Budget 2008 is now only two weeks away. And, even a distant peep into the restricted areas in the majestic North Block corridors tends to indicate that our Budget-makers have begun to lend finishing touches to the final fiscal proposals at a feverish pitch! This budget-electrified ambience, dotted with last-minute suggestions flying thick from various quarters, may continue for a maximum of one more week!
Let me first discuss the rationale and backgrounder of this scheme before a skeleton is developed and the same is fleshed out. Levying interest and penalty in every case, whether it is technical, outright tax evasion, undervaluation or about a clandestine removal, has become a sort of majboori, driven out of many-decades-habit, for the field formations of both the revenue boards.
It has become rare to see a demand notice which consciously does not propose to levy interest and penalty. Invoking longer period is another whimsical and fanciful 'tool' which is (ab)used not as our 'BrahMos' missile system but at the drop of a hat! Unmindful of the poor success rate at judicial forums, our taxmen simply cannot stop entertaining the thought of invoking all these penal provisions when a showcause notice is in the process of being issued. This is also done, quite often, to neutralise the possibilities of administrative actions that may be taken against the officers in future, in case of allegations of corruption.
Although the industry may take respite in the fact that the Revenue loses most of the cases, and even our judiciary does not often encourage levying interest and penalty. However, a distinctively different scenario seems to be appearing on the Service Tax horizon where a large number of small and financial-feeble medium-sized service providers appear to be falling victim to either their own ignorance about the rapidly-changing legal provisions or sinister advisories coming from fly-by-night consultants. Recently, I have seen a trend-in-the-making at the Tribunal-level where interest payment and at least a part of the penalty imposed under one of the multiple sections like 76, 77 & 78 are being confirmed. In fact it is not rare to find even in Central Excise where a financially-emasculated company getting completely wiped out because of the final decision, confirming the interest payment.
Keeping in mind such a backgrounder, if the finance minister introduces a Discretionary Tax Deposit Scheme where any taxpayer may like to deposit a respectable sum to be adjusted against either a pre-deposit requirement at the tribunal-level or a voluntary deposit when a case is made or future adjustment of final demand confirmed by a court, there are chances that our exchequer may mop up a few thousand crores.
The idea is that if a manufacturer or a service provider or a taxpayer deposits a sum under this scheme, he should be entitled to a reasonable interest rate like any deposit-accepting entity in the market may like to offer. And tomorrow, when there is a demand coupled with interest, he can furnish surety bond against the sum deposited under the scheme, but only for the interest portion so that in an eventuality like the demand and interest being confirmed, the taxpayer does not have to worry about extra liability of mobilising capital.
And in such cases, the interest rate for the sum deposited under the scheme should be the same as prescribed under the various tax statutes. This way, a taxpayer does not have to shell out extra.
And, in case of the issue being finally ruled in the taxpayer's favour, one earns the extra fortune, without going through sleepless nights. It would be more ingenuous if this Scheme allows the option of withdrawing certain percentage of the sum deposited after a certain lock-in period of six months to 12 months it may encourage a large swathe of taxpayers to treat this scheme like a bank and withdraw the fund in future if a need for capital infusion in their own businesses arises.
The added benefit for the taxpayers would be soft-treatment from the taxmen who often become harsh in their zeal to book a big case and tend to attach bank accounts, office premises and godowns of a business which helps none but does harm the overall economic activities in the economy.
Then, the scheme can also be touted as the one which can enable a depositor to walk with one's head up and also keep sleepless nights at arm's length. And for the exchequer, this can be an avenue to reduce litigation at the primary stage of a dispute over issues like pre-deposit and 'voluntary' deposits!
To begin with, this scheme can be offered to all the taxes in the central basket or just one of them. And, depending on the findings of a scrutiny after 12 months, the same may be extended to state taxes. And since the exchequer is going to shell out interest on such deposits, this fund may be earmarked for all those sectors which can fuel growth in the economy.
I am sure, if many intelligent heads are put together to work on this scheme, it can be a runaway success, particularly among the small and medium-sized business entities which are generally keen to buy peace with the Department.
Large corporates may not opt for this in large number as they follow the theory of quick-spin of the capital. But, if the interest rate offered is attractive even they can opt for it.
My second suggestion to FM is to take a hard look at the Wealth Tax provisions. The limit of Rs 15 lakh (Rs 1.5 million) has become too unrealistic which tends to encourage even honest taxpayers to evade it or not to file any return. Going by the ground realities, owning a car can never be termed as parking wealth in non-productive kitty.
A car in today's fast-paced economic world is essential to lend pace and sustain the pace of professional activities in the economy. It should be treated as a necessary tool to lend pace of growth to the economy.
Therefore, it should be taken out of the list. Secondly, I am yet to come across a habitat, even one bed-room set, which is available for less than Rs 15 lakh in any of the big cities in India. With the real estate prices skyrocketing in most cities, including smaller ones like Haridwar, Vizag, Coimbatore, Asansol and Jodhpur, it would be prudent for the FM to hike the limit to at least Rs 35 lakh (Rs 3.5 million).
Then it would be wiser to intelligently identify the list of productive and un-productive assets. Just because someone invests one's funds in mutual funds which in turn park the funds in bullion or real estate, it does not become a productive use of wealth!
This certainly needs a rethink. And finally, instead of subjecting the wealth taxpayers to the woes of separate return-filing, it would be much better if an additional column is added to the normal income tax return where all those who are liable to pay wealth tax, may disclose their assets details which are perhaps vital for the income tax (investigation) to scrutinise what was declared or what was not?
Before I conclude this column, my last suggestion is to take a close look at the Composition Scheme for Works Contract under Service Tax. A quick perusal may reveal that this scheme should be made available to only those who have opted for a similar scheme under value added tax with the state government.
If they have not, it may be noticed that a large number of taxpayers have been undervaluing the goods component of the contract and shifting the value to the service component so that they have to pay less under this scheme.
Such a trend may strain the Centre-States relations in future as States would be losing good revenue because of the flaws in the Service Tax Scheme. Let me also wish FM and all taxpayers a 'pleasant Budget' on February 29 - only in relative terms as taxes can never be pleasant even for the hardcore honest taxpayers and taxmen as well!