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Budget 2019 leaves a taste of 'malaal' for entire economy!

TIOL - COB( WEB) - 667
JULY 11, 2019

By Shailendra Kumar, Founder Editor

THE Union Budget fever is almost over! Going purely by the content in the Budget Speech and also the Finance Bill, one may tend to gather the impression that it was a hurriedly tailored budget! But why such a hurry? It was probably because of several reasons such as 'missing link'; not enough time to arrange the thought process matching the quantum of growth lethargy which has got rooted in the economy, and overdependence on retired bureaucrats.

Mr Arun Jaitley is evidently the 'missing link'! Notwithstanding his protracted illness he did put up a brave face during the poll season and also wrote several blogs defending the Prime Minister on various issues but post-results, he sought to be excused from any onerous work in the Government. Thus he could not chip in his efforts in the process of budget-making. This forced the Prime Minister to appoint a new Finance Minister who obviously needs time to understand the macro issues and possible solutions to sink in. Others in the Cabinet could at best contribute only Machiavellian jargons which can be gathered from her speech. The Government perhaps did not find enough time to work on any vision document for the next five years or even a matching solution for the rapidly-rising crisis variables such as growing unemployment; slowdown in manufacturing as well as services sector; lethargy-ridden exports sector; contracting demand and many more. It is indeed not very clear how the Government intends to travel the journey to USD five trillion milestone!

Then comes a sort of very striking overdependence of the Prime Minister on retired civil servants who are believed to be finders of panacea for all the ills of the socio-economic crises in the country. This is not to say that retired bureaucrats lose their wisdom on retirement but they are certainly not trained to find solutions for the macro issues of the economy. Every government in all countries needs to consult wider audiences, more importantly, domain specialists to find solutions for structural issues. Though the Union Finance Minister did hold many pre-budget sectoral meetings but I do not see any big idea being given prominent space in the Finance Bill 2019. What further indicates conspicuous absence of top-layer talent pool in the government is the haphazard direction the Budget 2019 reveals! Though one may find many sectoral doses but the doses which are needed to transform India into USD five trillion economy are certainly missing! A lot needs to be done besides the sloganeering!

Let me now go to the Finance Bill. The Finance Minister proposed a hike in surcharge for high networth individuals (HNIs). As per some reports there is a discernible trend among the HNIs to shift their residency outside India. Efforts should have been made to put a lid on such a trend rather than giving them additional reasons to expedite their migration! It is conventional approach to overtax the rich (beyond the point of 'digestion') and garner revenue. If the Government needs more resources it should have gone for the inheritance tax with higher threshold or some out of box ideas like allowing 100% deduction of only such business expenditure under Section 37 where GST was paid. Deduction under I-T Act may be restricted to 75% on transactions on which no GST was paid. I am sure such a measure would have promoted the culture of tax paid transactions in the economy. Of course, a detailed procedure in this regard can be designed so that smaller taxpayers are not victimised.

Since unexpected implications of such surcharge was not thought about, a serious issue of its impact on FPIs has come to be debated. It has bruised the sensex and dented the sentiments of FPIs which the Finance Minister had sought to persuade to invest in India. The Finance Bill proposes to relax special tax regime for offshore funds by amending Sec 9A. As regards the Startups, nothing substantial has been done in the budget. Angel tax is a hoary issue and valuation of their shares has been a bone of contention which is now being sought to be put at rest. Merely by fiscal instrument, startup culture cannot become a national culture. A lot more needs to be done in terms of regulatory frameworks by both the Centre and the States. Similarly, not much has been given to the housing sector except a spoonful of tonic for the affordable housing. Though the Prime Minister claimed that there is something even for the middle class, not much can be found in the fine print of the Bill. Faceless assessment, pre-filled returns and interchangeability of PAN and Aadhaar are all administratively doable matters and we do not need a budget for initiating such actions.

A quick glance at Part B of the Budget Speech indicates that most proposals are oriented towards garnering revenue. Though there is a slowdown in the economy and private investments have taken a beating but the Finance Minister has budgeted more than Rs 1.65 lakh crore extra revenue on the direct tax side alone. Though she has moderated the GST collection targets but she has strangely gone for a protectionist regime by hiking Customs duty on dozens of goods, including books! India does criticise protectionism at the WTO forum but when it came to practising the same, we have failed and Indian companies would gradually be eased out of the global supply chain. High tariff wall has not helped the economy in the past and in today's globalised business environment, it is an expensive policy option to pursue. In the name of 'Make in India', the Govt seems to have done greater harm to the economy. When the Government talks about minimum government and maximum governance, the market should largely be left alone to fend for itself. Let global currents decide who survives in the market. Another bad decision which the Budget proposes is to hike import duty on gold. Smuggled gold has been raining for the past several years and our Customs apparatus is obviously overstretched to nab all consignments. By making it more lucrative, the Budget has given a solid impetus to gold smuggling syndicates operating out of Middle East.

If we leave aside the direct tax side, one good proposal I find in the Budget is that of Sabka Vishwas (Legacy Dispute Resolution) Scheme (SVS). It was an overdue scheme for which I have written several times in this Column. Though the intent of the Govt is to unlock revenue to the tune of Rs 3.75 lakh crore stuck in litigation but our policy makers have failed to translate the noble objective into an attractive scheme. More efforts seem to have been made in relation to carving out exclusions / disentitlements. In the process, the quality of drafting of various clauses has taken the back seat!

First, I would like to talk about the wide range of tax waiver percentage - 40% to 70%. It was highly avoidable. Why? Let's take an example - If the notice is for Rs 50 lakhs, one needs to pay only 30% (about Rs 17 lakhs). But if it exceeds Rs 50 lakh by even one rupee, one needs to pay more than Rs 25 lakh. So one rupee is going to cost Rs 8 lakhs extra in this case. This sort of huge gap tends to disincentivise potential declarants. Ideally, the difference should have been only about 5% or a flat out rate of 50% for all cases, including pending appeals. This would have made the scheme simple, good and magnetic. Secondly, certain expressions like "heard finally" should have been avoided. There are examples where even after hearings being concluded, the Tribunal has called for clarificatory hearing when there was a time gap of six months in issuing orders. Moreover, if a case is heard but not disposed of by an order, its status is nothing but pending before the Bench. Why to complicate the scheme by putting such non-tariff barriers!!

Thirdly, it is indeed a messy drafting if one goes to Clause 123(1)(c) - "(iii) in a return under the indirect tax enactment, wherein the declarant has indicated an amount of duty as payable but not paid it and the duty amount indicated is,—". First, it should be (d) and secondly, the same expression appears again under Clause 124(1)(f) under the voluntary disclosure head. This is obviously a copy-paste which produces conflicting intent of the scheme! In addition, there are several gaping holes in the scheme which would perhaps be addressed after the rules are framed and notified.

However, there are several legal questions which have already raised heads and would require answers at the stage of issuing notifications are - Whether a case is eligible for the scheme if a writ has been filed against the Settlement Commission order or the Commission has remanded the case back to the adjudicator? I guess, such cases are eligible because their status at the time of filing declarations is not pendency before the Commission. Another area of doubt is - Whether if the main noticee has not made any declaration under the scheme, can co-noticee alone avail the scheme only for penalty purpose? Clause 123(1)(b) does not answer this situation as it addresses the one where duty is either paid or is NIL, then, co-noticee can also avail the scheme! A very predictable scenario can be the one where the assessee may disagree with the tax dues estimated by the Designated Committee. What options are available to the assessee in this case? The Scheme should elaborate all such situations to avoid litigation as its key objective is to liquidiate pending litigation and unlock some revenue!

I sincerely hope that the CBIC would like to revisit the content of the Scheme and would further liberalise it so that it realises the purpose for which it is being floated - unlocking of precious revenue in a deficit-ridden financial year! And also, it does not violate Sabka Vishwas in this Scheme!

Related Articles:
Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - Issues need to be Addressed  
More on Sabka Vishwas Scheme - computing the relief  
Efficacious Disposal of Legacy Tax Disputes: A Key Challenge  
Sabka Vishwas Scheme  


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