In the backdrop of the election fever, the Indian economy apparently took some beating with sluggish growth rates and disconcerting unemployment numbers.
To add to this confusion, economists and statisticians jumped in the fray, questioning the credibility of these numbers. It is now emerging that some sectors of the economy — notably real estate, infrastructure, auto, banking and NBFCs — need targeted attention to put them back on track.
It is said that there are three ways of doing a job — your way, my way and the correct way. Finance Ministers over the last 71 years have struggled to present a Budget that would satisfy all segments of the population.
Whether it is V.P. Singh’s Revolutionary Budget of 1986, Dr. Manmohan Singh’s Liberalisation Budget of 1991 or P. Chidambaram’s Dream Budget of 1997 — all were well-received, but still left a few dissatisfied.
That has been the inherent fate of Central Budget making in India. There are too many stakeholders and most of the suggestions and representations are by and large self-centric.
Of late, the trend is slowing reversing. It is now nation first, stakeholders second and owners third. Another redeeming feature is that the mystery of secrecy in budget-making is no longer pronounced. This is because most policy decisions are now taken outside the budget-making process.
Tax revenues have shown considerable increase over time, notwithstanding the fact that FY19 revenues have fallen short of target. 42% of taxes collected devolve to the States where the end-use monitoring has to be tightened. More often than not, most development initiatives are State-driven as against Centre-driven. While raising resources is an important ingredient of Budget making, the shift is now clearly towards effective end-use of resources.
This is where an agile and effective Citizen Monitoring Group at various locations in States needs to be created to ensure accountability of resource utilisation. Tax rates have reached resting point at 35.88% for resident individuals and 34.94% for resident corporates. There is a need to reduce tax rates by 5% to stimulate growth and consumption.
Glitches need attention
The first stage of filing returns and refunds using technology is working satisfactorily. There are some glitches on the ground that need to be sorted out and with focussed attention, can be resolved.
The next stage is to graduate from returns filing to handling assessments online. Reducing the interface between the taxpayer and the tax gatherer is a dream that has to fructify sooner or later.
While stability in tax rates is welcome, certainty in implementation is more important. The success rate of the tax department at the Income Tax Appellate Tribunal (ITAT) to Supreme Court level hovers at a mere 13-27% in direct tax matters and at 11-12% in indirect tax matters. In fact, 88% of the litigation at ITAT and the SC is initiated by the department.
A massive clean-up is required to settle existing cases locked up in litigation and collecting arrears. International taxation is still saddled with a host of interpretation issues and unnecessary litigation. The advance ruling mechanisms have helped partially, but have still not solved the problem of uncertainty. Similarly, high value domestic transactions/restructuring exercises need clarity and certainty in tax treatment.
A dedicated cell for advance-cum-settlement rulings in major cities catering to such complex cases with a time-bound framework will help in concluding such transactions without further litigation. The crying need of a businessman now is to know the exact tax cost of any transaction before embarking on the same.
Taxes are the price we pay for civilisation. Over the last two decades, the developments in infrastructure have provided the confidence to taxpayers that the money contributed to the exchequer is put to productive use.
(The writer is a chartered accountant)
