Tax incentives by Indian Government to support domestic companies

Section 115 BBA

The new section – Section 115BAA has been inserted in the Income Tax Act,1961 to give the benefit of a reduced corporate tax rate for the domestic companies. Section 115BAA states that domestic companies have the option to pay tax at a rate of 22% plus sc of 10% and cess of 4%. The Effective Tax rate being 25.17% from the FY 2019-20 (AY 2020-21) onwards if such domestic companies adhere to certain conditions specified. The company need not pay tax under MAT if it opts for Section 115BAA.

The new effective tax rate, which will apply to domestic companies availing the benefit of section 115BAA is 25.168%. The break up such tax rate is as follows:

Such companies will not be required to pay Minimum Alternate Tax (MAT) (MAT) under section 115JB of the act.

The domestic companies opting for section 115BAA will not be able to claim MAT credits for taxes paid under MAT during the tax holiday period. The companies would not be able to reduce their tax liabilities under section 115BAA by claiming MAT credits. The CBDT may issue a clarification on MAT credits in case of companies opting for tax under section 115BAA.

Moreover, the domestic company opting for section 115BAA shall not be allowed to claim set-off of any brought forward depreciation (additional depreciation) for the assessment year in which the option has been exercised and future assessment years.

There is no timeline for the domestic companies to choose a lower tax rate under section 115BAA. So such companies can avail the benefit of section 115BAA after claiming the brought forward loss on account of additional depreciation and also utilising the MAT credit against the regular tax payable if any.

Section 115 BAB

A new manufacturing company can exercise the option to be taxed under section 115BAB. The company has to exercise the option on or before the due date of filing income tax returns i.e usually 30th September of the assessment year. Once the company opts for section 115BAB in a particular financial year, it cannot be withdrawn subsequently.

The new effective tax rate, which will apply to domestic companies availing the benefit of section 115BAA is 17.16%.

Russian vaccine : opinion

By Sarah Caddy - Welcome Trust Clinical Research Career Development fellow

Release without phase III trial entails numerous risks

The announcement by Russia’s president, Vladimir Putin, that the country has developed and approved the world’s first SARS-CoV-2 vaccine1 raises many questions. The global scientific community is concerned that this is a high risk move on the part of the Russian government.

The vaccine, named Sputnik V, was developed by the Gamaleya Research Institute of Epidemiology and Microbiology, based in Moscow and supported by the Russian Ministry of Health. It uses an adenovirus vector to deliver the gene for the SARS-CoV-2 spike protein, a similar approach to that being used by the vaccine development team at the University of Oxford and AstraZeneca, albeit with different adenovirus vectors. The Russian vaccine is based on two human adenovirus vectors (Ad5 and Ad26), whereas the Oxford vaccine uses a chimp vector (ChAdOx).

Concerns
The main concern is that the Russian vaccine has not yet been through a phase III clinical trial. Such a trial, typically involving over 10 000 volunteers and comparing the vaccine with placebo, would seek to prove vaccine efficacy as well as safety. Without phase III data we don’t know whether the Russian vaccine can protect people from SARS-CoV-2. Claims of efficacy are currently being based on unpublished data from two small phase II trials, descriptions of which are outlined in ClinicalTrials.gov23 A website for the vaccine launched by the Russian Direct Investment Fund states that that all 76 volunteers who received it developed high titres of SARS-CoV-2 specific antibodies and good cellular immunity.4 However, as it is still unclear what the ideal protective immune response to SARS-CoV-2 is, it is not possible to know whether these people would be protected against covid-19.

Nor is it known whether the vaccine is safe. No “serious complications or side effects” were reported in the phase II trials,1 but they included only a small number of healthy participants. More extensive testing has been performed for a similar Ad5 based covid-19 vaccine in Wuhan, where no serious adverse events were documented in 382 healthy volunteers.5 But neither vaccine has been tested in people with pre-existing health conditions, who are arguably most in need of protection. Furthermore, there is theoretical concern that vaccine induced SARS-CoV-2 antibodies may have the potential to worsen infection or cause immunopathology, so called antibody dependent enhancement of disease.6 Though this risk is now estimated to be low, without extensive testing we cannot accurately predict outcome. The health of people receiving the Russian vaccine will consequently need to be closely monitored.

Any negative effect of the Russian vaccine could extend far beyond the people physically receiving it. An ineffective, or even dangerous, vaccine has the potential to substantially diminish confidence in and uptake of other vaccines that are subsequently approved. A European survey of over 7500 participants found that 19% of people were unsure they would take a SARS-CoV-2 vaccine, and 7% said they would refuse vaccination altogether.7 A poorly performing vaccination programme in Russia could increase vaccine hesitancy internationally.

Regulatory pathways
Russia’s vaccine has been able to skip phase III clinical trials because of differences in medicine regulatory pathways across the world. Many countries and regions have their own regulatory body—for example, the European Medicines Agency or the Food and Drug Administration in the US. Additionally, the World Health Organization prequalification team provides regulatory guidance to countries without regulatory capacity.8 Many of these agencies work closely together, and a recent meeting of the International Coalition of Medicine Regulatory Authorities agreed a set of principles for conducting phase III clinical trials for SARS-CoV-2 vaccines.9 Russia’s medicine regulatory body, however, acts independently of other agencies, and its decision making processes are not always fully transparent outside of the country

According to WHO guidelines on clinical evaluation of vaccines,10 six vaccine candidates are already ahead of the Russian vaccine in the standard development pipeline. These candidates are all in phase III trials in multiple countries.11 The trials are expected to take months to complete, and the vaccine candidates are unlikely to be equally effective. Phase III trials are reported to be about to start for the Russian vaccine, but it remains to be seen whether this will affect any regulation and licensing of the vaccine. The Russian vaccine could still be a valuable tool for controlling covid-19, but global scepticism is high and only extensive further studies will tell. Whatever the urgency of the current pandemic situation, there is the possibility that the release of an untested vaccine could wreak long term damage on international efforts to contain covid-19.

Acknowledgments

I thank Gordon Dougan for constructive comments.

Footnotes

Competing interests: The BMJ has judged that there are no disqualifying financial ties to commercial companies. The authors declare no other interests. The BMJ policy on financial interests is here: www.bmj.com/sites/default/files/attachments/resources/2016/03/16-current-bmj-education-coi-form.pdf

Automating your virtual presence in Office meetings

A novel ideal

Protectionist trade policy impact on Employment

An economic paper by Alessandro Barattieri & Matteo Cacciatore


In 2018, the U.S. administration imposed new tariffs on roughly 12% of imports, sparking debates on the effects of protectionism to unprecedented levels. A distinguishing feature of recent U.S. trade policy is the focus on the access to global supply chains (Krugman, 2018, and Baldwin, 2018). For instance, tariffs against Chinese imports have heavily targeted intermediate inputs, with nearly $50 billion of imports of steel and aluminium being affected (Bown, 2018a). Such a shift of trade protection towards intermediate inputs is not an isolated episode. Hidden behind unchanging tariff policies, governments have been using temporary trade barriers (TTBs)—antidumping, countervailing duties, and safeguards—to restrict trade in intermediate inputs since the last two decades (Bown, 2018b). In particular, while governments have maintained lower tariffs on factor inputs relative to final goods, TTBs on imported intermediates have been on average higher and growing relative to TTBs on final goods

In light of these events and considerations, it is not surprising that much of the discussions on the effects of protectionism contrast potential gains in protected industries and possible negative effects on downstream sectors—the producers that use protected goods as intermediate inputs.1 However, despite the relevance of supply-chains considerations, econometric evidence on the effects of protectionism through vertical production linkages remains scant. We address this issue by studying the employment effects of TTBs in protected and downstream industries

Our contribution to the literature is threefold. First, we provide novel evidence on the role of production networks in propagating protectionism targeted to specific industries. Second, while the trade literature typically focuses on the long-run effects of permanent tariff reductions, we provide evidence on the dynamic consequences of TTBs. Third, we exploit a novel high-frequency identification of temporary trade-policy shocks at a disaggregated industry-level

The analysis proceeds in three steps. First, we identify movements in protectionism that are plausibly unanticipated and not correlated with economic fundamentals. Our approach builds on a consolidated strategy in the monetary and fiscal policy literature, following the seminal work by Romer and Romer (2004). The idea is to purge the series of interest (TTBs protection) of movements taken in response to past, current, and expected dynamics in the outcome variable of interest (employment growth). The remaining variation allows us to identify the effects of protectionism on employment within and across industries, even in the scenario in which such variation is not strictly exogenous, i.e., when other factors not affecting employment dynamics drive the residual TTBs dynamics.

We consider two alternative and complementary approaches to identify trade-policy shocks. One focuses on within-industry time-series variation, while the other one uses the panel dimension of the data. In both cases, we exploit regulation-induced lags in the opening of an investigation to impose short-run restrictions—TTBs cannot react to economic shocks within a month. We then control for past economic conditions and measures that capture expected economic outcomes. In particular, using firm-level data, we construct for each industry a benchmark measure of expected returns used in the finance literature, the market-to-book ratio (e.g., Pontiff and Schall, 1998, and subsequent literature). With panel data, we also include industry and time fixed effects, stronger controls for unobserved heterogeneity and common shocks.

Our analysis yields three main results. First, protectionism has small and short-lived beneficial effects on industry employment. Across specifications, an increase in the share of imports subject to TTBs equal to 2 percentage points (the average import share affected by TTBs in the episodes we analyze) leads to an employment increase at most equal to 0.15 percentage points on average. The response turns negative after approximately one year. The effects are in general statistically insignificant. This finding is consistent with different explanations, including the fact that TTBs affect profits (e.g., markups) rather than output in protected industries, heterogenous responses across producers (e.g., a different exposure to products covered by TTBs), as well as the presence of offsetting forces determining industry’s output demand (e.g., expenditure switching versus negative income effects).

Second, protectionism has negative, persistent, and statistically-significant effects on employment in downstream industries. Our estimates imply that a uniform 2 percentage-point increase in the share of imports subject to TTBs in upstream industries generates an average employment decline up to 1 percentage point after two years. Third, the downstream employment loss is accompanied by a statistically significant increase in both intermediate-input and final producer prices. From a timing perspective, the peak of the price increase precedes the peak of the employment decline, suggesting that it is indeed a loss of 3 competitiveness that causes employment losses. In addition, employment falls more on average when goods are more substitutable

Prices

There exist alternative possible explanations for the negative effects of protectionism on downstream employment. For instance, when an intermediate input is subject to TTBs, downstream producers may find it hard to quickly replace it, ending up paying a higher price. Alternatively, producers may switch to potentially less-efficient suppliers, facing higher prices relative to the pre-TTBs scenario. While these two scenarios have different implications for the response of imports, marginal costs and final-producer prices in downstream industries are predicted to increase in both cases. In turn, higher prices reduce competitiveness, lowering demand and employment.