North Block is hearing out various stakeholders and the Finance Minister herself has spoken and assured the industry on some of the most contentious issues.
A lot of people have highlighted the issue of growth slowdown, tax terrorism and the need to reduce taxes over the last few days. Consequently, we’re witnessing a lot of activity in the Finance Ministry as different rounds of meetings are taking place with industry representatives on a daily basis to understand their concerns and formulate a plan for the recovery of our growth rate.
Nobody can deny that paying taxes in India is a hassle and similarly nobody can state that India is a tax-friendly country by any stretch of imagination. The reality is that there’s a genuine problem in terms of taxation laws, the enforcement agency and the corresponding compliance or litigation procedures.
But we also have to admit that the process of paying taxes has significantly improved over the last five years.
The term ‘tax-terrorism’ was coined by the former Finance Minister, Arun Jaitley, when he was Leader of the Opposition in Rajya Sabha. The term was appropriate as the then government had one of the worst tax laws combined with tax rates.
Over the last five years we’ve witnessed a systematic overhaul of tax rates and the tax department.
There is a realization that paying taxes should be a rewarding experience rather than a punishment and several Finance Ministers have highlighted how the government views them as stakeholders in India’s development.
Despite such efforts, there is one problem that has persisted and has often eclipsed genuine efforts by the Ministry to make India more tax friendly.
This problem has to do with overzealous tax officials and tax-related disputes that often result in litigation.
Recently, the CBDT (Central Board of Direct Taxation) revised the monetary limits for filing of appeals by the tax department, making it possible to reduce taxpayer grievance. A consequence of this move is a significant reduction in tax-related litigation.
Another area where the government hit a self-goal was with the entire CSR (Corporate Social Responsibility) controversy. I reiterate that fundamentally I am against mandatory CSR and the provision in the Companies Act must be removed.
The recent amendments to the Companies Act had made non-compliance with CSR a criminal offence and this has created a lot of bad blood. The Finance Minister has clarified since then that non-compliance with CSR will not lead to people being put in jail and this has partially reassured business leaders.
The tax changes with FPIs (Foreign Portfolio Investors) registered as trusts coming under the ambit of surcharges were also instrumental in a sharp reversal of the economic sentiment.
The government has now indicated that it will reconsider its position on this issue. In fact, a roll-back of the changes is being speculated in the media, which is likely to be a major development.
No doubt there were some missteps taken early in the government’s second tenure, but there has been a welcome change since the last couple of weeks.
However, this revival of the sentiment is unlikely to address the critical problem of an imminent further slowdown of our growth rate. My forecast for the first quarter is at 5.0-5.4 per cent while for the second quarter it is at 5.2-5.6 per cent.
This is lower than the RBI’s anticipated growth rate for the first half but then again, RBI expects a growth rate of 6.9 per cent for this year, which is highly unlikely.
The problem of the MPC (Monetary Policy Committee) being on a different planet is one that is serious but not a lot can be done by the government on that front.
However, repeated meetings of Finance Minister with representatives from different sectors is likely to help understand different concerns that the industry faces. Only upon understanding these concerns can a strategy be formulated to kick-start our economy --- but time is of essence as half of the financial year is almost over.
It’s easier to revive the sentiments than to revive the growth rates, more so at a time when global growth is slowing.
However, the focus at North Block has been to identify problems first in order to look for appropriate solutions. The approach at North Block is likely to result in serious policy reforms over the next couple of months.
Therefore, while the North Block is definitely doing its bit, growth could revive a lot sooner if (and only if) Mint Street (read as MPC) stepped up and realized its own mistakes.