Tax Laws as catalyst for Swadeshi Economy
December 16, 2021
Our government has also initiated several programmes, productivity linked incentive schemes across 13 sectors, ease of doing business and reducing tax rates. — Vinod Johri
"कोषमूलोदंड" is the basic principle of tax administration. It literally means “राजस्व प्रशासन की रीढ़ है”, “धन किसी भी राज्य की मूलशक्ति है” and “कर राज्य के लिए आय का सबसे महत्वपूर्ण स्रोत है”. These words are part of the original Sanskrit phrase कोष-मूलोहिदण्डः as appearing in KautiliyaArthshastra Part 8, Chapter 1, Sentence or verse number 47.
2. However, citizens should consider taxes levied by the state in the spirit of - “परंवैभवंनेतुमेतत्स्वराष्ट्रं, समर्थाभवत्वाशिषातेभृशम्” (तेरी कृपा से हम इस राष्ट्र को वैभव के उच्चतम शिखर पर पहुँचाने में समर्थ हो।)
3. We all know that our GDP before advent of Mughal invaders was 50% of global GDP and before advent of British invaders, it was 25% of global GDP. Both of them destroyed our industries and economy. When British left Bharat in 1947, our GDP was just 2% of global GDP. British rulers destroyed our economy and industries through oppressive laws and taxes besides other nefarious and cruel means.
China’s growth of economy, exports and industries is primarily due to their Government’s support to entrepreneurs and industries. Our Government has also initiated several programmes, productivity linked Incentive scheme across 13 sectors, ease of doing business and reducing tax rates. However, there is huge scope of amendment in Direct Tax laws to facilitate public investment in infrastructure, industry& commerce and litigation free tax administration as well as wider scope in ease of doing business.
4. It may be noticed that tax laws undergo frequent changes almost in every budget. It causes instability in tax administration and confuses business community. Besides changes in law, Government issues several notifications on Tax laws & procedures. Tax laws certainly need stability unless certain challenges arise.
5. Small & medium entrepreneur survive in business with struggle more particularly with onslaught of foreign online portals Amazon and Flipcart. Low tax rate will enthuse them to pay taxes. As provided in section 44AD of Income Tax Act 1961, retailer having turnover upto Rs. 2 crore may declare profit @ 8% of turnover (6% on turnover with electronic clearance system). This is presumptive law well accepted by tax payers with zero litigation. This provision is well accepted in tax payers. Turnover of Rs. 2 crore is too small in present scenario. The profit margins are shrinking steeply. If this limit is increased to Rs. 50 crore as many traders having chains of their enterprises and net profit rate is reduced to 6%, their will be massive impact on tax collection, voluntary compliance and zero litigation. The laws accepted by people are the best.
6. The trade can flourish only when manufacturing enterprises progress well. Entrepreneurs should be encouraged to enter manufacturing business. It massively engages people into employment and start ancillary units catering to manufacturing enterprises. Manufacturing activity entails more challenges and risks. In charging taxes, the manufacturing sector needs more protection and favourable approach. There is no presumptive law for manufacturing sector for entrepreneurs. As in case of retail trade governed by section 44AD, manufacturing sector may be taxed with presumptive turnover of Rs. 50 crore with tax rate of 5%. It will largely cover MSME.
7. Transport is major employer and covers freight & passenger movement and is backbone for tourusm. With ever enlarging transport infrastructure, provisions of section 44AE of Income Tax Act 1961 allowing deemed income of Rs. 7500 per truck for 10 trucks may be extended to 50 trucks so that transporters may be encouraged to expand business to large extent.
8. Capital gains: Another area of amendment is capital gains under Income Tax Act 1961 which is covered in Chapter IV-E of Income Tax Act 1961. It taxes heavily but has comparatively fractional impact on gross revenue collection. Many countries don’t charge capital gains tax but in our country, the tax rate is 20% on sale of properties. There are provisions of setting off long term capital gains (capital asset held for more than 3 years) on land, building against investment in residential land & building. This is archaic law. The purpose of provisions of allowing deduction against capital gains on sale of properties in residential assets was to promote investments in residential infrastructure as Government lacked sufficient resources to build such infrastructure on its own resources about 3-4 decades back. Time has changed and investment patterns too have changed. Investment in commercial assets, lands, factories, show rooms has to be encouraged and rewarded to boost investments in industrial infrastructure, commercial properties, start ups etc. If long term and short term capital gain arising out of sale of lands and residential properties are consideredin section 54 and 54 F of Income Tax Act, against investment in industrial infrastructure, business assets, lands, factories, show rooms, it will give a major boost to business & trade which our country needs on priority. It will also provide huge job opportunities in industries.
Further the limit of Rs. 50 Lakhs only laid down in section 54 EC for investment is specified assets, bonds etc. and in section 54EE for investment in specified start ups, should be increased to Rs. 10 crore as sale considerations in big property deals are quite large amounts. It will boost investments in infrastructure bonds and start ups which need funds for growth and expansion giving rise to massive employment of our skilled young work force. We have 50,000 start ups with workforce of about 5,50,000.
Tax rate of 20% may be reduced to 10% reasonably. It will also boost investments in both residential & commercial sector.
The law of restricting admissibility of deduction under section 54 and other sections of Income Tax Act 1961 against capital gain arising from sale of one residential property may also be relaxed and the tax payers should be allowed to avail the deductions against sale of more than one residential properties and lands.
9. Savings under section 80C of Income Tax Act 1961: Domestic savings account for 28.35% of the Gross Domestic Product (GDP) which is very important and an important source of finance for industries. Large population which is not engaged in industry still depends on its domestic savings and interest income. But at present, there are fewlong termschemes for household savings. The 15 years Public Provident Fund (PPF)with yearly deposit limit of Rs.1,50,000/-, is a long term scheme with tax free interest income and limited withdrawal opportunities.I suggest that the PPF yearly deposit limit should be increased to Rs.10,00,000/-. The PPF scheme may be relaxed with the withdrawal opportunities. Similarly, for infrastructure investments, a 10 year scheme like PPF can be introduced with tax free interest and limited withdrawal opportunities.
10. Taxes embedded with Insurance: In Union Budget 2021-22, Direct & Indirect Taxes constituted 53% of total receipts. Therefore, tax component of GDP will continue to be a major factor. It is the same in almost every economy.
The Income Tax paid by tax payers either through TDS, Advance tax, Regular tax, TCS is contribution in national building, defense, infrastructure & welfare schemes for poor. All PAN are seeded with Aadhar of tax payers.
If a small insurance factor is embedded in tax payments with reference to PAN and Aadhar without increasing tax rates, it will take care of social security of the tax payers in the event of losses or calamities or untimely death. This exercise is massive looking to more 9 crore tax payers. Tax payers can choose their options in insurance factor.
Taxes paid with social security will motivate all tax payers and tax collections will consequently get major boost. It will certainly and massively reduce tax evasion. The confidence of social security among tax payers will enthuse them to pay taxes honestly.
Vinod Johri: Sah-VicharVibhag Pramukh, Swadeshi Jagran Manch, Delhi Prant.