Economic Highlights

New Delhi, 18 July 2014

Govt Must Simplify Rules

MORE TAX TERROR AHEAD?

By Shivaji Sarkar

It is reassuring to know that Finance Minister Arun Jaitley intends ending tax terrorism and does not believe in retrospective tax. Appending a lollipop: If the economy improves he could give more concessions. Possibly in his next Budget, which would have his signature, be free from limitation imposed by the interim Budget and give direction of Modi’s Government.

However, the budgetary papers suggest bureaucrats are trying to usurp more powers and are virtually working contrary to political wisdom. The memorandum explaining the Finance Bill’s provisions has the devil popping up. It suggests new unnecessary amendments. These will only add to the convoluted process and procedures followed by IT (income tax) authorities and complicate lives of people, leading to needless harassment.

Invariably, the Minister’s promises are often jettisoned by officials who form a maze of rules with an obvious purpose. For instance, one of Jaitley’s predecessor’s had allowed interest waiver on home loans of up to Rs 1.5 lakh. But many who had taken that waiver after they got their house or flat allotments were being made to run from pillar to post, in some cases for 15 years, by IT authorities for having availed it.

The IT asks people silly questions, why they should be allowed concession? Why penalty should not be levied on them for having committed the “crime”? Consequently, a small flat owner is forced to spend bulky sums on lawyers and chartered accountants for following rules set by the Government. This time too, the Finance Minister’s announcement of an increase in home-loan waiver to Rs 2 lakh would certainly lead to more harassment.

It does not end here. The IT department to show their “robust” functioning made the Government deduct tax at source (TDS) on small interest earnings on bank deposits. This resulted in deducting taxes on small fixed deposits of women, senior citizens and other weaker sections. Why? They did not fill up Form 15.

Questionably, do the tax authorities think that poor people or a bank depositor has enormous time to fill up these silly forms?  The procedure has led to thousands of crore of deductions, which the IT department is not entitled.

Further, the recovery rules also cost people hefty sum in lawyers’ fees. So they prefer to bear the IT extortion. Alongside, the Government needs to consider why bank deposits should be taxed. People have already paid tax prior to putting money in banks.

Besides, it is simple wisdom that if one levy’s TDS on bank deposits, it leads to a large number of people moving away from the banking sector which in turn creates an illusory “black money syndrome”.

Notably, Jaitley announced encouraging financial inclusion. But this move makes many small and big businessmen shy away from the banking sector. As a first move to help the economy, the Government must remove TDS from bank deposits and end not only the tyranny, illegal deductions but also bring real white money into the financial system. The loss to the exchequer is minimal as banks and the IT department would also save crores spent on unnecessary paper work.

But despite Jaitley’s wishes to simplify the system, the Finance Bill proposes to amend Section 133A of the IT Act so that income tax authorities could enter any office or a place where a business or profession is carried out for the purpose of “verifying” what has been deducted or collected at source. Worse, they can impound any document without any approval.

Also, under Section 133C a notice can be issued to any person to verify information. This comes into effect on 1 October this year.

Furthermore, under the Wealth Tax Act provisions the valuation officer would have all powers. The Customs Section 129E too is being substituted with a new section to prescribe a mandatory fixed pre-deposit of 7.5 per cent of duty at first stage and 10 per cent at second state, demanded or penalty imposed or both for filing of appeal with the appellate or tribunal. The amount payable has a ceiling of Rs 10 crore.

Similar changes are being made in the Excise Act as well.

Plainly, the entire approach seems to be a legacy of the colonial era, where every Indian or corporate was looked at with suspicion. This will only create problems for business and industry.

Undoubtedly, the Modi Government must change its mindset. As the concessions it has granted with a view of boosting various sectors are actually being denied. Given that by making laws more stringent or where it is not required, gives unnecessary powers to the bureaucracy. We all know how such powers are used and misused. Touts smoothen the system leading to rising corruption. The very thing the Modi Government is trying to prevent.

According to the BJP manifesto the suggestion to end tax terror is valid. But this needs a sharp eye to keep vigil on the “innocent” moves by the bureaucracy.

Recall, Jaitley in an interview asserted, “For future, I have given a large assurance that this Government does not believe in creating fresh liability of tax retrospectively. So, such an episode will not happen”. People believe him. But they want him to do more by clipping the extra wings of tax authorities.

Specially against the backdrop that during the past few years thanks to IT authorities being given such draconian discretionary powers, a number of tax officials were found having wealth disproportionate to their income!

In sum, simplification of rules, procedures and reduction of powers would be in the interest of the economy and peoples’ freedom. True, businesses might be corrupt but if such complicated laws are there it would only force them to fudge accounts. Better rules could save that money and help it being used in a productive manner. Also, freeing bank deposits of the tax net could add to inflow of money into the system.

Clearly, a tax-friendly society with simple forms and procedures, would add to growth. One hopes Jaitley will enunciate many of these reforms. People want a simple regime as a complex system adds only to inflation. A society which has suffered for many decades nestles many hopes. ----- INFA

(Copyright, India News and Feature Alliance)