The >third Budget of the Narendra Modi government, which was delivered on Mond ay, was eagerly awaited. With increasing criticism of the perceived gap between promises made and action taken on the ground, this Budget was the key opportunity to regain lost ground and accelerate the process of converting the ‘Make in India’ dream into a reality. Indeed, there was little in the run-up to the Budget that generated cheer or optimism. The data from the manufacturing, banking, and real estate sectors were depressing. The > ill-timed notice from the Indian tax department of over Rs. 14,000 crore to Vodafone t wo weeks ago seriously cast doubts on whether the Prime Minister’s Office and the Finance Ministry were pursuing a common agenda of making India an investment-friendly destination. The only large silver lining on the dark economic cloud was the drastic fall in oil prices.
Arvind P. Datar New laws no solution It is incredible that one government after another seeks to solve deep-rooted financial and commercial problems by simply framing new laws. The attempt to cure industrial sickness by enacting the Sick Industrial Companies (Special Provisions) Act, 1985 miserably failed and only placed a premium on defaulters. The setting up of the Debts Recovery Tribunal and the enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) in 2002 did not even make a dent > in the problem of non-performing assets that plagues the banking sector let alone solve it. The proposed resolution to resolve bankruptcy disputes by new legislative measures are unlikely to bear fruit.
The Finance Minister announced that the ninth (and last) pillar of his Budget would relate to taxation. This ninth pillar had nine categories. At this critical juncture, what was expected was an audacious Finance Bill that made radical tax reforms. About 30 years ago, > the late V.P. Singh announced truly path-breaking tax reforms . The maximum rate of income tax was slashed to just 50 per cent, estate duty was abolished, and the maximum marginal rate for wealth tax was reduced to just 2 per cent. In indirect taxes, Singh introduced MODVAT credit with new central excise and customs tariffs.
Complicating tax laws Sadly, the present Budget has nothing radical or revolutionary. It has continued with the regrettable annual tradition of chronic tinkering with direct and indirect taxes: an explanation here, a proviso there, an extra deduction or benefit for some sectors and increased duties for other sectors, all sprinkled like chilli flakes over a pizza. To be fair, the Finance Minister appears to implemented many recommendations of the Committees headed by Justice R.V. Easwar and Parthasarathi Shome. The devil is in the details and one will have to wait and read all the annexures before coming to a clear understanding of the rationalisation.
As read in Parliament, there is nothing in the Budget speech that will give the much-needed boost to the ‘Make in India’ programme. On the other hand, the numerous tax proposals announced are likely to further complicate tax laws.
There is yet another >Voluntary Disclosure Scheme that enables payment of 45 per cent and provides immunity from penalty and prosecution. The proposal to enable appellate disputes to be settled will be unsuccessful as an assessee is required to pay the entire disputed tax. In several cases, the demands are high-pitched and it will be absurd to expect to pay up the entire disputed tax. There also appear to be wide-ranging changes in the Central Value Added Tax (CENVAT) and other excise/customs rules resulting in an increasingly complicated tax regime.
Critical reforms relating to abolition or curtailment of minimum alternate tax (MAT) were much awaited but surprisingly absent. The proposal to introduce General Anti-Avoidance Rules (GAAR) from April 1, 2017 is another cause for concern. The direct tax proposals will result in a loss of Rs. 1,000 crore, but indirect tax proposals will yield above Rs. 20,000 crore.
In fine, the Budget is unlikely to >accelerate the realisation of the ‘Make in India’ dream . There is virtually nothing to encourage either domestic or foreign investments in the manufacturing sector. Nothing demonstrates the petty-minded attitude more than the proposal to grant tax relief to start-ups but subjecting them to MAT. The Finance Minister rightly made a reference at the end of his speech to a dream, a desire and a vision. But attaining these requires a complete change in the way we encourage and nurture entrepreneurship. It will be irrational to expect a new India to emerge from old-style Budgets. One only hopes that we can find nuggets of relief when a detailed examination of the complex Finance Bill of 2016 is completed.
(Arvind Datar is a senior advocate of the Madras High Court.)
