Customs get sleepless nights

Customs get sleepless nights as small packs turn smart

Big things come in small packages. And that is precisely what the Customs department is worried about. Small courier packets are being used not just to smuggle banned items such as sex determination kits but also some high-value stuff like drawing and designs that form part of project imports to avoid duty payment. The department is now training its guns on this activity in a big way as part of anti-evasion strategy.The issue that courier packages could be used for smuggling and evading duty figured at the meeting of the annual meeting of the chief commissioners and director generals of Customs, excise and service tax. The field formations have been instructed to pay special attention to prevent such cases. Chartering of aircraft for courier services has also increased, raising concerns that these also could have been used to bring banned substances into the country. While smuggling of certain goods that are prohibited in the country are common, there is a view that specialised products such as designs and drawings that form part of the valuation for project imports and were more valuable than the imported equipment can come in as books or printed material. Although the practice may not be rampant yet, the department has already upped its ante on this. Both project imports and exports have risen considerably in last two years, sources said. Smuggling of traditional items has given way to new items and new methodologies. Under-invoicing and over-invoicing, which would become a crime under the Prevention of Money Laundering Act, and false quoting of export codes have lately become more prevalent malpractices. With India signing free trade agreements and preferential trading arrangements with various countries, frauds such as misquoting the country of origin of the imported goods to evade duty have also come to light.

Dispute Resolution In Service Tax

Introduction
Today service tax suffers from rampant litigation from both sides at all appellate forums. There are interpretational issues as well as overlapping services which create confusion leading to tax disputes. In order to settle disputes of a reasonable size, (Rs. 25000 of tax involved), Government of India had announced in Budget 2008-09 a novel Service Tax Dispute Resolution Scheme (STDRS) for a limited period of 92 days or three months commencing from Ist July, 2008 to 30th September, 2008. The scheme aims at settling disputes pending as on Ist March, 2008 for amounts of service tax involving upto a maximum of Rs. 25000. The scheme aims at bringing down substantially the service tax related disputes from all over the country. The introduction of scheme is a welcome move which will certainly come as a rescue for genuine tax payers and at the same time relieve revenue officers so as to focus on other revenue generating efforts.
The Rules for the Scheme has since been notified vide N. No 28/2008 - ST dated 4.6.2008.
Overview of Scheme
Government of India has introduced a novel scheme of dispute resolution know as the Service Tax Dispute Resolution Scheme, 2008 (Chapter VI of Finance Act). This scheme has been introduced in order to settle disputes which were pending as on 1st March, 2008 involving tax arrears not exceeding Rs. 25000 to be covered under the Scheme. There should be two conditions satisfied, one, tax arrears are existing or a show cause notice or demand notice has been served on or before 1.3.2008. Both the conditions are must.
Scheme at a Glance
Commences on 1 July 2008
Terminates on 30 September 2008
Cut off date for reckoning of disputes 1 March 2008
Threshold limit of eligible disputes Rs. 25000
Scope of disputes service tax, interest, penalties and cess
Ineligible disputes - Disputes in excess of Rs 25000
- Order or demand notice or show cause notice issued under section 73A
- Disputes arising after 1st March 2008
Appeal against orders Under Scheme - Not applicable
Refunds under scheme - Not allowed
Salient Features of Scheme
The salient features of this scheme as contained in proposed Chapter VI of Finance Act, 2008) are as under -
• The scheme shall as valid for the period between 1 July, 2008 and 30 September, 2008.
• Scheme is not applicable to any order, decision, demand notice or show cause notice -
o which is issued under Section 73A of Finance Act,1994
o which relates to tax arrear and includes service tax in excess of Rs. 25000
• Eligible disputes will be for amounts outstanding as on 1.3.2008.It will not cover disputes emerging after 1.3.2008.
• Tax arrears should not exceed Rs. 25000.
Tax arrears cover all payments relating to service tax and§ shall include service tax, interest and penalty. It will also include education cess.
Tax arrears will include due liabilities for which order has§ been passed or demand notice or show cause notice has been issued on or/before 1.3.2008.
Tax orders, demands, notices issued on or after 2nd March,§ 2008 shall not be covered.
• There is a specific definition of tax arrear in section 97(e) which states as under -
"Tax arrear means service tax, cess, interest or penalty due or payable or leviable under the Chapter but not paid as on the 1st day of March, 2008, in respect of which-
An order has been passed under the Chapter; or§
A demand notice or a show cause notice has been issues on or§ before the 1st day of March, 2008 under the Chapter;"
• It will not cover cases where service tax involved is more than Rs 25000 or order / notice has been issued under section 73A.
• Service of order or demand notice or show cause notice is not contemplated.
• Settlement of tax payment shall be as follows-
(a) Where the tax arrear has arisen due to determination, assessment or, as the case may be,
order of an adjudicating authority,—
(i) such tax arrear includes the amount of service tax not exceeding twenty-five thousand rupees, at the rate of fifty per cent. of service tax amount;
(ii) such tax arrear consists of only interest payable, or penalty levied or both, under the Chapter, at the rate of twenty-five per cent. of such tax arrear:
provided that, if the amount of penalty levied exceeds the service tax amount to which it relates, service tax amount shall be considered to be the amount of penalty;
(b) Where the tax arrear has arisen due to show cause notice or demand notice, as the case may be, —
(i) such tax arrear includes the amount of service tax not exceeding twenty-five thousand rupees, at the rate of fifty per cent. of service tax amount;
(ii) such tax arrear consists of only interest payable, or penalty leviable or both, under the Chapter, at the rate of twenty-five per cent.of the maximum penalty leviable and interest payable:
provided that if the amount of penalty leviable exceeds the service tax amount to which it relates, service tax amount shall be considered to be the amount of penalty.
• If there are more than one order, notice etc, each one shall be separately considered for calculating Rs. 25000 threshold limit.
• The limit of Rs. 25000 is for service tax. Thus amount including interest and penalty may exceed Rs. 25000.
• Declaration to be submitted to designated authority and such authority to determine the amount payable within 15 days from receipt of declaration.
• False declaration would deem that no such declaration was made and all pending proceedings would revive and it will be treated as void.
• Amount shall be paid by declarant within 30 days of order by designated authority.
• The order would be conclusive and cannot be reopened in any other proceeding under the Act.
• No appeal would lie against such orders.
• Any appeal or reference filed before any Authority, Tribunal or Court or reply to
show cause notice in relation to which declaration is filed, will be deemed as withdrawn.
• No refunds shall be permissible for amount paid under the scheme under any circumstances.
Statutory Provisions of Scheme
Service Tax Disputes Resolution Scheme has been legislated under Chapter VI of Finance Act, 2008 which comprises of sections 91 to 101
Section 91 - Short title and commencement
Section 91 relates to short title and commencement of a Scheme for resolution of disputes in service tax to be called the Service Tax Disputes Resolution Scheme, 2008.
Section 92 - Definitions
Section 92 contains definition of certain terms and expressions viz, person, prescribed and tax arrear used in the Scheme.
Section 93 - Applicability of Scheme
Section 93 provides that Scheme would not be applicable in cases where tax arrears includes service tax amount of more than twenty-five thousand rupees and where notice or order has been issued under section 73A of the Finance Act, 1994.
Section 94 - Settlement of tax payment
Section 94 specifies the time frame for making the declaration by a person against whom tax arrear is pending, to the designated authority and rate of amount payable under the Scheme by the declarant.
Section 95 - Particulars to be furnished in declaration
Section 95 provides that a declaration under the Scheme will be made before the designated authority and further provides that the declaration will be in such form or manner as may be prescribed.
Section 96 - Time and manner of payment of tax arrear
Section 96 provides that designated authority shall determine the amount payable on the basis of declaration, with fifteen days of the receipt of the declaration and will pass order on the declaration received by him. The declarant shall pay the sum determined by the designated authority and furnish proof of such payment before him. The designated authority will also issue certificate to the person making the declaration stating therein the particulars of the sum payable by the declarant. The clause further provides that the matter once determined will not be opened for such dispute in the court of law or before any other forum. In case the declarant has filed a writ petition for appeal or reference before any High Court or Supreme Court against any order in respect of tax arrear, the declarant shall file application before the High Court or Supreme Court for withdrawing such writ petition or reference and shall provide proof of such withdrawal.
Section 97 - Appellate authority not to proceed in certain cases
Section 97 provides that appellate authority shall not proceed to decide any issue relating to tax arrear specified in the declaration and in respect of which an order had been made by the designated authority.
Section 98 - No refund of amount paid under the scheme
Section 98 provides that amount paid in pursuance of the declaration shall not be refundable under any circumstances.
Section 99 - Removal of doubts
Section 99 clarifies that, except as expressly provided therein the Scheme should not be construed as conferring any benefit, concessions or immunity on the declarant in any assessment or proceeding other than in respect of which the declaration pertains to.
Section 100 - Power to remove difficulties
Section 100 empowers the Central Government to pass any order not inconsistent with the provisions of the Scheme for removing any difficulty which may arise in giving effect to its provisions. All such orders made by the Central Government shall be required to be laid before each House of Parliament.
Section 101 - power to make rules
Section 101 empowers the Central Government to make rules for carrying out the provisions of the Scheme. All rules made under the Scheme shall be laid before each House of Parliament.

Threshold limit for Service Tax only
Section 93 of Finance Act, 2008 clearly provides for monetary limits of disputes which is only is respect of service tax and does not include any other sum, i.e., interest, penalty or any cess. It can therefore, be viewed that one can avail the service tax dispute resolution scheme for an amount exceeding Rs. 25000 also provided that total amount of service tax under dispute should not exceed Rs. 25000. For example, in a dispute of say Rs. one lakh, if Rs. 75000 could comprise of interest and various penalties, it can be settled under the said scheme. The mandatory condition is that dispute of service tax amount upto Rs. 25000 should be in existence as on the close of Ist March, 2008. Even when a show cause notice is issued on Ist March, 2008 but not served, such a dispute will be covered.
Declaration
The Scheme (section 95) requires assessee to make a declaration during the currency of the scheme to avail the scheme. The format for the declaration should be as per Form 1 of the rules.
The declaration shall be required to be made in the prescribed form and manner and will have to be properly verified. It should be filed before the designated authority - A declaration can also be made on the last day of the scheme to be eligible for being considered.
While there is no specific penalty prescribed for furnishing of wrong information or there being material misstatement, or if at a later date such declaration is found to be false at any stage, it shall be deemed that such a declaration was never made and it shall revive all pending proceedings under the statutory provisions.
As a major consequence of resolution under the scheme, as per section 96(4), once a declaration is filed, any appeal or reference before any authority, tribunal or court or any reply to show cause notice shall be deemed to have been withdrawn, whether or not actually withdrawn. If due to false declaration, the pending proceedings are revived, it is not clear whether such pending tribunal/adjudication proceedings will also revive or not and whether replies submitted earlier shall continue to be valid? pending proceedings before high court or supreme court will not revive as declarant is required to withdraw the same while filing the declaration.
Action on Declaration
Once a declaration is made by the assessee, the designated authority is bound to determine the amount payable by the declarant as per the scheme by way of an order in writing within 15 days of such declaration. Once an order is made by the designated authority, declarant is required to pay the amount determined within a period of 30 days of the date of order and intimate the fact of payment to the designated authority with proof of such payment. On receipt of such intimation, designated authority will issue a certificate to the declarant to evidence the discharge of liability under the scheme. The order should be in Form No 2 of the rules.
Guidelines for availing the scheme
CBEC has now issued Circular No. 102 /5/2008-ST dated 4.6.2008 providing detailed guidelines for implementation of the scheme.
Time frame of STDR Scheme
Following time frame of STDR Scheme is relevant for service tax assessees-
Scheme opens 1.7.2008
Declaration day D
Scheme closes (last day for declaration) 30.9.2008
Determination of amount payable in scheme D + 15
Payment of amount determined D + 45
Intimation to designated authority D + 46 onwards
Issue of certificate D + 46 onwards
In case declaration being made on 30th September, 2008, all other activities shall be carried out after that date and the fact that scheme has closed on 30th September, 2008 will not affect the proceedings.

Anyone can hack into your tax records online

If you are thinking of filing your income tax returns online, think twice. It is very easy for anyone to hack into your account and have access to your income tax details.
How can this be done? All a hacker needs to know is your name, permanent account number (PAN) and your date of birth.
He first needs to log onto the e-filing website (https:www.incometaxindiaefiling.gov.in).After this, all he needs to do is click on the login link and then click on the ‘forgot password’ link that appears. Having clicked on the ‘forgot password’ link, a screen that allows him to change the password appears. There the hacker needs to choose method1.
In order to change the password, the hacker first needs to know the login. The login in this case is the individual’s PAN.
After entering the login data, he needs to enter your name and then finally your date of birth, or date of incorporation in case of a Hindu undivided family (HUF).
This done, he needs to enter the new password twice and click on the reset password button. And, voila, he has hacked your account. It is as simple as that.
After changing the password, he can access the account using the new password and have access to your tax records. This would include information like your gross income for the year, the amount of tax saving investments you made, the amount of tax deducted at source and the tax refund you may get. He would also have access to your phone number and address.
These days, for most financial transactions, right from opening a bank account or a demat account or to invest in a mutual fund, the PAN number needs to be quoted. Along with this the date of birth also needs to mentioned. So getting hold of these details isn’t a big deal.
If someone knows your PAN and date of birth, he can also create your login. And if you want access to it, you’ll have to hack it. How do you go about doing that? Well, that has been clearly explained above.
What is surprising is how the income tax department can set up a system that’s so easy to hack into.

CONCESSION OF RS 1000 PER CHILD

Terms to avail of benefit in case of education

THE Delhi Income-Tax Tribunal has held that no concession would be available to an employee where the perquisite value of free/concessional education exceeds Rs 1,000 per month per child (pmpc). In the relevant case, the assessee, while calculating amount of perquisite value of free/ concessional education facilities deducted Rs 1,000 pmpc in terms of Rule 3(5). The assessing officer (AO) disallowed the claim of the assessee. The tribunal held that Rule 3(5) is an exception to the main rule. While in respect of perquisites of free meals and gifts, universal exemption is granted up to Rs 50 and Rs 5,000, respectively, no such universal concession of Rs 1,000 has been permitted. The benefit has been given only to persons whose cost or perquisite value of free educational facility did not exceed Rs 1,000 pmpc.

Bank liable to deduct TDS on MICR charges

Publication:Economic Times Delhi;
Date:Jul 15, 2008;
Section:Policy;
Page Number:8

THE Ahmedabad Income-Tax Tribunal has held that where charges are incurred towards MICR facilities regarding identifying, reading and clearing cheques through special kind of machines, the same would be in the nature of fees for technical services (FTS) and would accordingly be liable to deduct tax at source (TDS) under section 194J. In the relevant case, the assessee was engaged in the business of banking activities/services. During verification of the TDS return, the AO observed that the assessee had made payment towards MICR charges to MICR centre managed by State Bank of India without deducting TDS. The tribunal held that the definition of the term FTS is very wide. The services of MICR facilities involve human skills as well as computerised machines and that it is not automatic. In that sense, it is not hiring/leasing or making available the technical equipment working on its own. But it is fully supported by services of personnel and requires human application of mind along with technical equipment. Since other banks pay charges for the MICR facilities through its special machines, the same is in the nature of FTS and therefore, would be exigible to TDS under section 194J.

E-FILING OF RETURN

As the date for filing IT returns for individuals draws nearer, an obvious question is crossing through taxpayer's mind TO 'E' or NOT TO 'E'?
This article will discuss tax return filing for individuals not carrying out business / profession.
e-Filing As against the usual way of filling in the details manually and then submitting them on paper at respective ITOs e-filing is a smarter option where you can file your returns
with the convenience of operating out of your home or office. Well, electronic filing has become a norm for corporates since last two years and a common employee generally listens to all the big talks about the hassles that the office is facing every time. But still it is not touching his personal
life. Sooner or later, e-filing may become mandatory for the individuals too. The tax payer (filer) may again fall in one of the two categories:
• Tax payer is ready with the tax computation to be filled in the form properly
• Tax Payer needs assistance from an expert in computation of income and tax
Income tax Official Site
A tax payer has an option to go ahead and use the forms a v a i l a b l e o n t h e d e p a r t m e n t ' s s i t e www.incometaxindia.gov.in and submit it from there.
The procedure will be as follows:
• Create a user ID on the department's site with your valid PAN
• Download the free software to complete income and tax details
• Convert the information in the requisite XML format
• Submit this return file by logging on to your user ID on the department's site
• This transmission can happen with or without a digital signature
o If digital signature is used then mere submission electronically will be enough
o If digital signature is not used then the acknowledgement, known as FORM V will have to
be taken down as a printout in duplicate. This will have to be then submitted at the ITO after verification by the taxpayer. The Receiving official will return one copy with stamp as an
acknowledgement. Online Portals
• If a tax payer needs assistance in completing tax return , he can utilize services provided by online portals .

• Some of these portals are
www.taxsmile.com,
www.taxshax.com
www.indiataxes.com
• You get online assistance in the form of simple questions and answers for filling up the information to arrive at a filled form.
• These sites also provide optional online assistance or physical filing services. The charges for these services can range from Rs.150 to Rs.500. Tax Return Preparer
• Go to IT Dept notified Tax Returns Preparer who with a nominal charge of Rs.250 will prepare the returns for you.
• More information on this help can be obtained from the department's site. But generally, in every ITO, one of these official individuals can be found as the government has allowed them to carry out their workthere.
CA/ Tax Advocate
Go to your good old CA friend and utilize his expertise in return filing.
To 'E' or Not To 'E'
• E-Filing is not mandatory for ITR1 ,ITR2, ITR3 and ITR4.
• However , till 31st March 2008, out of 21.93 lakh
e-returns, over 14.41 Lakh returns (66%) have been filed voluntarily by taxpayers indicating the broader acceptance of the convenience of e-filing.
• As the government promises, this is a way in which your workload and time is saved a lot. It is much easier to see results like Online Acknowledgements. And if the government is to be believed, this will help in faster processing of refunds, that is most important
from your perspective; isn't it?

Associated Enterprises

Transactions between associated enterprises
Service Tax is payable by a service provider (SP) only when he receives the money from client/service receiver (SR). However , with effect from 10th May, 2008 the
following change has been made in service tax law :
• If a service provider provides the service to its associated concern , then the service provider is liable to pay service tax when he receives the money or books the income whichever is earlier.
• For this purpose “associate concern” will have the same meaning as defined in Section 92A of the income-tax Act, 1961. To inflate profit , many companies would credit the income and debit the account of associated concern . This debit to associate concern will not be actually received for many years. There was no service tax liability as the money was not received.
Now the service provider has to pay service tax even if money is not received. In other words SP has to pay service tax on accrual basis in respect of transaction with associated concern, but service receiver can take the CENVAT of the same only when service receiver makes
the payment to the associated service provider. For example
• Associated SP debit account of SR for Rs. 100,000 towards taxable service provided on 31st May, 2008 and receives the money towards this entry on 31st March, 2010.
• SP is liable to pay service tax on 5th June, 2008 but the SR cannot take the credit of the same in May, 2008
• SR can take the credit of the same on or after 31st March, 2010.

Precauation during E-PAYMENT

e-payment is made compulsory for the taxation payments for the corporate and others covered under mandatory tax audit. This would reduce the time at various level in the organization and also increase the accuracy of the data. While there are benefits of making e-payments, quite obvious, there needs to be some disadvantages too. The main disadvantage of epayment
is related to the security aspects. Finally we are dealing with money which get transferred from one account to another instantly, but knowing the rate by which cyber crimes are increasing, frauds take place over internet, it is very much necessary for all the payees to take care of the following precautions while they make e-payment for taxes or they make payments over
internet for any shopping (buying tickets of airlines, movies, shopping over the internet, etc…)
Online Frauds
Online Frauds occur when someone illegally conducts transactions on your existing accounts. Often called as 'phishing' or 'spoofing', the most current methods of online fraud are usually through fake emails, Web sites and pop-up windows, or any combination of such
methods. The main objective of both offline as well as online fraud is to steal your 'identity'. This phenomenon is commonly known as "identity theft". Identity theft occurs when someone illegally obtains your personal information — such as your credit card number, bank
account number, or other identification and uses it repeatedly to open new accounts or to initiate
transactions in your name.
'Phishing' is an attempt by fraudsters to 'fish' for your banking details. 'Phishing' attempts usually appear in the form of an email appearing to be from your bank. Within
the email you are then usually encouraged to click a link to a fraudulent log on page designed to capture your details. Email addresses can be obtained from publicly available sources or through randomly generated lists.
Although they can be difficult to spot, 'phishing' emails generally ask you to click on a link which takes you back to a spoof web site that looks similar to your bank's website, wherein you are asked to provide, update or confirm sensitive personal information. To prompt you into action, such emails may signify a sense of urgency or threatening condition concerning your account.
The information most commonly sought through such means are:

• Your PIN numbers
• Your Internet Banking Passwords
• Your Bank Account/Credit Card/Debit Card number
• Other verifications parameters, like; your date of birth,
mother's maiden name, etc…
Some fake emails may also contain a virus known as a “Trojan horse” that can record your keystrokes or could trigger background installations of key logging software or viruses onto your computer. The virus may live in an attachment or be accessed via a link in the email.
Never respond to emails, open attachments, or click on links from suspicious or unknown senders.

How to identify the fake email/website
Fake emails/ websites are not always easy to identify,however the below given indicators can help you safeguard against such emails or websites, should you ever come across one of these –
• They ask you for your sensitive information
• They appear to be from the legitimate source
• They often contain spelling mistakes tough the website would appear the same, even the URL of the website would contain spelling mistakes.
• They sometimes promise a prize or gift in exchange of completing the survey, where the sensitive information goes out
• They might contain fraudulent job offers giving workat- home positions
Other precautions
• Always type the address of the website in the address bar of your browser or access it from your stored list of favourites. Never use a link stored in the mail etc…
• Change your Passwords Frequently. Almost all the banks have 2 passwords – Login and Transactions. Try to keep them separate as far as possible. This provides additional security for financial transactions through Internet banking. There were various tips given about managing and maintaining the passwords in the article earlier published by this bulleting in the
month of December 2007.
• Do not share your user ID and passwords with anyone. This is a very common practice that is seen in corporate, where the Internet banking ID and Password are with many. This is the 1st
• Use Virtual Keyboard. Many internet baking websites have started using Virtual keyboard for
passwords. It is the keyboard on the screen and the person has to click (use MOUSE ONLY) on the password letters. If the website is offering this feature, then use it. This is designed to protect the passwords from malicious “Spyware” and “Trojan Programs”. Use of Virtual keyboard will reduce the risk of password theft.
• Check you last login time. Mostly all the internet banking sites provide the user with the details of last login date and time. You should constantly have a watch on this. This will help you to keep yourself alert in case someone else have also logged in using your ID and password.
• Sign up for SMS Alerts. Register for Mobile Banking and receive alerts upon all significant transactions in your account. Anything fishy can immediately be noticed.
• Login Frequently. Enter your internet banking account frequently. This helps to control accounts and also enable you to notice and stop any fraudulent activity quickly.
• Be Cautious. Do not leave internet banking session unattended. Always sign off from your online banking session.
• Never enter, confirm or update your accountrelated details on a pop-up window. The pop ups
can contain links to counterfeit Web sites carefullystep to invite fraudulent practices designed to look real. Hence such websites may look very similar and familiar to you, but are actually used
to collect personal information for illegal use.
• Every transaction you do would generate the unique transaction ID. Store this transaction ID
with you. This is only way to find out by your bank, if there is any thing missed in the transaction.
o It is quite possible that due to technological hazards at that mili-second, your account is debited, but the credit is not passed on. It is the transaction ID by which the bank can track the credit.
o The problem of single entry can also happen if the internet connection in which you are operating is too slow.
• Do not make payments in case the response from the site is very very slow. Sometimes, due to the internet speed at your end or due to the load on the banking website, it is quite possible that the response from the website is very slow. It is not advised to make payments during this time. These are the times when transactions might not get totally completed.
• Enjoy added security when using your credit card online. If you tend to use your Credit Cards
frequently for online shopping, make sure that you sign up for the Verified by Visa and/or Master Card Secure Code program(s).
• Beware of online offers that require you to provide your account details for 'verification'.

INFLATION

CONTINUED FROM YESTARDAY............

DEFINITION OF INFLATION

Inflation is a rise in general level of prices of goods and services over time. Although "inflation" is sometimes used to refer to a rise in the prices of a specific set of goods or services, a rise in prices of one set (such as food) without a rise in others (such as wages) is not included in the original meaning of the word. Inflation can be thought of as a decrease in the value of the unit of currency. It is measured as the percentage rate of change of a price index[1] but it is not uniquely defined because there are various price indices that can be used.
Many economists believe that high rates of inflation are caused by high rates of growth of the money supply.[2] Views on the factors that determine moderate rates of inflation are more varied: changes in inflation are sometimes attributed to fluctuations in real demand for goods and services or in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money. In the mid-twentieth century, two camps disagreed strongly on the main causes of inflation at moderate rates: the "monetarists" argued that money supply dominated all other factors in determining inflation, while "Keynesians" argued that real demand was often more important than changes in the money supply.
There are many measures of inflation. For example, different price indices can be used to measure changes in prices that affect different people. Two widely known indices for which inflation rates are reported in many countries are the Consumer Price Index (CPI), which measures consumer prices, and the GDP deflator, which measures price variations associated with domestic production of goods and services.
Measures of inflation
Inflation is measured by calculating the percentage rate of change of a price index, which is called the inflation rate. This rate can be calculated for many different price indices, including:
Consumer price indices (CPIs) which measure the price of a selection of goods purchased by a "typical consumer." In the UK, an alternative index called the Retail Price Index (RPI) uses a slightly different market basket.
Cost-of-living indices (COLI) are indices similar to the CPI which are often used to adjust fixed incomes and contractual incomes to maintain the real value of those incomes.
Producer price indices (PPIs) which measure the prices received by producers. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any resulting increase in the CPI. Producer price inflation measures the pressure being put on producers by the costs of their raw materials. This could be "passed on" as consumer inflation, or it could be absorbed by profits, or offset by increasing productivity. In India and the United States, an earlier version of the PPI was called the Wholesale Price Index.
Commodity price indices, which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee.
The GDP Deflator is a measure of the price of all the goods and services included in Gross Domestic Product (GDP). The US Commerce Department publishes a deflator series for US GDP, defined as its nominal GDP measure divided by its real GDP measure.
Capital goods price Index, although so far no attempt at building such an index has been made, several economists have recently pointed out the necessity of measuring capital goods inflation (inflation in the price of stocks, real estate, and other assets) separately.[citation needed] Indeed a given increase in the supply of money can lead to a rise in inflation (consumption goods inflation) and or to a rise in capital goods price inflation. The growth in money supply has remained fairly constant through since the 1970s however consumption goods price inflation has been reduced because most of the inflation has happened in the capital goods prices.
Other types of inflation measures include:
Regional Inflation The Bureau of Labor Statistics breaks down CPI-U calculations down to different regions of the US.
Historical Inflation Before collecting consistent econometric data became standard for governments, and for the purpose of comparing absolute, rather than relative standards of living, various economists have calculated imputed inflation figures. Most inflation data before the early 20th century is imputed based on the known costs of goods, rather than compiled at the time. It is also used to adjust for the differences in real standard of living for the presence of technology. This is equivalent to not adjusting the composition of baskets over time.
TO BE CONTINUED TOMORROW......................

Golden Quotes

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