Expectations and some suggestions for the forthcoming Finance Bill 2013.

[CA DEV KUMAR KOTHARI]

Capital subsidies instead of expenditure subsidy:

More emphasis be laid on subsidy for capital creation instead for consumption. For example a subsidy for Pressure Cooker will go a long way instead of subsidy for kerosene oil. A subsidy for fuel efficient equipment is better than transport subsidy etc.

Improve quality of government spending and working:

Government spending be made more productive by improving man and machine deployment, productivity and efficiency. Transportation and travelling be reduced by adopting advanced communication means for holding meetings, hearings, conferences etc.

Idleness of man and machines in government and public sectors be reduced.

Wasteful and avoidable expenditure be curtailed.

Amendments- a trend reversal is required:

During last about fifteen- twenty years common practice has been to make amendments to negate rulings of courts which are in favor of taxpayers. Many times this is being done in name of legislative intentions and clarification. This is not proper. The law should be honored as it exist at a given time and there should not be retrospective amendment. This is very much needed to improve credibility of the country, its public and the government.

Public – taxpayer must be relied on:

There should be full honor of taxpayer and tax payer must be considered as an honest person and there should not be presumption as to tax avoidance. If a legal provision to impose tax is not attracted, the tax payer should not be blamed as tax avoider. There should not be tax by deeming provisions like by treating capital as income or by deeming service when there is in fact no service.

The taxpayer must be relied on. The provisions which have thinking behind them that the taxpayer is dishonest must be removed. There should not be presumption of income or other taxable base. Let tax authorities establish that the tax payer is liable to pay tax instead of presuming any receipt as taxable income.

Taxpayer must be encouraged to built-up capital base- better

Capital base of tax payer is good for society and nation:

Capital base is required for any individual, family, organization and the government. Capital base can improve only by increasing after tax earnings and savings. Better capital base of any individual, family or organization is indirectly better capital base of society and the government. Money earned and saved by public is a source of capital for the country. A person having capital can engage as a self employed person, can provide employment whereas a person having no capital will have to depend on society.

Keeping this as a long-term plan for building nation by improving capital base there should be encouragement to building capital. In this regard the following steps can be taken:  

1. Greater encouragement to savings – saving instruments like those covered under section 80C, infrastructure bonds, can be widened and more deduction can be provided to improve savings. Added saving will have also impact to reduce liquidity and spending and will help to control inflation to some extent.

Savings in industry by way of more investment in infrastructure be encouraged by introducing deductions like Investment Allowance.

1. Reduce rate of tax to enable more profit after tax.
2. Reduce rates of indirect taxes to increase demand and production so that reduction in rate can be compensated by increased production and sale of goods. A reduction in rate will also help in reducing tax avoidance and more compliance.
3. Delete provisions for clubbing of income of minor and spouse etc. Let there be capital building for the welfare of spouse, child, elderly parents and grand- parents etc. This will make society more viable in case of exigencies. For example, a widow having capital in her account will not depend on family or society. A minor child / even a major child who is studying, who lost his earning parent will be able to survive without help of family / society.
4. Encourage education and training and for that introduce more incentive schemes for education and training and investment in education and training in simple manner.

Reduce rates of TDS to avoid larger refunds- rely more on advance tax:

Rates of TDS must be reduced so that there is no excessive tax collection causing larger refunds as being experienced. TDS provisions must be used as a handy tool to improve tax payers base. However, for tax collection there should be more emphasis for payment of tax by way of installments of advance tax, instead of TDS. Collection by way of advance tax is more beneficial for the revenue because expected TDS as on last day of previous year also goes to reduce even first installment of advance tax. Lower TDS will require more payment by way of installment of advance tax.

TDS on suppliers:

TDS on bills for good supplied be introduced. There should be exemption up to say Rs. Ten lakh per supplier and in excess of that , TDS @ 0.05% (may be provided) A TDS of Rs.50 against supply of Rs. One lakh will go a long way in bringing more transparency about bills for goods supplied and it will provide a reasonable system for data base creation and to check and balance by way of cross verifications etc.

Some suggestions:

Income-tax:

1. basic exemption be raised to Rs. three lakh.
2.  Limit for tax incentives by way of investments under section 80C be raised to Rs. Two lakh.
3. Investment in infrastructure bonds , GOI long-term bonds etc. be reintroduced with limit equal to 20% of Gross Total Income or Rs.1,00,000/- whichever is higher. This deduction be allowed to all assesses
4. Rate of tax be reduced by 3% for all assessee and at all slabs.
5. Rate of TDS be reduced by 10-20% of existing rates. Provision of advance tax be relied on more.
6. Salaried persons: standard deduction be reintroduced to salaried persons. There is no justification for not allowing any deduction for expenses incurred for occupation by way of salaried employment. Deprecation on assets like vehicles, and furniture which are also used to some extent, in discharge of duty be allowed.

Wealth –tax:

General exemption limit be raised to Rs. 75 lakh.

Specific exemptions be restricted to certain limits for all specific assets instead of exempting such assets for any amount. For example, a residential house can be exempted up to Rs. 50- 75 lakh depending on area. A person living in a house valued above the exempted limit should pay some tax.

Service tax:

Basic exemption for all individual service providers be provided up to Rs. 20 lakh per year.

Essential services, services availed or rendered to meet requirement under any law be exempted altogether.

Rates be reduced by 2%.

Excise and custom duty:

Any increase in duty which has effect of inflation, reduction of demand, be avoided. Instead some reduction be made to boost demand.

General:

i)                    Simplification be made.

ii)                   Retrospective amendments be avoided.

iii)                 Result orientation be enforced in administration as well as in litigation under tax laws. There should not be extensive enquiry and litigation on petty matters. Tax payer must be relied on.