The wafer is then covered with a light-sensitive coating called ‘photoresist’, or ‘resist’ for short.
• Positive Resist: The areas exposed to ultraviolet light change their structure and are made more soluble – ready for etching and deposition.
• Lithography: It is a crucial step in the chipmaking process, because it determines just how small the transistors on a chip can be.
• During this stage, the chip wafer is inserted into a lithography machine where it’s exposed to deep ultraviolet (DUV) or extreme ultraviolet (EUV) light.
• Etching: It refers to any technology that will selectively remove material from a thin film on a substrate (with or without prior structures on its surface) and by this removal create a pattern of that material on the substrate.

India and Semiconductor

• India has established the India Semiconductor Mission (ISM) to address the global semiconductor shortage and encourage manufacturers to set up their semiconductor facility.
• India has realised the importance of investing in chip manufacturing infrastructure.
• The TATA group has partnered with Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC) to set up a 300mm wafer fabrication plant in Gujarat. It will roll out its first 28nm chip in 2026.
• Two assembly and test plants in Gujarat and Assam have also been recently approved by the Government of India.

Government Initiatives

• In a bid to make India’s $10 billion chip-making initiative more attractive to investors, the Centre approved changes to the scheme for the development of a semiconductor and display manufacturing ecosystem in the country.
• It aims to provide up to 50% of Project cost for two semiconductor and two display fabs in the country.