Expectations from second budget of the GOI headed by honorable Shri Narendra Modi.

[CA DEV KUMAR KOTHARI]

The second budget of NAMO government:

The second budget of the GOI, headed by honorable Shri Narendra |Modi, and likely to be presented by honorable Shri Arun Jaitley, the Finance Minister, ( for short NAMO govt.) is expected to meet many of expectations of general public which remained unfulfilled by the first budget of NAMO government.

Respect to public:

1. Spend public money wisely:

Public pays direct and indirect taxes. No doubt, taxes are essential to meet public expenditure which governments incur for public at large. Therefore, the first way to respect the public, who pays taxes out of hard earned money, is to ensure that the public money is  protected, used and  saved in wise manner.

There should not be wasteful expenditure due to idleness of man-power, organizational infrastructure, and machinery in government department. The ratio of working hours need to be improved. Idleness need to be reduced, productivity and efficiency need to be improved.

2. Irrespective of income ,government is always gainer due to taxes- this fact must be reflected in government- public dealings :

Government officers including politicians must remember that public knows very well that government is always gainer from most of money spend by public - most of expenses incurred by public, contributes to government because of substantial tax element which is included in price paid which goes to the governments.

Whether, a new business will be successful and earn income is a big and long-term contingency. However, government start earning even during planning stage. Because all expenses incurred even to plan a business require expenses to be incurred and most of such expenses include a substantial element of taxes.

Whether, business makes profit or not, government starts collecting direct and indirect taxes. Even in case of o real profit or taxable income, tax is levied by way of indirect taxes and tax on notional income by way of tax on book profits.

Therefore, in a sense, government is a sleeping partner in most of businesses and other activities of general public, and has right to share a portion of  gross revenue realizes as well as  gross expenses incurred by public.  

Whether public spend money out of profit, income or borrowings, government has its share by way of direct and indirect taxes.

Therefore, the government, its ministers, departments, officers and staff must respect public from whom revenue is earned to run the show of government.

Respect of public while attending public:

On visit of a government department, a common man should not be left to feel that the government officers are his masters, they belong to a very high class of people and the public is a very inferior class of citizens of India. Therefore, in government departments and establishments public must be reasonably respected by quick response, no waiting time and off course by ensuring no harassment.

Government officers and other employees of government and allied organizations (Central, State , local  and PSU)  must really consider themselves to be at service of public and regard public and time of public.

The public need help, assistance and services of government establishments, and public is in a way customer or client of government departments.

Government officers and staff have no respect and regard for public, time of public and difficulties of public. There is no questioning of officers for their wrong doings. There seems hardly any meaningful mechanism to control harassment in spite of several vigilance agencies.  Unbridled powers to harass is one of reason of corruption. If government officers have respect for public, corruption will gradually reduce.

Government officers must be taught and trained to respect public and to act as a service provider and not to act as a harasser.

With reasonable check and balances in law, disrespect of public

 through legislation must come to an end:

Legal provisions must be designed to keep controls, check and balances and must provide reasonable procedural and other restrictions to avoid misuse or abuse of legal provisions. However, legal provisions should not be designed in a way that public is considered chor, tax evader, a criminal etc.

In any tax law or general law there should not be any provision, which smacks feeling that the public /  tax payer / other complier of law is not law abider  or is a chor or  tax evader.

Provisions  which presumes use of  undisclosed income or black money are legal assumptions that public is tax evader. If a person is under suspicious circumstances of having black money, the government agencies must do their home work and prove such a situation. For example, there should not be presumption that if a government authority feels that the market value of a property is higher than the disclosed consideration, the difference is undisclosed income. Such presumption presumes public (who is paying tax) as chor and disregard the ground realities that the government officers might have made high valuation because he was not bribed. Bribery in registry and stamp departments are considered as a common phenomena. We find that even circle rates are fixed at very high rates than the real market value in zeal of raising more revenue.     

When in a case of hard core criminal, punishment cannot be given until crime is proved beyond doubt, then why a person is considered as having committed crime just because of few technical or procedural lapses or delays?

The provisions to consider technical or procedural lapses or delays must be relaxed and there should not be presumption of criminal intent. There should not be prosecutions for such matters.

Productivity and efficiency of government departments must improve:

Productivity and efficiency in government departments must improve. It is felt that there is huge wastage of human resources and other facilities in government departments. About 2/3^rd  of public spending on human resources in government departments is wasted because people work only for about 1 /3^rd ** of time in government departments. 3 months in a year to deal with time barring matters   and about 2-3 hours daily instead of 8 hours.

** Exceptions are  Railways ,  Post and Telegraph department  and hospitals where , about  55- 70% working in different departments take place. At operational level just working improvement can make a change.

Improved productivity will reduce  costs, inflation and taxes:

Improvement of real working hours, productivity and efficiency in government and semi government departments, will reduce government expenditure on salary, better use of machines and material,  and will  lead to lot of government saving and will enable government to  introduce more schemes for welfare of public, reduces  taxes, reduce inflation and make government, and public both prosperous.

Let us take a simple case of few workmen – workmen who are regular in work, devote full time, work sincerely and honestly , have little or no idle time, are more productive and efficient – they can earn more and really earn more in comparison to those who are irregular, have lot of absents, do not work full time (have more idle time)  and do not work sincerely and honestly are bound to have lesser earnings.

So better use of resources with better productivity  and efficiencies by working honestly  must be mool mantra of new government.

Productive use of assets of worship places:

We  know that famous temples have huge surplus funds and precious metals and stones. These are making few worship places as wealthiest organizations whereas we find large number of schools, colleges, hostels, laboratories, research facilities and even factories having lack of funds and facilities.

Every day large quantity of milk, fruits, vegetables, are offered to gods and a significant portion of these goes to waste through drain. Whereas large number of hungry people do not get sufficient food to live healthy.

It is well known that we do not have a school, dispensary or play ground in many small villages but we definitely have many public temples or other worship places even in smallest villages. These worship places have considerable collection of cash money and other gifts. These institutions enjoy tax exemptions. No doubt these institutions have significant role in our life, but it is also true that they are sitting on huge wealth and that wealth is remaining unproductive. Therefore, it must be made compulsory that such institutions shall mandatorily contribute to setup school, hospital , dispensary , play ground etc. in the nearby area as well as at other places when there is funds available. The wealth of temples, maszids, churches, gurudwaras, synagogues etc. must be used in productive manner and in service of living persons, animals and living plants.  

God does not take anything from us, but give us when we work. But we offer ghee, sugar, milk, fruits, vegetables, and other eatables daily to statutes of gods and goddesses. God can very well be pleased with a bath from pure water if offered with pure heart. Therefore, regulations can be made that in temples such wastages shall not be allowed and all food offered to god will be distributed to poor people- this will also make it reality that in every living person there is god and the food given to poor persons is accepted by god as food offered to god.

There should be restrictions on establishment of new worship places:

Worship of god is by heart and soul and worship is individualistic. Public worship, is in fact a way of gathering and entertainment and  not for worship in real senses.

If you really want to worship the god, you need not nothing. Just close your eyes and pray the god.

Worship does not require a temple, maszid, church, gurudwara  or other worship places. We already have large number of public worship places. On one hand we have shortage of land and buildings to provide shelter to poor public, we have scarcity of play grounds and parks which are required for good health, we have scarcity of resources in our schools and colleges. However, we find large spaces occupied by worship places with lot of wealth accumulated and kept idle.

This has been so because our governments have exercised control in most of activities however, there seems no control on worship places.

The wealth kept with worship places must be brought into productive channels. There should be control on establishment of new worship places and expansion of existing worship places.

  Government and its officers must act honestly:

Government must act honestly in all manner. There should not be dishonesty at the legislative level. The law as it is written and interpreted must be honored.  Making amendments in law with retrospective effect just to overrule beneficial interpretation can only be regarded dishonesty at legislative level. The officers of government must act honestly and fairly by heart and soul and in real manner and not just for sake of show.

Businessman must be respected:

“Honesty is the best policy” is self evident as we find by and large  honesty in business deals and execution. Dishonest business cannot survive in long run. Even transactions done verbally are honored. Considering total volume of business, there are very few cases (by numbers and amount both) of dishonesty and unsettled disputes in business deals. Dishonesty really takes place due to personal reasons and not business reasons.

Unfortunately government officers have tendency of treating businessman as dishonest- there seems not much changes in attitude of officers at field level, so far. We find that there is volume of litigation for and on behalf of and against government because litigation is not pursued in honest manner and the government and its department do not work honestly. Even incentive provisions introduced by government are not acted in proper and honest manner and we find litigation.

Without prosperity of   business, economy cannot prosper in long-term. Businessman must not have fear of government departments. Government departments must deal businessman and public in reasonable, fair and honest manner. Government posts must not be regarded as a money minting posts. If the government officers are honest, reasonable and fair, I am sure the public will not be afraid of them and will be more willing to make full disclosures and compliances very willingly.

Contribution of businessman in creation of infrastructure and  jobs providing goods and services to society must be regarded as a major contribution to society.

If a person has fear of harassment from government officer, he is likely to make efforts to avoid the concerned department. There should be atmosphere for  voluntary compliances and disclosures and not forced compliances and disclosures.

Essential goods and services must be fully tax exempted:

All essential goods and services must be fully tax exempted, there should be free movement of such goods and persons dealing in such goods and providing such services must be regarded as an essential segment of business with least of intervention of government. Off course some check and balances are required to be maintained so that there is no misuse of such tax exempted goods and services.

Speculation in essential commodities must be stopped / reduced:

Speculation must be reduced and more check and balances must be provided. Speculation in essential commodities must be stopped.

Games and sports:

Games and sports must be promoted for better health and not as a specialized profession to allow very few to make huge money. Sports stars who are money makers sport professionals and make huge money earned by popularity must be asked to pay games and sports cess which should be used for providing games and sports facilities for general public.

Any kind of speculation in games and sports must come to an end.

Growth momentum needs continuity:

It is desirable that the growth should be maintained in near future as well as in long term. For that it is essential that the Government must adopt such policies, which can boost growth. For growth it is desirable that consumption as well investment both should improve. For better utilization of national resources also some efforts are required to be made. Some suggestions are as follows: -

Growth oriented tax policies –

Taxes:

Lower rate of tax, better compliance and finality of  tax collection should be the basic approach. Provisional collections and excessive collection are not good.

There is no purpose of first collect and then refund or allow credit as is presently by way of TDS/ TCS/ VAT/ CENVAT or other input tax credit etc.

To promote consumption and improve public life small consumers and service users must be exempted from Service tax. For example, telephone bills with less than ₹ 700 per person per month  may be exempted. .

All indirect taxes on non essential goods and services, should be reduced by at least 3% on most of items.

By providing  incentive for growth by way of increased investment and production the economy can be improved. For this purpose incentive can be extended by way of –

Extra shift allowance for working multiple shifts, this will help in increasing competitiveness by reducing cost due to better use of assets.

Incentive by way of additional depreciation for new investments in all type of buildings, all type of plant and machinery including vehicles can be provided @ 20- 40%.

Introduction of liberal depreciation allowance for let out house properties because let out property also suffer wear and tear, require repair and replacement. Due to very high cost of land and increased cost of construction,  reduced rate of interest, the return by way of rent is very low. Therefore, to promote investment in buildings some substantial concessions are required.

 In view of  likely more fall in interest earnings,  coupled with  high long-term  inflation  it is necessary that we must save more for better post retirement life. Therefore, more benefits to induce saving is required. The savings made by people will again help in growth. For this purpose deductions and exemption for investment by individuals and businessman must be increased.

 To provide investment in agricultural activities special incentive may be granted by way of higher depreciation, additional depreciation, lower rate of interest on bank loan to the persons who provide tractors, trailers, irrigation equipments, harvesting and processing equipments, etc. to farmers on rent, hire or job work basis.

Depreciation to salary earners:

Depreciation may be allowed to salary earners on durable assets purchased by them like vehicles, household appliances, computers, fitness equipments, entertainment equipments etc.

Salary earners also require these assets for better and healthy living, time saving and to maintain health and efficiency. These items costs substantially. There is no reason to deny deduction to employees if employee is required to purchase such things, when we find that employer will get deduction if he purchases and provide to employees.

Government can also change its policy of providing motor cars, residential accommodations and furniture etc. to its employees, instead government can also ask its officers to have such assets on personal account and allow employees finance by way of loan and allow interest and depreciation as deduction. This will reduce idleness of government properties and misuse of government properties.

Capital formation  should be encouraged:

Capital formation is very essential for any individual and  his  family for all times.  If one has capital he can create jobs. If one has no capital he will seek jobs. Therefore, capital formation must be encouraged. The provisions which goes against capital formation must be discarded. There is no purpose of keeping clubbing provisions to club income of spouse or minor children. They have hardly any impact on overall revenue. However, if such provisions are withdrawn, and capital formation is allowed to individual and families, it will go a long way in long-term  prosperity and viability of any family.

There are various provisions under which certain capital receipts are considered as income. These provisions may not test the legal scrutiny as to intra virse the Indian constitution. Because tax on income cannot be so widened as to tax capital. Such provisions should be omitted and instead of them provisions of considering income as taxable if it is proved that capital receipt or exempted income shown is really taxable income must be taxed. Considering all people as tax evader under law is not proper. 

Wealth Tax may be abolished or

limit can be raised to Rs. five crore:

There are few potential wealth tax payers and wealth tax collection is also not significant. However, since it is alive and basic exemption is also low at ₹ 30 lakh only, the Assessing Officers have to spent considerable time to review the files of assessees and to find out whether the assessee has filed W.T. return, if not whether he is a potential W.T. payer. In that case he may issue notice calling upon the assessee to file W.T. return. But ultimately any commensurate revenue may not be raised by way of wealth tax.

In case WT is not abolished the limit of exemption should be raised to Rs. five crore in view of considerable appreciation in value of gold, silver, and properties during last few years.

Result orientation:

The law, procedures and practices must be made simple and result oriented. There is no use of spending resources on un-necessary procedures that too on petty matters. ABC analysis as a tool for Always Better Control must be used by government and government departments. There should not be un-necessary litigation by government. The public should also not be forced by government officers to indulge into litigation due to harassing policies of government officers.

The approach of government must be based on honesty, integrity, respect for public, productive and efficiency  must be regarded as mool-mantras.

  Requests in relation to Income-tax provisions:

Heads of income:

The heads of income from house property, and other sources may be merged with business or profession. Because owning property, and making investment are   also risk oriented and systematic activities and can be regarded as business.

Capital gains- option for long-term assets:

Cut-off date for long term capital gains, to provide option to adopt fair market value may be revised to 01.04.2005 from existing 01.04.1981.

Or

 provision can be made that in case of an asset held for more than ten years, the assesse will have an option to adopt fair market value of such asset, as prevailed on 1^st April of  calendar year which is ten years prior to year of sale or transfer.

Concept of block of assets in relation to all capital assets can be introduced.

Rate of tax on long-term and short-term capital gains should be reduced so that one can find scope to replace capital assets in a reasonable manner.

Salary income:

Standard deduction for reasonable expenses incurred in course of employment may be allowed.

Depreciation on certain capital assets may be allowed on some specified assets, for example:

1. two vehicles (say  one  motor car and one scooter/ motor cycle/ moped)
2. Computers,
3. One or two mobile phones,
4. Library required for employment purposes,
5. Time saving devices in residential office and home,
6. Pollution control devices like air-conditioner, vacuum cleaners,
7. Power saving devices used in residence.