PP Shailesh Haribhakti & RTN. Anil Harish Share Their Thoughts On The Union Budget Of 2022
Rtn. Anil Harish
The finance minister was commended for brevity in presenting the budget speech, it was shorter than the last few years. She talked about 13 different tax proposals: the amendment she proposed to the Income Tax Act and then in para 138 of her speech she said there are a few more amendments.
So, one would have thought that it would be a total of about 20-15 but when you look at the finance bills you see that are as many as 83 clauses to amend the IT Act and from the time that she has become the FM there are a total of 425 clauses to amend to the IT act. That is a huge number; every year and this year as well she has stated that the objective of the amendment to the IT Act is to rationalise and to make it easy for the assessee and to simplify but when you have 425 amendments it surely does not make it easier for any assessee to keep up with these rapid changes. It shows that everything was not rational at all and that so many changes are being made because every year they talk of “rationalise” as an objective. It cannot be that the IT Act can be so irrational that it needed 425 changes. So, you can see that many of the changes do not now make sense.
Apart from them classifying these in different categories such as those which are to rationalise and those which are to simplify and to simplify for assessees, they have not created one classification which they should have: every year we find that there is one retrospective awareness and this year they have really gone overboard. There are as many as 18 retrospective amendments out of 83 clauses. So, you can see what that means. If an assessee makes a mistake, then they will be penalised and taxed and prosecuted but if the FM makes a mistake, then all that they do is amend the law and that too retrospectively. One of the amendments goes as far back as 2005, there are several others which are of more recent years but there are several which amend the IT Act with retrospective effect from 2021. So, they introduced the amendment last year, they didn’t think about it properly and now this year they are amending it with retrospective effect from last year. Now that is not the simplicity and rationality that we need or accept from our government. In fact, in the memorandum explaining the position of the Finance Bill, they have themselves referred in some place to inadvertent errors. At least that is one good thing that they have done that they have admitted their mistakes but we don’t want them to make mistakes and if they do, they must be very few and should understand that the assessees too can make the mistakes. They should be much more forgiving in those cases.
One of the things that they have talked about is simplicity. There are as many as 8 different rates of surcharge and they have amended some of the classifications to go from a 37% surcharge level to a 15% surcharge level. There is no rationale to this. It doesn’t say why 37% is right or why 15% right, what is it that we are going to achieve with it, what are the implications of all those things. They just say to simplify and rationalise but when there are 8 different rates of surcharge, 2%-5%-10%, 15%, 25%, 37% it doesn’t make sense at all. Life can be so much simpler and we do need a much simpler IT Act than the one we have now. One of the amendments that we have talked out a great deal is the updated return concept. Now there is already a concept of revised return in the IT Act that if you file an income tax return then in the past 2 years’ time within which you need to revise it and it can be done in a year. Now it says that the return can only be revised till December 31st of that assessment year. So, if you make a mistake, yes, you can correct it. Now they say that if you make a mistake beyond and you realise that later or a little late then you can file an updated return within one year from the end of the assessment year and in such a case you will pay an additional tax of course but in addition to that, you will have to pay 25% more. So, for example, if you have made an error and the tax amount comes to Rs 10 lakhs, the interest on delayed tax is Rs 2 lakhs, that becomes Rs 12 lakhs. So you pay this Rs 10+2 lakhs but you also pay 25% of the Rs 12 lakhs which is another Rs 3 lakhs. In the event if you realise this error after two years of end of assessment year, then you will have to pay Rs 12 lakhs plus 50% additional. So, Rs 18 lakhs. You realised your error, you voluntarily offered to correct it but still you are paying this. What if you find an error that has gone against you? You want to correct it and you want a refund or pay lower rate of tax, you want to update the return. Can you do that? No, sorry not allowed. You want to pay to the government? Pay. Plus pay for this extra. But if you find that you have committed an error and that you are now entitled to something more, you are not allowed to do it, your time has stopped at the end of the assessment year. That is really unfair. It creates so many problems to the assessees, the government wants to keep coming out of the amendments, the perks take so many years. So, it is extremely one-sided.
If you take a loan, as many businesses have to take, then the IT officer can ask you to prove the source of your loan. He can say that I want to know the identity of the lender, the capacity of the lender and the genuineness of the transaction because he presumes that it is your own black money that has gone to the lender and is being given back to you.
Now the Supreme Court laid down these tests of identity capacity genuineness many years ago and this has been the law till now. But now they say that that’s not enough, we want to do something more. You have to prove the source of the source. So, not only will you have to give the identity of the lender, the pan card, bank account details and all, but you will have to prove that he had enough money. You have to ask him for the details of how he got the money. He can say why should I tell you? You are not my investigating officer, but if you do not prove the information or the source of the source, then the interrogation comes on you and you get taxed because you don’t know the genuineness of the source.
Earlier, the SC used to say that once you have established the burden of showing genuineness then it is the responsibility of the income tax officer to look into the other person’s case and depository. Now the burden falls upon you. You will have to prove all of that.
Now, there are some benefits. New manufacturing companies can be set up now not only from 2023 but from 2024 and such a manufacturing company has to be taxed only at 15%. So, it is great. But why do we have this discrimination? Why create these exemptions? Individuals may have to pay tax at 42%, why such disparity? What have they done to those who have suffered during the Covid times? What about the SMEs? Why should they not be given the benefit? I think it is discriminatory and they should not give benefits only to certain classes of assessed. They have done this is to the GIFT city of Gujarat, every year the GIFT city gets more and more exemptions, don’t we deserve all of that? We earn, pay our taxes, we have contributed and yet we are just ignored and discriminated. So, I feel that there is now real need of rationalisation and simplification and stability. We do not want these 25 changes in 4 years and everything should be stable.
In addition to the provisions relating to the tax laws, when we talk about the budget, it is allocation of resources and expenses and raising of the resources. One thing that was done in this year, which is good thing, is that Air India was dismissed. Last year I was sceptical. The government has Rs 17000 crore. They had budgeted, expected to get Rs 1,75,000 crore from disinvestments this year, we got only Rs 78000 crore and from the coming year we expect to get Rs 65000 crore, nice figures and very large for the country. I am glad something is done but more remains to be done. The figures that the government gives are quite often off the mark.
Last year, they referred to fiscal deficit; this year it is higher than they estimated it would be. Then the total expenditure is estimated to be at Rs 34.83 lakh crore, but the revised estimate is that it would be Rs 37.7 lakh crore and that means there is a difference of 10%. The assesses are not allowed to make any mistakes at all but the government can make these mistakes and there is no consequence at all.
They have talked about some plans of the future. As of now, these are plans that we hope that we stratify, like there have been talks of 25000 roadways in this year, they have talked about high-level urban planning to improve the mega cities and tier one and tier two cities but nothing is done for the SMEs or the hotels and tourism. Many of the sectors that we know have suffered. So, I will conclude by saying that one, I feel we definitely need a new IT Act which is not changed from year to year which should have stable rates, and which should be rational. Second, every year the FM must submit a report card, she must say that last year this is what I said that this is the expenditure, this is the allocation and this is how we improve housing and this is our report card. We will find, unfortunately, that in many terms the government has failed miserably, and we hope that there will be change but we want a report card.
PP Shailesh Haribhakti
I must say Anil that in the next 10 days I am going to come to your office and submit a 10-page amended IT Act document which I had, through a very large team from Indian Merchant Chamber’s, put together 17 years ago. But please advocate that India now needs this 10-page IT Act which will create a tsunami of implemental voluntary tax statements as we have seen happening in the last 5 years.
I am going to take a very different cut of the FM statements and I am going to craft it in terms of 6 forces that we should accept will drive our decision-making over the next year. The first is the force of capital investment by the government. 10 Rs lakh plus crores have been created to be spent on campex, if we take the Central and state Government’s statement together. The multiplier effect that a capital expenditure can actually have is phenomenal in terms of wages, contracts and the new capability that it will generate. Let us look at where these Rs 10 lakhs are meant to be spent. I will give you 3-4 buckets; I am trying to generalise.
The first big bucket is called Gati Shakti; the biggest reason India is globally uncompetitive is because the logistics costs in India are absolutely out of whack with what they are in the advanced economies of the world. And that is what we need: roads, last mile connectivity, ports, railways, every way to move goods from one place to another faster than what we are able to do today. So, Gati Shakti is going to receive a big chuck, I’d say 25%.
The other big bucket is rural India, and what is sought to be done there is to make sure that rural India is empowered to face years in which the monsoon is not as good as it is supposed to be. And, so, there is investment in completing irrigation projects. There is investment in making sure that land gets the resource activation that it needs, make sure that land records are digitised. This is the first budget where now there is an explicit commitment, to remove this curse of benaami land, and if we are able to do that and we are able to move goods from the fruit trees, and agriculture produce, we should see significant change.
Third big bucket is digital India which means that we will have 75 districts that will have digital banks, last mile connectivity of internet to the remotest part of the country. We will have the ability to make sure that water flows to homes, affordable homes get built in rural areas.
The fourth big bucket is energy transition. So, all kinds of energy transitions have been formed so that we can finally, over next 10 years, get rid of the biggest elephant which is imported inflation through oil prices which will change the whole actual vs planned scope.
So, that is the first big force being unleashed; will it crowd in capital investment from private sector? I don’t know but here is what I wrote to The Financial Times this morning; I said the PLI scheme will certainly catalyse private investment into areas such as semi-conductors, pharma, textiles, APIs. The other area where private sector investment is happening is again in energy transition but more importantly in complete digitisation and robotisation and moving towards manufacturing 4.0. Even at the board meeting this morning, we discussed the need of manufacturing 4.0 because in the long run all supply chains are going to be near short and we will have to learn to do 3D printing manufacturing of that scale and quality in a way that we will be able to democratise the cost, become competitive and actually make a difference. So, that is the second force.
Third force that I see getting unleashed is non-dependence on global supply chains, particularly because the shipping costs have gone up so dramatically that to import goods and have the worry that the imported material will not reach you in order to manufacture will get cut-off and therefore it has become so important to empower our industry to make sure that they will keep producing at scale from raw materials. So, the sub-forces that need to be unleashed should be innovation, digitalisation and sustainable. So, if these forces are unleashed then it will be even bigger.
The fourth force is reaching fiscal rectitude without sacrificing allocations to the needy sector and why do I say it is important? We had a fiscal responsibility bill which wanted us to reach 3% fiscal deficit. In the Covid year we were not able to control it, this year we will be able to perhaps control it to 6.8-7%, next year we are on 0.5% reduction. This is a very strong signal that please don’t anticipate inflation because we are not going to release money at a scale that will destroy the balance between the forces of demand and supply.
The sixth force to be unleashed is the force of the digital currency but even more important is the recognition of virtual digital asset as an asset class. Of course, it is going to be tax-heavy if you sell it, but the fact that you can own it and make profit off it virtually legitimises the ownership of a digital asset which could be in shape of an NFT, bitcoin, investment, blockchain. So, digital currency. All of us will not be comfortable using cash, that is very huge transformation. We have experienced it. Our children were the first to stop using a pen because everything was entered in the computer; now they will stop having a wallet. This is going to be the delivery of the digital currency.
Finally, the macro environment that gives us the shelter to do all this between all economic players is sought to be kept stable. So, what do we have as a delivered result? What is the promise of this budget? It says that we will have the fastest-growing nation. It says that our deficits on current account will be kept under some control and in case of balanced accounts, we will keep our currency as strong as we can. We will keep inflation on 4-6% despite all the events happening around us. And they are saying we will keep the debt to GDP ratio at approximately 60% which is a safe level that economists across the world recommend. Just for comparison’s sake, Japan is close to 250% of GDP. And, so, these are what are supposed to be the outcomes of the budget. But as Anil has warned rightly, let there be a budget vs actual report next year to see whether the promises are fulfilled.
Have we done a report card last year?
SH: The economic survey of last year is really supposed to be a government’s report card. It is a difficult and dense document to consume but you will get a sense of what is happening at the ground level in terms of investments and other things promised… and it is supposed to talk about what happened with the money allocated in the previous years.
So, have we achieved it?
SH: Very much, the fiscal monetary and overall policy directory that we have launched is delivering results. Despite Covid, the recovery is far fast, although the contact-based services had gone to deep slumber and need to be revived with efforts. That is not given but we must not forget that this is what is called the bar-bell strategy. You can’t predict what will happen but you should have the ammunition to make sure that you can make the intervention if a situation arises.
Are we heading to the protectionist world where the world is opening up? How are we going to be competitive?
SH: I am publicly against custom duties. I want to see free trade.
We are fully back to inspector raj and babu raj; how are we going address this and how is the sone ki chidiya going to fly high if it’s put in a pinjara?
AH: I agree, because it is just so depressing to see such notices. Just now a person came saying that a flat was sold to me in 2012 and now a notice of reopening has been received even though all queries have been answered and they are looking at the normal things. They are asking why are we paying transfer fees? All buildings charge transfer fees; they say it is legal, so, we will allow deduction of Rs 25000. Now the poor assessee will have to be taxed after 10 years with interest for doing something as a noble cause.
Practically, all buildings charge transfer fees. And then they say that 1984 value should be, assess estimated at Rs 25 lakhs, the officer said because you got it as a tenantry flat therefore your base should be Rs one lakh. Now if tenant, you have to work up the value, now these are such basic things, it is so depressing, it is terrible. Even the updated the return concept, you cannot do it if your notice is issued or proceeds are going on. But the fact is you should address the issue. The process is so long. So, yes, it is really back to inspector raj. I think it is not a good situation.