What Can New Delhi Learn from London’s Mayoral Position

As London’s Mayoral elections draw to a close, all of us living in the capital city of India, New Delhi, must ask ourselves whether our Chief Minister’s office, currently head by the all to controversial Mr. Arvind Kejriwal, is as powerful as the Mayor’s office in London. The reason for such an introspection is that both London & New Delhi are densely populated metropolitan capital cities impacting millions of lives and the person responsible for governing those lives should have all the tools available to him in order to serve the people without any confrontation with the central government, a problem increasingly becoming routine in Delhi. So to the answer the question, no, Delhi’s Chief Minister is not quite as powerful as the Mayor Of London, the reasons for which I would attempt to dissect in this blog, while simultaneously arguing why it would be a good move to accede to Mr. Kejriwal’s demand of giving Delhi complete statehood status.

New Delhi and London – Key Differences

While the outgoing Mayor of London, Boris Johnson, has many a times complained that enough powers haven’t been granted to him, he would be surprised to know that his counterpart in Delhi is even more beleaguered than him. There are certain key differences between the two posts that one must take cognizance of, in order to understand the challenges faced by the Delhi government under the current status-quo.

Land Policy: While even the London Mayor has to exercise constraint over the housing policy adopted by him due to restrictions imposed by the central government, the Delhi Chief Minister has absolutely no jurisdiction over the same since the Delhi Development Authority (DDA), the body overseeing the state-sponsored housing & construction activities in the city, comes not under the control of the Delhi government but under the Ministry of Urban Development (MUD) of the Union Government, a decision that dates back to 1962 when Delhi wasn’t even a partial state. Any new project that requires government land needs to be first approved by the MUD, consequentially leaving the Delhi government with no real authority of the projects that see the light of day.

Police & Public Order: Every capital city needs proper security arrangements, not just for the VVIP’s therein, but more importantly, the vast population of people which reside in it. Unlike the Met Police in London which is governed by the Mayor’s office, the Delhi Police comes under the purview of the Ministry of Home Affairs (MOH) of the Union government. Confusion over who gets to govern the security personnel in the city not just inconveniences the ordinary lives of the people but ends up leaving lots of gaps over the pandemic security situation & general public order in the Capital.

Under the Constitution of India, Delhi is a union territory which is to be governed by a representative of the President, who has authority over the three aspects listed above. However, the current representative, Lieutenant Governor Najeeb Jung, is seen by many as a stooge of the central government who often crosses constitutional boundaries by interfering in the appointment of bureaucrats and the overall functioning of the state government. Thus, after taking cognizance of the above facts, one can argue that the Delhi Chief Minister ‘is in office but not in power.’

Full Statehood for Delhi – High Time?

We must recognize the fact that when it comes to urban cities like London or New Delhi, it is responsive & dynamic executive action that makes the difference & while some disagreements are bound to arise between two power centers, as I am sure they do in London, petty tussles like the ones in Delhi are just downright deplorable which end up depleting the quality of governance in the city. Delhi, which in my opinion is the finest city in the country, with such a rich history and unparalleled diversity, deserves better from its government. Delhi, like London, must have a Chief Minister who is responsible for all the aspects of the city and such a scenario is only possible if the Narendra Modi government grants full statehood rights to Delhi, bringing it at par with every other state in the country.

Granting full statehood to Delhi would not just be a gift to the people of the city but it would also be a politically significant move. It would not only put an end to the confrontational relationship between the Central & City government, but would also be a major image boost for the central government by pledging its adherence to democracy, amidst all the allegations that the its turning increasingly authoritarian. Statehood for Delhi is a movement that would likely gather steam over the next few years, given that the Chief Minister has made it abundantly clear that he does not accept the status-quo and the central government at the center would send a strong signal by accepting his demands without any political slug-fests.

However, one knows all too well that this is nothing more than a Utopian hope and it would take a long painstaking movement to achieve such a result. In the meantime, Delhiites would just have to keep tolerating an ultra-anarchist Chief Minister and an ultra-arrogant Prime Minister.

India Introduces Google Tax – An Analysis

Amidst all the hysteria over the contentious provisions (EPF Tax & 1% Excise on Jewellery) that were introduced in the Budget last month, another extremely important announcement went relatively unnoticed. This was the decision of imposing an ‘Equalization Levy’ on companies providing online advertising services to businesses, ostensibly to tap the tax avoiding tendencies of tech giants like Google, Facebook etc. In simple terms, any advertising income received by such companies would now be taxed at 6% from April 1st, 2016 i.e. the new financial year. In this post, I shall present my analysis on who exactly are the stakeholders with respect to this provision and how would they be impacted by it.

With Budget 2016, the Indian Revenue Department vowed its allegiance to the Base Erosion & Profit Shifting (BEPS) Action Plan; a series of proposals prepared by the Organisation for Economic Co-operation & Development (OECD) aimed at curbing profit shifting from high tax to low jurisdictions by multinational enterprises. Out of 15 Actions proposed, India announced three in the budget. One, the Country-by-Country (CbC) reporting structure which introduces a more robust compliance mechanism for MNE’s undertaking intra-group transactions across jurisdictions; two, the Patent Box Regime wherein income from patents developed & registered in India would be entitled to a tax benefit and three, a digital tax, so to speak, on income earned by online advertising service providers.

The third proposal presents an interesting case study. As we know, in the digital economy, establishing a strong internet presence is imperative for long term success and usually, the best way to do so is by advertising on a popular platform, thereby reaching millions of internet users. Yahoo, Google, Facebook are all examples of such platforms which provide space for online advertising. But, their global structure and until now, outdated tax legislation, has allowed them to escape taxation. The strategy is simple; the recipient of the advertising income is not the regional subsidiary that the concerned MNE may have in the jurisdiction where the payer is located (say, Google India) but usually  another subsidiary located in a tax haven (say, Google Cayaman Islands). That, along with Revenue Authorities’ reluctance to include digital presence while interpreting the meaning of Permanent Establishment (PE) in litigation, has the reason behind the continued subversion of the tax process by large internet companies. In response to this, BEPS Action Plan 1: Addressing the Challenges in a Digital Economy, the OECD has proposed either expanding the definition of PE to include digital presence or imposing an equalization levy on certain transactions, the latter being christened as ‘Google Tax’ by commentators in Britain which became the first country to introduce such a provision.

Out of the two options, India made the right choice by adopting the latter. This is because a flat-out tax would certainly be better administered than a broader PE definition since that might increase the risk of arbitration, thereby going against the PM Modi’s promise of ‘ease of doing business’. Also, the provision is introduced as a separate chapter in the Finance Bill and not as part of the Income Tax Act, the companies receiving such income would not be liable to file the complicated Income Tax Return (a separate return would be filled), thus making life a wee bit easier for the companies in question. Of course, the flip side to that is the non-availability of tax credit for the amount payed to the Indian exchequer and the government has made a wise move by keeping the rate at a low 6% so as to not frustrate the companies too much. Finally, limiting the levy to B2B transactions as well as imposing the annual monetary limit of INR 100,000 is indeed a step in the right direction thereby sparing small businesses from an additional compliance burden.

One can argue that such a legislation would hurt new businesses the most, who might find themselves being coerced by these large MNE’s to pay the taxes over and above the advertising bill. Thus, to that extent it goes against the spirit of the ‘Start Up India’ scheme launched by the Prime Minister a few months back.

But that being said, this is a crucial provision in terms of minimizing tax avoidance, while at the same time providing a predictable tax regime for MNE’s operating in India. How it manifests itself is yet to be seen.