The budget is scheduled to be presented on 16TH the Friday and I expect some of the measures herein after detailed though the big ticket reforms in the form of DTC and GST are kept at bay. DTC (2010) the recommendations of the standing committee has come out just on 9th of March, 2012 which are indeed laudable and has come in for praise from different quarters.
DTC 2010 has been given the go by the standing committee of parliament which is headed by the former finance minister Yashwant Sinha with lot of recommendations. The suggestion to keep the tax rates on corporate at 30% though it was aimed at 25% and raising the individual tax limit from current Rs.1.80lac to Rs. 3lacs with wider slabs is quite welcome. It will also free the 90% of the tax payers from being administered but that would be provide enough space for the tax gatherer to detect evasion and add target the big assessees. GAAR too have been tuned as the recommendations include applying it prospectively and appointing more independent body and some provisions being referred to the ministry for greater clarity, providing for accountability for exaggerating assessments by AO, tax consolidation of group entities, profit linked incentives to be phased with investment linked incentives, grandfathering of provisions to avoid retrospective action.
Some of the leakages of tax revenues which we have seen in Vodafone’s purchase of Hutchinson’s share or interest in telecom business in India through a deal carried out by a holding company registered in Cayman Islands and the change in law in S.9 in respect of indirect transfers is the starting point to catch the big ticket M&A aimed at avoidance of taxes than depend on GAAR to come later on or these too can be brought in this budget. The SC’s interpretation is in limbs of S.9 not the result of a harmonious whole which need to be regulated to catch the dolphins than aim at the smaller fish.
DTC has been criticized by the left front for being pro-rich and few of the provisions are also irrational so far as the raising of exemption limit to Rs.5 crore from Rs. 1crore.
INDICATORS OF THE ECONOMY:
What went wrong that marred the overall economic growth with GDP only clocking at 6.9% instead of the projected 9%. The net tax revenue also fell short at Rs.550280 crore against the target of Rs.664457 crore. The profligacy of appeasing the different classes and sectors by hurling subsidies is yet another road block in the budget management where actual subsidies have overthrown the estimates `by Rs.1lac crore. The disinvestment front too had been wanting by garnering Rs.26000 crore lesser than the estimates. It is to be observed the budget 2008-09 was the real culprit in so far as it doled out Rs. 210000 crore in waiving off farm loans, arrears of pay commission and the amount in welfare schemes namely MNREGA where another Rs.40000 crore is additionally provided. The over spending of this magnitude had resulted in rendering the economy in bad shape in not tightening the fiscal deficit overall.
Fiscal deficit connotes excess of expenditure of the government over tax and non-tax revenues. The excess is met by borrowings from public. High fiscal deficit may cause misallocation as the savings are exhausted by the government. The budget should aim at containing the fiscal deficit to 3% level over a period of time which is a gigantic task considering the 4.5% targeted against actual being much more at 5.6%. Infact, 3% fiscal deficit is considered reasonable and sustainable.
Subsidies of the government which are currently estimated to be Rs.3.5lac crore or being 3.5% of the GDP with ample scope for manipulations and not reaching the desired beneficiaries need to be plugged by implementing Aadhar as Nilekani has already given report on payment infrastructure to the FM which could well be implemented in this budget. All these schemes need be brought under audit as all such schemes are not audited except by C&AG in some cases and social audit on the other hand.
Tax to GDP ratio has come down to 10% in 2010-11 from 12% in 2007-08 and it is matter of grave concern as it is expected that the trend is likely to continue in the current fiscal year. The ration can look up if share market sentiments are captured by bringing down the STT to a bare minimum or by abolishing as demanded by lobbyist but it is advisable to have some accountability of such transactions by reducing the STT.
The power sector equipment the duties are being contemplated which is keeping the domestic sector companies to great disadvantage against China need to be levied so as to promote capital investment in these companies floating.
There is need to bring in investment in infrastructure quickly in respect of farthest corners of the villages to help farmers connect with markets. China has done this to keep up the pace of government spending and thus generating employment and maintaining construction activity post 2008 financial crises.
There is need to bring land reforms and to pass the bill tabled before the Parliament. The sectoral reforms too are required in coal, mining, urea and the like.
There is need to bring in the reform in GST by promulgating the thirteen month old pending bill for constitutional amendment which aim at rebalancing the sharing of powers to levy of the taxes between the centre and the states under the new dispensation of GST.
DIRECT AND INDIRECT TAXES:
Implementing DTC recommendations which are easy to adopt before this becomes a reality which in current political scenario. This may improve the credibility of the government.
It is no denying the fact that GST shall help the consumers who will bear lesser load of taxes. There would be lesser evasion too as with current list of negative items pegged at 22 would cover almost all type of economic activities in its fold thereby leading to raising of the tax revenues.
There are still 240 or so items under excise exemption which the FM may subject to excise duty to garner the tax revenues. The excise duty rates are still 4% lower than pre 2008 crises and 2% lower in respect of service tax rates than are currently levied.
The new services should have been added to boost tax revenues as services constitute over 60% of GDP yet constitute 9% of taxes.
The current tax rate of excise and service tax should continue without raising the same so as to overcome the sluggishness in the economic activities with a caveat that it should be raised when the demand picks up.
It is time to balance the budget by mopping revenues and high time to tax diesel and diesel vehicle. It is said that this is one industry where there is least wastage in manufacturing process and it is black gold in that sense of the term
The time has come when due importance to investment allowance or development rebate is given in the sagging economy where capital goods industry would also grow besides giving a fillip to manufacturing activities.
There is a need to grant higher depreciation which had been slashed in the past reflecting government’s miserly approach which need not be justified in view of the MAT levied at 18%. This will give the business and the industry the much sought after relief, thus impel investment in productive plants and machineries.
The deduction in respect of interest of RS.1.50lac under income from self occupied house need be raised to usher in higher incentive which would result in boosting the construction activities.
There is no need to restrict working partner/s remuneration and higher tax rate to that of the companies. The higher remuneration would be otherwise be taxed in the hand of the partner therefore, there appears to be no rationale for scaling it down to the prescribed slabs. Why should it not be taxed at par with the individuals, AOP and BOI as in essence it is but a collection of persons who have agreed to share profits of the business carried.
There is need to amend the proviso that restricts brought forward losses or depreciation whichever is lower for adjustments provided under S.115JB and devours up the adjustment if one of these is zero to the complete disadvantage of the assessee.
It is the transparency and delivery by competent bureaucracy, efficient financial markets, tracking of the transactions of the business by technologically advanced infrastructure to detect possible leakages in the tax avoidance and evasion, targeting black money as well as inflation and better fiscal management that would go a long way to warrant plucking the low hanging fruits of growth by all.
V. K. KALIA
FCA, DISA-ICAI
CAclubindia
