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The new government has already completed more than one year in office after taking the reins. There is a public perception that Shri. N. Modi, the new Prime Minister is a strong leader with no non sense approach. Grown from the scratch as a tea vendor, he has shown his mettle in running the affairs of Gujarat except for the oft repeated 2002 episode that we can brush aside at this distance of time since no courts of India have found him accused and since Gujarat is definitely free from any communal outbursts thereafter. On the top of this, he has got a clear cut majority, not at the mercy/pull of the alliance partners to their cynical demands. Therefore, he can deliver rising above petty party line or vote bank politics.

But, the recent happenings in parliament are showing the real colour of our polity .Even significant bills like GST and Land Acquisition Bill that are  in the direction of development  get stuck up owing to uncooperative attitude among different parties  for political gains  that are unpalatable. That is the state of affairs to which we are driven to.  In a situation like this what will happen for the ensuing budget session is anybody’s guess.  It is ideal for the government to ponder over the following issues in the Budget that is the call of the time to deliver social justice and that may rightly activate deserving support from the people at large in running the affairs of the government.

One such area where a meaningful approach is long overdue but not addressed to, because of political compulsion is income tax related. Income tax no doubt is one of the sources of revenue for any government but also should primarily serve as the leveller.

One of the important canons of taxation is capacity to pay, that’s so long given go by for political survival. People getting income more than a crore is bulging. The remuneration of actors per film is in crores. Their advertisement and brand revenues are increasing in geometric proportion. Players, particularly cricketers’ income are mind boggling and their advertisement and brand values are no less than actors. Take any walk of life that that will indicate remuneration /income has increased in leaps and bounds.

 What about managerial income? What started as Rs.5000/ per month for a managing director, in the early seventies of bygone century steadily moved to Rs.10,000/ per month in late seventies, there after jumped to Rs.50,000/ per month in 1993 and then opened up in 1994. Similarly, sweeping changes were made on the maximum permissible perquisites over the same period. Taking advantage of the legal position that’s tailored to the advantage of men at the helm, all most all companies have hiked the managerial remuneration extensively, by leaps and bounds.

Take for example a TV NETWORKS.  It’s Managing Director and Dy. MD is rated as the highest paid for that level. To quote, the TV Network paid Rs.128.8 crore (Rs.64.4 crore each) in the year ended March, nearly double what they got the previous year. They were already considered the highest-paid executives in corporate India when they earned about Rs.74 crore (Rs.37 crore each) in 2009-10.

According to the company’s annual report for 2010-11, the remuneration paid included a salary of Rs.10.86 crore with an ex-gratia and bonus of Rs.53.54 crore. The pay structures for his Deputy is by and large the same.

Besides, together they own nearly 75% stake in the company. Foreign institutional investors held 13.48%, domestic institutional investors a meager2% and others 7.52% as of 30 June of the said year.

The above is a tip in the iceberg. There are many number of management personnel in other entities sailing in the same boat in cushion. The purpose of the article is not to criticise or denounce the high remuneration but to focus on the level playing for the other staff- that is real stuff at different levels of work force. During the corresponding period, the wages have not increased in the same wave length. No statistics is required since blatantly visible. These really have widened the difference between haves and have not, with a high potency to heighten and worsen the unrest.  The gap should not be between heaven and hell –we know the consequence that will sprout. Therefore, it should be addressed before it goes out of hand. The next one is the governance factor. The percentage increase in management remuneration is more than the corresponding in profit.  

Who will bell the cat or really look at that gate for level playing? Can the new government listen to the voice of sense?

Forget about congress or BJP which are toeing the right wing line. What about Communist Parties that are considered to be left wing. Have they left the space, hence baptised ‘left’ parties? Then, what about the recent loud mouth from All Audacity Party?  Is he addressing this problem? He is more interested in nabbing concocted/fictional issues for electoral gains. What is to be enacted in legislatures, he is enacting on road sides, as what is to done in bed rooms, in caricaturing in drawing room. He blames the press forgetting he is the creation of the same press! Let him be at least reasonable after the recent bounce back in elections. In Delhi

Since these parties are the mouth piece of the rich, and hence toe their lines, the new government should naturally step in .One of the important canons of taxation as spelt out earlier is ‘capacity to pay’ that should be addressed immediately before it is too late. Today, the tax rate beyond Rs.10 lacs income is the same except for temporary surcharge on income beyond 1 crore. Why? Why? No reason or rhythm. It’s mainly to appease the higher echelons for political survival.  In fact, the rate of tax should progressively increase by increasing more slabs for level playing at least beyond every core. The persons at higher end decide their own remuneration structure in the garb of shares holders’ approval, as could be seen in the earlier example the promoter holds more than 70% of capital.

On the top of this, the promoters are further showered tax advantage. Most of the promoters have high percentage of shareholdings, now up to 75%.MrChidambaram in his earlier dispensation as Finance Minister in the pretext of double taxation has wholly exempt dividends in the hands of the receivers making mockery of level playing traits of direct taxation. Instead, a separate dividend tax has been imposed on the company under the guise of avoiding double taxation.

What’s the consequence? These rich shareholders, primarily promoters are the great beneficiaries since dividends are totally exempt in their hands.  Therefore, the pseudo loud speakers instead of playing false political games and gimmicks should address the problem for level playing in taxation. It is advisable to make taxable in the hands of the receivers, with appropriate exemption say Rs.1 lac or so. Double taxation is an alibi to confer tax relief for the undeserved and filthy rich, smelling a sort of quid pro co. The government of the day should rise to the occasion to make income tax serve level playing. Then only, it could serve its intended purpose.

Coming to the Bonus Act, look at the plight of workers. Profit for allocable surplus is calculated by applying the rates of depreciation prescribed under the Income Tax Act which is generally on the higher side as compared to book depreciation applicable under the Companies Act. But, what is the rate applied for Managerial remuneration? It is at the rates as per the Companies Act. Why? Why this discrimination? On the top of this, to arrive at allocable surplus for workers, 7.5 % of paid up equity capital and 5.0 % on reserves both at the commencement of the accounting year is further subtracted. But,there is no such deduction for computing managerial remuneration.Is it not a blatant discrimination, if not what is this tantamount to? In fact, to arrive at profit for managerial remuneration, there is an overriding need to consider whether dividend provision can also deducted, notwithstanding the fact that dividend is only appropriation, since the promoters get the lion’s share and that too at tax free.  Why Communist Parties of India considered being spoke persons of working class are conspicuous by silence on this issue? Are they aware of this? This point is to be addressed by the Parliament to remedy the biased approach.

One argument that could be advanced is while Managerial remuneration is sealed to 11% of the profits computed under the Companies Act, it is 60% or 67% as the case may be, to compute allocable surplus for the payment of bonus. This is obviously because the number of persons coming under managerial person is very much limited as compared to work force coming under Bonus Act. Here again, it is not to be misconstrued  as against giving more remuneration to higher ups but to serve level playing in the computation of profit on the both the score.

There is already a feeling going around that the present government is the mouth of piece of the rich and that perception is well orchestrated, deliberately focussed and spread by the opposition to run down the government. Increase the number of slabs beyond say one crore, 5 crores etc., as appropriate that can be particularly be used for poverty alleviation.

Next, look at senior citizens. The salary structure has increased of late within a decade. Average living age and expectancy has increased. Look at their plight. How they will meet the medical requirements with their paltry pension based on meagre salary then existing when they retired. One can say there is medical insurance but, it takes care of only hospital admission for given diseases. What about day to day medical treatment for these olds especially when they are driven to Retirement homes thanks to the fast life scenario whence their children are driven to matchbox like houses in far flung cities spread across the country and including foreign lands. How to address this?

For AY2015-16, the tax slab for individuals with income of Rs.2.5 lacs is free, but for senior citizens over 60 years, it is marginally increased to Rs.3.0 lacs and for senior citizens over 80 years, it is RS.5lacs. Its impact on tax saving is only a token Rs.5000/ plus 3% education cess there on for the former and Rs.25, 000 plus 3% education cess there on for the latter.  In the light of disturbing situations as a burden to the dependants, it is long overdue to reduce to 70 years in the case of the latter from 80 years.

Though it may provoke wild protest, it is but a clear case for consideration to adjust suitably the initial exemption limit whence both husband and wife are earning members. In some western nations, it is in vogue for level playing, to say further, we were in that league in   the middle of earlier century. It should not be taken as a source of revenue but a clear case of social leveller. It is known, in the present context, no government worth the salt will summon courage to pitch for this proposal, not for any lack of its intrinsic worth as a level player but for the imminent backlash from the vested interests. Political parties cocooned in vote back syndrome cannot rise to this social call. That is all about governance. 

Let us recall Swami Vivekananda “Arise, awake, stop not till our goal is reached”.

Will the new government listen to this and reflect at least in the next budget?


Published by

P.R. Sethuraman
(Chartered Accountantant)
Category Others   Report

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