FEBRUARY 12, 2010

Priority areas requiring adequate attention and plan allocation in Budget 2010

By O Chamukuttan Master (Retd. Teacher)

THE first budget (2009-10) of the 15th Lok Sabha was comparatively a low profile affair on both direct and indirect fronts, as the Government was compelled to desist from taking any harsh decisions for fear of derailment of stimulus impact and the resultant backlash. The budgetary support by way of tax relief and the liberal monetary measures has helped the Indian service and manufacturing industry to recover steadfast both on domestic and export front during 2009-10. The RBI in their Third Quarter Review of Monetary Policy 2009-10 has made an upward revision of the economic growth projection for the current fiscal to 7.5 percent from its earlier estimate of 6 per cent. As expected, the RBI has made a cautious move by merely hiking the Cash Reserve Ratio (CRR) by 75 basis points from the present 5 per cent to 5.75 per cent leaving the lending and borrowing rates to remain unchanged.

Now that it is official, GST will not be going to be rolled out in the middle of the fiscal year 2010-11 and has officially been deferred by another one year. In a way, it is a blessing in disguise. Even though there are some grey areas still left out for want of consensus among some of the States, notwithstanding postponement of implementation of GST to next fiscal, it will be desirable if some of the suggestions where there is unanimity are considered in the ensuing Budget 2010-11, to test the water for twin purpose i.e. broadening the indirect base & increasing the revenue collection and thereby do some justice to make the slogan, “all inclusive growth” into a reality.

Indirect tax

++  Withdrawal of various unrealistic and outdated exemption schemes

++   Making Electronic filing and e-payment mandatory.

++   Simplification of law and procedures for the benefit of all the stakeholders.

++  Tightening of the existing loopholes in the Cenvat Scheme.

++  Unblemished and total integration of Service and Manufacturing Sector by removing the existing lacuna noticed in manufacturing vis-à-vis service sector and evolving a uniform mechanism across the board for bringing parity in critical areas such as payment of Service Tax, filing of return, remission of duty, etc.

++ Marginal 2% hike in rate of Central Excise Duty so as to bring parity with the Service Tax rate.

For the first time the services came to be taxed by 1994 Budget through Chapter V of the Finance Act, 1994, with effect from 1.7. 1994 covering just three services and thereafter, the scope of levy of Service Tax was gradually enlarged in the subsequent Finance Acts. The initial flexibility provided to Service Providers with regard to payment of Service Tax and filing of ST-3 return is quite understandable. Now that the Service Tax has grown in leaps and bounds during the last one decade or so, both in terms of service providers base as well as revenue collection, it is imperative that suitable amendments are required to be made in the Finance Act also, so as to make the proposed subsuming and integration into GST an easier one. At the time of introduction of Service Tax in 1994, the gateway of CENVAT chain was not opened to Service Tax and Service Providers and therefore the liberty of making service tax payment in cash only after receipt of value of taxable service during the period was necessary and understandable. However, even after opening up the gateway of Cenvat scheme and extending the scope of Cenvat to the Service Providers also vide Notification No.23/2004-CE (NT) dated 10.9.2004, allowing the Service Providers still to continue with the same practice and preferential treatment is irrational and against the interest of the exchequer. The repeated observations of the C & AG on loss of revenue due to the inherent CENVAT flaw need to be impartially and meticulously addressed and remedial action taken in a convincing manner. Similarly, filing of ST-3 returns also need to be synchronized with the ER-1 returns, so as to complete the verification of credit taken invoices/bills, in doubtful cases, at the Range level. It is felt that an amendment in Sections 67 and 70 of the Finance Act, 1994 is very much required.

On the Service Tax side it is noticed that due to the wrong classification, the Government is constantly loosing a number of high profile cases at the appellate stage causing huge revenue loss to the exchequer. In order to over come this, it is felt that introduction of a negative list containing the list of services which will be outside the purview of taxable service would immensely help the tax administrators as well as service providers to apply uniform yardstick across the country and thereby avoid unnecessary litigation and loss of revenue. Since, the rate of Service Tax is uniform except Works Contract Scheme (eligible for only notified and select taxable services), there should not be much of a difficulty in implementing the new procedure and the only noticeable hitch is the different abatement rates prescribed for various services.

The intervening period of not less than one year now available before the probable switch over to GST is a golden opportunity which can be sincerely utilized to find ways and means to clear the backlog in indirect tax arrears, roughly estimated to be a few thousands crores of rupees locked up in various Courts. Setting up of Fast Track courts, as suggested by the India Inc or unveiling amnesty and one time settlement on similar lines of erstwhile Kar Vivad Samadhan Scheme can be considered to generate the much need revenue to off set the estimated current fiscal deficit of 6.8 per cent mainly due the increased spending on infrastructure as well as committed flagship programmes such as MGNREGA, Bharat Nirman, Rural Health and Education mission, intended for the benefit and upliftment of the downtrodden.

Even though the recent CRR increase from 5 to 5.75 percent may help fasten the inflationary expectations in the near future, the Budget 2010-11 alone will provide the detailed road map on how to mitigate the fiscal deficit and external debt. The task is mammoth but nevertheless achievable. Apart from addressing the fiscal deficit, the annual Budget is an opportunity to take corrective measures which are compounding the suffering of the common man.

Other Priorities areas:

++ Setting of a Separate Independent Evaluation Office (IEO) to assess the extent to which the government's flagship schemes are helpful in removing the growing divide among the rich and poor and translate the ‘National Agenda of All Inclusive Growth ' into a reality.

++ Increased plan allocation for protecting the environment cause and save earth mission

++  Levy of Ecological Conservation Cess

++  Increased plan allocation for Non conventional energy mission

++  Setting up of an autonomous bio-technology Regulatory Body to deal with all issues relating to GM seeds.

++  Steps to implement the recommendations of the National Commission on Farmers headed by Dr M S Swaminathan and tabled in the Parliament during November 2007 aimed at ushering in the second green revolution in the country.

++  Attention on animal husbandry to overcome the deficit noticed in milk production.

++  Need for compulsory Rain water harvesting.

++ Increased plan allocation for R & D, Science and Technology.

++  Implementation of various initiatives of HRD Ministry in a time bound manner.

++  Special package for development of various backward regions of the country in a time bound manner.

The state of affairs of Public Distribution System is pathetic and virtually crippled and needs urgent corrective measures to regain the confidence of the common man in the Public Distribution System. It is time to introspect whether the stock pile up of essential food grains and sugar by the organized food malls and retailers across the country due to the opening of FDI in retail marketing had any impact on the price rise and if found in affirmative, the Government should not hesitate to rectify the mistake in the larger interest of the nation and its population. Similarly, the impact on account of stock piling of sugar by the soft drink manufacturers and confectionery product manufacturers in price rise noticed in sugar also require immediate attention by the concerned. It is widely perceived that the manufacturing cost involved in preparation of soft drink is very meager amount and the remaining cost charged from the ultimate buyers is on account of advertisement and endorsement by the celebrities and various accredited Associations. The unprecedented advertisements and endorsement noticed in the FMCG products is due to the fact that there is no ceiling, as such under the existing laws on the quantum of expenditure that can be incurred on such things. Even though the public can report on any advertisement which is misleading, dishonest or indecent to the Advertising Standards Council of India, PO Box No.7939, 78, Tardeo Road, Mumbai – 400034 for taking appropriate action, it will be desirable in the interest of the public, if enactment through legislation is made by the concerned Ministry of the Union Government, inter-alia, (i) that the advertisement /endorsement cost which has a direct bearing on the assessable value and ultimately the selling price should not in the normal course exceed the cost of manufacture and its permissible overheads. (ii) in order to create awareness among the customers, similar to the measures taken by the Health Ministry while dealing with commodities such as Cigarettes and IMFL, the manufacturers of confectionery and soft drinks should be insisted upon to display prominently the list of ingredients and preservatives., if any used and also its likely adverse impact on the health in the bottle or the exterior covers as well as in all their advertisements, in print and visual media. A small initiative on the above lines even if at the loss of revenue to the exchequer will go a long way in protecting the health of the citizens, especially younger generation of the country. Further to avoid the spiraling price rise of essential food articles in future, and the routine panic knee-jerk reaction, redefining and total revamping of the Public Distribution System with the active participation of the NGO and social activists is needed, so as to curb the role of middle man and unscrupulous elements in diversion of essential articles meant for the BPL and others to open market and private flour mills and also setting up of a permanent Cabinet Committee of Group of Ministers headed by the Hon.ble Prime Minister to constantly review the demand - supply position of essential food articles as well as price situation will go a long way in helping to improve the system. The rampant adulteration noticed in food articles, milk and milk products underlines a thorough revamp of the existing mechanism.

Another area which the eco friendly common man is eagerly keen to know is the steps which are going to contemplate by the Government to arrest the ground water depletion on account of unprecedented and merciless digging of bore wells across the country for domestic, industrial purpose and mushrooming mineral water manufacturers. The endeavor should be to educate the citizens on the need for restricted exploitation of the natural resources and inculcate the habit of preserving the natural resources, as far as possible, for the next generation. Therefore, it is felt that there is an urgent need to regulate exploitation of ground water through bore well and promote open well concept and maintain the existing wells and ponds and encourage the population living in villages and semi urban areas to make use of the common ponds and wells instead of depending on bore well and tap waters. Government can think of nation wide mission to promote this project with the active role of village panchayats and social activists. By this way, the ponds and wells which are either abandoned or sold to realty sector for construction activities can be retrieved and put to use for the intended objective by the hamlet once again. By this way, we can save precious ground water to the extent possible. Also, the Government can either regulate such activities with stringent measures or even consider levy of Ecological Conservation Cess on all such manufactured goods and services which are directly used in or in relation to the activities causing damage to the eco-system and natural resources and include them in the negative list for restriction of movement of such items through import as well.

The genuine concerns made by the eminent agriculture scientist and one of the architects of India's green revolution, Mr.M S Swaminathan, on the food crisis due to the continuous neglect of agriculture and farmers over a period of time cannot be ignored. While addressing the press on the sidelines of the 97th Indian Science Congress held at Trivendrum recently, the renowned agriculture scientist has cautioned that - Quote “We are on the verge of a disaster. We will be in serious difficulty if food productivity is not increased and farming is neglected. The future belongs to nations with grains and not guns. The current food inflation is frightening. If pulses, potatoes and onions are beyond the purchasing capacity of the majority, malnourishment will be a painful result," Unquote.

If U.S President Barack Obama can come out openly with the suggestion to cut tax breaks for U S outsourcing firms, (having direct adverse impact on India's IT-BPO sector) as part of encouragement and employment generation within America and more importantly to make the business to stay within their borders, the Government of India should also be equally categorical, bold enough and forthright in protecting the interest of India Inc, from the onslaught and determined efforts by China to ruin the manufacturing industry of the country, especially SME and should therefore take meaningful and long term measures in this regard. According to the Planning Commission report, the Eleventh Plan envisages investment to the tune to of $500 billion in infrastructure projects including power generation. Taking the cue from the announcement made by U S President Barack Obama, we must also consider inclusion of a saving clause in global tenders stating that while executing the mega projects one of the pre-condition should be deployment of manpower from India and not from outside in the event of tender being awarded to any foreign bidder.

The World Bank in their Annual Report 2008 on poverty released on 26.8.2008 has opined that as a result of India's growing economic might and increasing GDP has considerably lowered down the number of poor but added that increasing equality and distribution of wealth is the need of the hour. “High GDP growth in India has reduced poverty. However, to achieve a higher rate of poverty reduction, India will also need to address inequalities in opportunities that impede the poor from participating in the growth process.

” Let us hope that the Budget 2010 will not belittle the aspirations and show case a host of convincing measures to assuage the feelings and sentiments of all the stake holders including Aam Adhmi”.

(The views expressed in the article are in pursuit of fulfilling the dream of a vibrant, resilient and enviable India)