FEBRUARY 25, 2012

BUDGET - MARCH 2012 - EXPECTATIONS AND WISH LIST

By Steven, Lawrence D' Souza

I place before you some expectations and wish list for the forthcoming budget, March 2012 which is slated for March 16 th as per News today It represents the hopes and aspirations of all the stakeholders from the common man, the salaried worker, exporters, entrepreneurs, a industrial sector etc. I was pleasantly surprised when many points made in similar representations made by me earlier in years 2009, 2010 and 2011 were positively considered -I enclose as attachment a thank you response published post budget 2010 in public forum like press and websites. and this has inspired me to do a thorough research and come out directly this year ,with some meaningful suggestion, now that the budget is postponed to March 16 as per the latest update.

A.) Resource Mobilisation - Reduction Fiscal Deficit

1) There is an expectation that the budget shortfall would be in the region of Rs.150000 crores. The additional subsidy burden would be about Rs.100000 crore and the receipts shortfall Rs.82000 crore after saving Rs.30000 crores in curtailed expenditure. As such the top priority would be to keep the budget deficit to around 5% of the estimate made last year. It is estimated that not more than Rs.50000 crore of additional expenditure be made as government borrowing in the next three months of the current financial year. This would help bridge the revenue deficit without any substantial inflationary effect.

2) The government should announce an amnesty scheme for citizens having unaccounted wealth abroad, on lines of offshore voluntary compliance scheme operated by the Internal Revenue Service in the United States of America. The government should also increase the review period of re-opening income tax assessments to 16 years from six years now, for black money stashed abroad or any income liable for seizure under investigation/adjudication arising from any money, overseas or domestic, acquired through illegal means such as bribes, kickbacks in government deals or smuggling of drugs or arms and ammunition. It has asked the government to bring in a law to force every citizen to declare his/her incomes abroad. These measures are required as probably best source of mobilizing funds given other wise recessionary trends on the horizon

3) India has in the last week of January 2012 just entered into a multilateral convention on tax matters, which until 2010 was available only to European nations and Organization for Economic Cooperation and Development (OECD) members. - The multilateral agreement covers all taxes (direct and indirect), all forms of exchange of information and provides for assistance not just in tax assessment but also in the actual collection. Since the DTC will not be implemented from the next fiscal, some of the provisions to strengthen laws governing overseas transactions could be introduced from the next fiscal itself General anti-avoidance rules advance pricing agreements and control finance corporations (governing taxation of overseas subsidiaries) could be incorporated into the income tax act itself in this budget itself. China and Australia have incorporated this provision in their domestic tax laws recently. The government should bring about amendments to the Income Tax act with retrospective effect to to ensure that it is able to levy capital gains tax on transactions involving a foreign company with operations in India . In any case such retrospective amendment is widely expected post the Vodafone Supreme Court Judgement. In its judgement the Supreme Court said that it is constrained to interpret the law as it stands and if the Government feels that like other countries they should plug the loop holes between tax avoidance and tax evasion then the law must be changed which is what probably the budget will bring.

4) Nearly Rs.25000 crore lying in the Universal Service Obligation fund should be utilized for the National Innovation Council project to lay optical fibre pipes to every panchayat in the country, so as to provide broadband connectivity to all Indians. USO funds can ALSO BE be used to modernize Doordarshan's programming -to switch completely from analogue to digital broadcast

B.) Revenue Mobilisation -Reduction Fiscal Deficit

1) The Wealth Tax rates on the Wealth of our umpteen neo-rich billionaires and millionaires need to be enhanced, presently, they are ridiculously low. Germany, US and other developed Nations have higher and more realistic rates. It is only fair that the super rich and the wealthy should contribute a part of their wealth earned from society,

2 ) The expected hike in central excise duties as a result of gradual and graded removal of fiscal stimulus package is inevitable. The hike should be 1 % for about 100 odd items which were brought into excise net last year i.e. the rate should now be 2%. The increase in CENVAT rate should be for selective industries only and in the range of 1 to 2% only. As regards service tax there should be no hike beyond the 10% rate the bench mark when GST would roll in. Instead the proposed introduction of service tax negative list should lead to substantial increase in revenue and hence the service tax rate should not be increase further.

3) Currently, the professional tax that can be levied by the state government is capped at Rs.2,500 per person per annum. “There should be an amendment to the constitution to remove this upper limit of professional tax,

4) The Government should impose “overflying charges” on European carriers as a retaliatory measure if the European Union (EU) does not withdraw the controversial carbon tax being levied on airlines flying to Europe.

5) While scheduled operators are exempt from paying custom duty on aircraft, non-scheduled operators attract a 6.8% import duty and aircraft import for personal use faces a higher levy of 18.15%. The Government should increase Customs duty rate for non-scheduled and aircrafts meant for personnel use

6) The Income Tax Department raised Rs.20,000 cr last year from transfer pricing and is aiming to generate at least 50% more in the current fiscal. Corporate Guarantees are also given at a cost there is a lot of ambiguity as regard transfer pricing mechanism and the proposed DTC had provisions to tighten the laws governing transfer pricing with a view to avoid tax avoidance by Multinationals. It is suggested that the provisions of the postpone DTC be incorporated in the present budget itself to enhance revenue collection.

7) Commodity transaction tax (CTT) be introduced for non food products and commodities on similar basis as STT. They cover 90% of the commodities covered in the market given the huge short fall in revenue and receipts and the need to raise resources for development, there is no alternative but to introduce CTT. Presently With the withdrawal of the deduction of STT as a rebate from tax payable in 2008, the cost of dealing in equity markets has increased for the investor compared with that in commodity futures. Thus with both CTT and STT there will be a level playing field in cost of dealing in both commodity and equity markets.

C). Incentives And Development Schemes

1) About Rs. 80,000 crores of fruits and vegetable rot away, only about 1.5 to 2 % of it is processed. To create more employment and give a fill up to the rural economy, the government must announce incentives / subsidy etc. to promote the food processing industry especially considering that high local and state levies have virtually destroyed this industry. The commerce ministry has announced setting up of 46 agro processing zones across the country in tie up with Japan recently. The Israeli Government has jointly built centres of excellence in three states across the country for joint collaboration to increase yield of fruits, vegetable and agro products. This agro processing zones and funds for more centre of excellence should be granted Budgetary allocations.

2) The Rs. 500 crores fund for women self help groups announced in last year budget is yet to take off. The Rs. 500 crores Dalit venture capital fund is pending before the planning commission. Both these social funds should be expedited and similar venture capital funds proposed for both Muslims and Christians also. It is pertinent to note that Christians are at the bottom of the list of communities in self employment as per the National Sample Survey (NSS) last conducted by the Government in the year 2007.

3) The Government intends to earmark 2% of corporate profit towards CSR and about 26% of mining companies profits towards CSR. The Government should seriously consider whether CSR (Corporate Social Responsibility) ventures can be permitted as business expenditure deduction itself since many corporates not happy with compulsion in CSR. Many companies spend a lot of money in Government approved projects related to CSR but not entitled to claim it as business expenditure which would be much more than 2% of net profits. This amendment will boost CSR activities considerably. Also the enhanced and accelerated depreciation for renewable energy measure should continue.

4) Many infrastructure projects have faced tax problems because of ineligibility of lending banks like JBIC i.e. (Japan Bank of International Cooperation) many projects of MHADA in Mumbai and proposed aided projects in the country including the Mumbai-Delhi rail corridor are seeking JBIC funds since they are cheaper than ADB and World Bank Loans all loans routed through Government institute of respective countries should be given exemption since it will help reduce cost of funds and help in timely completion of infrastructure project

5) Just today Government announced import of aviation turbine fuel by carriers and approved recast of Air India debt. It should now allow foreign airlines to acquire a stake of up to 49 per cent in a domestic carrier. Further the Government should finally classifying aviation turbine fuel (ATF) and cement as declared goods to bring a uniform tariff structure across the country since some state in the country have some of the highest sales tax and VAT levy in the world.

6) India needs one trillion dollars (about Rs.52 lakh crore) for infrastructure investments in 12 th plan (2012-17), : Allowing FDI in the pension sector will give access to global pension fund companies to the vast untapped Indian market and would enable the country to r increase the volume of assets that can be invested in infrastructure

7) The Union Petroleum Minister Shri Jaipal Reddy has requested to consider granting a 10-year tax holiday for oil and gas hunt and refineries in the forthcoming Union Budget. Given the acute shortage of both crude oil and gas and mounting import bill and prices, this proposal requires utmost consideration taking into account shortage of both coal and gas for power generating projects.

8 ) The Finance Ministry is planning to introduce a comprehensive legislation to overhaul the stamp duty regime in the country that will lead to a uniform rate for all financial transactions. This legislation could be brought in the budget itself.

9) It is a matter for serious concern that out of 583 approvals for SEZs, only 143 became operational. There has been no investment in SEZs in almost the whole of 2011However, the Bill as introduced in Parliament has provided deductions under Section 10AA of the Income Tax Act, 1961 to such of those SEZ units that begin to manufacture or provide any services on or before March 31, 2014. These units will be entitled to claim profit-linked tax holiday benefits Considering the bad shape of SEZ units further extension upto March 31 st 2015 should be given and MAT i.e. (Minimum Alternate Tax) on SEZ unit should be withdrawn Further, The Department of Commerce has brought out a discussion paper laying down the blue print to reform SEZ policies. It suggests sharing of profits between the developers and the land owners. It also suggests shrinkage of the area under the SEZs and reducing the minimum land requirement for multiproduct SEZs.. The Ministry of Commerce and Ministry of Finance should iron out there difference and come out with a policy to revive SEZs a dying species. The process can begin in this budget itself.

D). Reliefs-Changes-Direct Taxation

1) The section 80 C Income Tax limit be hiked to Rs.2 lakh for permissible tax deductions for all individuals in this budget

2) The year's inflation, loss of jobs and loss of purchasing power has hit the common man very hard. Income Tax exemption limits for senior citizens, women and general assessees be increased across the board by at least Rs.30,000-, compare to previous years IT exemption limits

3) Two high courts in the country have now given contradictory judgments on taxation of imported software, complicating matters for companies and the suddenly aggressive income tax department. The Delhi High Court has said that payment for imported software is not royalty and not liable to be taxed in India. Just weeks earlier the Karnataka HC ruled exactly the opposite . The Government should come out with suitable legislation clarifying whether payment to foreign suppliers for such software is ‘royalty' as defined under the provisions of the Double-taxation Avoidance Agreement (DTAA) between India and the US, an also under the Income-Tax Act. Tax is to be paid in India for the income classified as royalty', or other wise. Also law pertaining to Cloud computing, being a relatively new phenomenon, should be spelt out by the Indian tax authorities.

4) The Supreme Court judgment on Vodafone tax case seems to have opened a Pandora's box with exporters too expressing reservation on tax deducted at source (TDS) for payment with regard to overseas transactions. The applicability of Section 195 of the Income Tax Act, under which they are asked to pay TDS on payments made for foreign agency commissions, royalties and offshore professional services should be clarified in this budget by appropriate legislative measures if necessary.

E) Reliefs-Changes-indirect Taxation

1) Service tax In my letter dated Dated 11 december2011 To, Shri Shobhit Jain, OSD (TRU), CBEC, Ministry Of Finance, North Block, New Delhi 110001 on subject matter Amendments proposed In Proposed Negative List Reference: Revised Concept Paper on Taxation of Services based on Negative List Dated: November, 2011- CBEC; Ministry of Finance A Concept Paper on the “Taxation of Services Based on a Negative List” was circulated on August 31, 2011 to seek feedback from all stakeholders. Further a revised concept paper circulated recently, to public with deadline to submit amendments changes by 15th .December 2011, I had proposed following amendments in larger public interest

a) sector-2: serial no3-excluding health, education and calamity relief, in cases notified as national calamity by govt. and also govt. approved ngo activity in field of non renewable energy sources, and sanitation, drinking water projects in keeping with policy adopted previous budgets. sanitation, drinking water be specified since Ambiguity whether in health definition or not

b) sector 4-serial no9(b)-public transport buses whether owned or rented/hired on a point to point basis(except tourist buses) and stage carriage basis .this amdt in accordance with FM speech parliament para 134-july 2009-post budget circular By JS TRU in july 2009 and statutory provision-sec 65(115) of Finance Act 1994 read with section 2(40) of the Motor Vehicle Act 1998 which already exempts all public transport buses, owned or hired , as long as they have stage carriage permits. Smaller cities hire public buses and unfair that public transport costlier in these smaller cities/towns than in big metros.

c) sector 4-serial no9(a)- all passenger travel in any class by railway/metro and monorail. Unless all classes exempt, people will not switch to public transport and cars will jamour over crowded roads in cities

d) Sector 5-Serial No 10-New proposed addition 10(C)-All low cost housing by govt agencies or PPP/Private projecyts in low cost housing approved By Govt. It would be unfair to tax low cost housing, and let palatial bungalows built by specified person for own use be exempted. There should be value cap for self constructed houses since the rich can afford to pay service tax for palatial houses constructed by them.

2) Customs- Baggage Rules.

The baggage rules have not been changed since 2001 and most of the present exemption limit are outdated and need to be replaced presently the facilitation aspect has taken a beating and the baggage rules are in the news for all the wrong reasons with celebrities and socialites caught evading baggage duties. As such I propose the following changes

a) A flyer can carry Rs. 10000 in Indian currency

b) He /she can have another $15,000 on him/her, of which $10,000 must be in traveller's cheques

c) Any import or export of Indian currency more than R.s10,000 is not allowed.

d) The baggage exemption limit should be enhanced to Rs.50,000 keeping in mind the inflation over 11 years and depreciation of the dollar. For families travelling together clubbing of baggage allowance should be allowed as is the International law.

e) Currency exceeding $5,000 in cash and $15000 overall must be declared

f) A male passenger can bring in jewellery worth Rs.30,000 free of duty, while the upper limit for women is Rs.60,000. Other valuables like watches should not exceed Rs.25,000. Items exceeding this limit attract a levy.

3) The Customs department in Mumbai recently observed a Trade Facilitation Fortnight till February 2. It expedited disbursal of drawback claims and provide factory stuffing permission on the day of application. Officials tried to reduce the time of import cargo clearance and speed up procedures. At the airport, officials followed up non-traceability of cargo and damage of goods with the MIAL Biometric identification of Custom House agents will also be introduced the government should encourage the custom to carry this facilitation measure all through the year and at all ports not just a week for celebrating international customs day.

4) Excise duties, on buses used for public transportation should be exempted under notification Use of public transportation will increase only if JNNURM largesse is matched with matching fiscal incentives. Presently many transport corporations are running into losses, and tax levies including high state VAT levies, make it unviable. All levies relating to public transportation , whether by rail, buses, or even inland waterways , should be abolished .This is the only way to de clog our roads, make our cities more liveable, especially in the metros, and help reduce pollution caused by cars and autos. The excise and service tax exemption should be available for AC buses and travel by ac class by rail as well. This is a better option to wean people from using subsidized diesel in ever increasind ac diesel vehicles. The proposal of Union petroleum minister to instead levy an additional excise duty of Rs.80,000 on diesel vehicles and exempt public buses from excise and service tad duty should be seriously implemented in this budget.

5) In the Budget 2011 12, the government had announced levying 10% excise tax on branded apparel. Following large-scale protests by apparel manufacturers in various parts of the country, the government had proposed to enhance the abatement to 55% from 40% of the retail sale price given the extensive losses made by the branded apparel industry the government should further enhance the abatement to 65% as a welcome relief measure.

6) As step towards GST the Centre had reduced CST to 2%. The State governments had asked for a compensation of Rs.19,000 crore for 2010-11 to make up the loss. Of the Rs.12000 crore provided in this year's budget, the Central government has only released only Rs,6,393 crore to 13 states so far. The Centre should release the balance amount and also consider reducing Central Sales Tax (CST) rate from 2% to 1%.

(The author is a former IRS Customs, Central Excise and Service tax, Officer, presently a corporate management and tax consultant, visiting faculty business mgt., and course co-ordinator for IAS.UPSC, and other Competitive exams .)