By G. Srinivasan
For the Modi Government, shell-shocked by the excruciating electoral results in the national capital in the second week of this month still rankling, the need to recapture its larger-than-life-size image is too important to be left to the tame preparation and presentation of the General Budget on Feb 28 in Parliament. No doubt, the Union Finance Minister Mr. Arun Jaitley has a mind of his own and a virtual minefield of ideas in consonance with his pronounced pro-business and pro-market proclivities that he said time and again are neither incongruent nor inconsistent with pro-poor policies.
The underlying assumption is that unless growth takes place and supervenes seamlessly, there is scarcely anything to partake of in terms of enlarged provisions for physical and social infrastructure which the country is in dire need of today to catch up with past neglect of humongous sort. Hence, a lot of great expectations are in the air that the BJP government which had wrought a carbon-copy of the erstwhile UPA budget in its maiden budget soon must now make due amends to reveal its originality and chart a refreshingly bold reformist agenda so that the dormant investment sentiments and animal spirit of entrepreneurial classes get revived to underpin activities across the real sectors of the economy..
Though no wish list to the Finance Minister serves any purpose now as he might have already stitched together all the finer elements and policy packages to the budget, a few comforting nuggets to pep up the sagging spirits of small and medium-scale private industries in running their establishments hassle-free can still be driven home. A stark fact from the days of crony capitalism of the UPA two tenures to espousing the causes of fat cats of big industries even by this government remain part of the unedifying contemporary growth story because politics and big business in the country have coalesced beyond separation over the years. This mutual love cannot be wished away but what the government can do to lessen the implacable impact of this love-lock is to institute a process re-engineering in terms of doing business easier to legions of small businesses and genuine operators in the real sectors of the economy including small and marginal farmers.
For instance, taxing agricultural income is no doubt construed difficult lest it should endanger the livelihood security of millions of small farmers on the margins of existence. But how is it that even business people, political classes and rich people have unlimited acres of agricultural land and they do not pay any tax on the benefits they derive out of this fertile property? Even if the land is fallow, it is being used as a resort or farm house to carry on with questionable social activities! The income that accrues to the affluent from this farm land and other non-agricultural income all get cleverly converted into agricultural income to escape the tax net. Just as income earners on the margins do not pay any tax and enjoy exemptions, it is time the authorities devised a few plausible exemptions to owner-cultivators of say 5 to 6 hectares from paying any farm tax, while the rest of the farmers with more farm lands start paying taxes just as the salaried taxpayers do or whose tax is deducted at the source by the income tax department. It does not require any ingenuity to frame a purposive tax policy to bring farm income beyond a reasonable limit under tax net so that the tendency to convert even non-agricultural income as agricultural income by plutocrats including the political classes and the nova-rich would be thwarted with the treasury gaining no inconsiderable amount on this count to boot and boost its tax base.
Again there are anachronistic provisions in the tax statutes of the trillion-dollar economy that make a travesty of thrift and savings for channeling into productive investment to keep the wheels of the economy well-oiled. For instance, all loans in excess of Rs 20,000 if made in cash is deemed income and taxed. This limit was fixed ages ago and this sum looks now derisory. Company auditors pointedly contend that the government must enhance the limit to at least two lakhs of rupees. On one hand, the tax department says that routing through banking channel is not sacrosanct and on the other, it is keeping this paltry limit particularly when in emerging economies of India’s size such ceilings require to be revisited to render doing business easier.
Further, under IT Sec.2 (22) (e) any loan given to a director or a person substantially interested by a private company is considered as deemed dividend if the company possesses accumulated profit. This is highly retrograde since the person who takes the loan generally repays the principal with interest mostly within a stipulated short span. But the law does not make differentiation in any case. The moment a loan is taken, the provisions are attracted axiomatically and the subject is taxed at 30 percent. At least, exception should be carved in cases where interest is paid and loan repaid within a reasonable time, say two to three years. The loan may be used by the person in running another line of activities which might be hamstrung by working capital funds but the tax authorities get swayed by revenues and not by nourishing growth factors.
Tax auditors also draw attention to anomalous provisions under Section 40A (3) by which cash payments exceeding Rs 20,000-Rs 35,000 are taxed regardless of their genuineness. For instance, a truck operator hauling goods from Kanyakumari to Kashmir must meet a menu of expected and unexpected expenses en route encompassing diesel, drivers travel allowance, tyre replacement, octroi or high-way robbery by law-enforcing machinery that is given to seeking rent to ensure unimpeded flow of cross-country cargo movements! Hence, the driver takes advance in cash and spends the same on his way to and fro and this advance ranges from one lakh to two lakh of rupees. What is the quixotic logic in fixing the ceiling at Rs 35,000 when it is impossible to comply with this insubstantial allocation of cash payments? It is time the authorities evolved a realistic accounting practice so that carrying cash for meeting routine expenses is not questioned if they are otherwise bona fide and not fictitious.
Astonishingly, a few assessing officers are given to the fancy of making additions of apocryphal authenticity while taking up assessments. This is nothing but frivolity when such arbitrary additions to income could not fetch them any tax revenue with the distinct possibility of this getting jettisoned in appeals in various legitimate platforms constituted for this purpose. A practicing auditor illustrated an instance where if an assessee files a return on an income of Rs 10 lakhs on which the income tax official makes an addition of three lakhs that entails a tax payout of one lakh rupees at 30 per cent of three lakhs roughly. Now the assessee has to contest this fancy addition, the resolution of which takes a few years while the property or funds of the assessee get locked up leaving him by way of little to derive from his wasted assets! No wonder, the country’s judiciary is cluttered with a lot of pending tax cases for ages. If doing business is to be made easier, the least the Finance Minister should do is to sensitize the officials under his watch in the tax administration by making them understand what Chanakya long ago noted that “taxes are to be gleaned little by little like the bee which takes honey without harming the flower”. But the approach of the IT department is that it exacts taxes like a woodcutter who chops the logs by felling the trees so that the business comes to a standstill and the economy in perpetual pain. (IPA Service)