Revamping FRBM – Fiscal Responsibility and Budget Management (FRBM) Act 2003 was meant to bring deficit under control. But it is now flawed because it allows no flexibility in fiscal deficit target. It should be revamped. Rationale behind the fiscal deficit trajectory should be stated (which can come from Debt to GDP ratio which is 66%) and should carry a flexibility to modify the fiscal deficit.
Adequate Expenditure – India’s govt. expenditure is 26.6% of GDP which is less than the average 31.7% of emerging nations of G-20. The need is not to cut expenditure to reduce CAD (Current account deficit) but to decide the expenditures and then raise the revenue accordingly. Approach should be changed.
GST – GST is the much-awaited taxation structure. The reason being simplified tax laws. It will eliminate cascading effect. Credits of excise duty which is included in cost can’t be taken by the trader against the VAT paid and other case where credit of CST is not available against VAT. This is a double taxation system which will be eliminated in GST regime. Main hurdles are being faced due opposition from state governments fearing loss of power and funds. GST will help boost revenues by countering leakages. If GST can get approval in the coming budget, it is expected to get it implemented by September 2016.
Reduction of Corporate tax – Govt. announced that corporate tax may soon be reduced to 25% from the present 30%. It is to be noted that exemptions will also be withdrawn. An average company pays 22-23% tax on its income but if the taxes are reduced to 25% and exemptions are withdrawn, the effective tax rate after surcharge and cess will be 28-29%. This will lead to increase in revenue of the govt. while at the same time may discourage the industries. Direct tax revenue is already low with a growth rate of merely 6-7% as compared to indirect tax growth at 34.3%.
Scrap the Direct Tax Code (DTC) – Most of the provisions of the DTC have already been included in the Income Tax Act, 1961 such as advance pricing agreement which was amended in 2012 to simplify transfer pricing provisions. DTC was written with the sole objective of increasing the tax collection and making life easier for the administrators. Govt. announcing that corporate tax may soon be reduced to 25% is a confirmation yet again that DTC is dead and buried.
Utilisation of funds collected as cess – CAG report notes that Rs. 64000 Crore was collected as SHEC and EC between 2005-06 and 2014-15 and no schemes were identified on which cess proceeds were to be spent. There is no clarity on how much Swachh bharat cess has been collected and where it is being spent. Are these funds being diverted for other purposes? No one knows.
Exemption slab – People of India are already paying a lot of indirect taxes plus the inevitable burden of direct taxes. Exemption limit should be increased by atleast Rs. 50,000. Deductions u/s 80C should be extended to Rs. 200,000. Though a wishful thinking, the no. of slabs should be increased. Instead of following simple 10,20,30 percent rates in 3 slabs, the same should be increased to 5-6 slabs (US has 7 tax slabs) limited to 35-40%. This means that the high burden of tax would be shifted to high income group and low-income group would get a relief.
Abandon the budget secrecy – It serves no purpose. It blocks serious discussion of complex issues before the budget.
Macroeconomic stability – Direct taxes hasn’t done well due to not so good profit of industries. Consumer loans have gone up but industry loans are going down. Private investment and exports are weak. While the country is doing well in macroeconomic stability, a lot more is needed to be done to boost growth and investments.
Focus on Clean India campaign – While there can’t be much dispute about the need to change mindsets of people, it can’t be ignored that hyperbole around Clean India mission emphasises individual rather than state responsibility. Coverage and use of community toilets is tardy. Work of waste collection, disposal and treatment has not progressed significantly. Changing mindsets has become a catchphrase to justify the inefficacy of the outreach of govt. programmes. Focus should be given to the responsibilities of the state in the mission.
OROP Benefits (One rank one pension) – Changes made in OROP is creating serious agitation. Defence minister told that 7th pay commission benefit would not be passed to ex-servicemen since OROP can be reviewed only every five years. Also, those taking early retirement would not be able to get the benefit of OROP. Retirement is not a luxury, it is required to keep the forces young and fit. The forces allow and encourage personnel to take early retirement if they get superseded in promotion. Now imagine if you deny OROP to this person, he will not be able to perform his duty properly. Govt. should understand this.
Explanation to OROP – It is a pension reform for Indian armed forces personnel. Consider the situation without OROP – A and B retires at the same rank after same years of service. A retires in 2010, he will get 50% of his last drawn salary as pension plus inflation rate as applicable from time to time. B retires in 2030 and get 50% of his last drawn salary as pension plus inflation rate as applicable from time to time. Do you think that the pension of both would be the same? NO. Pension of B would be far higher because of substantial increase in his last drawn salary due to revisions in salaries. Salary of A would be 10,000 at the time of retirement but that of B would be 100,000 at the time of his retirement. To avoid this mismatch, the govt. introduced OROP so that those who retired earlier can also get pensions at the current salary plus inflation rate.
Facilitate Prisons – Indian Prisons Act, 1894 are applied as per whims of the authorities. Human rights violation go unnoticed due to secrecy that surrounds every act of prison administration. Women are getting raped inside prisons and police refuses to file FIR. Medical facilities are absent. Prisons are security-centric rather than correctional. When a broken yard would be repaired overnight, it would take months to fix a hand pump and that too after a couple of hunger strikes. People of India consider that torture = punishment which is wrong.We don’t send criminals to prison to torture them, but to correct their behaviour. Undertrials are kept in prisons for many years. Charges are fabricated many a times. Men are tortured and then usually acquitted, but by the time they are out of the prison, they are mentally ruined. A set of strict guidelines is required.
CA Chiranjiv Kumar