Editorial
This year’s Finance Bill was
unusual for most of us. We have now got so accustomed to encountering wholesale
changes in direct tax laws (normally, over 100 clauses), that on seeing only 55
clauses dealing with direct tax amendments, we were left wondering as to whether
we had gone through the full text of the Finance Bill or whether we had missed
out on some part. One feels that the Finance Minister, Mr. Pranab Mukherjee,
must be complimented for this.
However, when one realises that
this reduction in amendments was more on account of the fact that wholesale
amendments would come in shortly in the form of the Direct Taxes Code (DTC), and
not actuated by thought of the need for stability in tax laws, one realises that
perhaps nothing has changed in the attitude of the Finance Ministry.
This is brought home by the
fact that the bane of previous Finance Bills—retrospective amendments—still
continues. One sees many such amendments this year as well. One often wondered
whether the Government would be able to save much time and effort by just
inserting a provision in the tax laws that in case any decision of the Tribunal,
High Courts or Supreme Court takes a view adverse to that held by the Tax
department, the law would be deemed to have been amended with retrospective
effect from 1961 (or the date of the relevant provision) to clarify that the Tax
department’s view is the correct one. The one positive feature this time is that
some of the retrospective amendments result in correction of earlier drafting
anomalies or are in favour of the taxpayer. One hopes that this positive trend
continues instead of the usual one-sided retrospective amendments.
The reduction in the fiscal
deficit also seems to be a good thing, given the profligacy of the government in
the past. However, when one looks back at last year, one realises that last
year’s budget bore the brunt of the earlier year’s election year budget, and
contained certain expenditure such as arrears for government employees due to
implementation of the Pay Commission recommendations. Such expenditure is absent
in 2010-11. Further, divestment of public sector undertakings is also expected
to rake in sizeable amounts, along with the auction of 3G spectrum. Hence the
magic of
reduction of deficit is not something which can be sustained, but is more due to
one-time items. Nevertheless, it is a good beginning towards financial reform.
The one thing for which the
Finance Minister must be really complimented is for doing away with the
accounting jugglery of non-accounting for oil and fertilizer subsidies by issue
of bonds, which was being recognised as expenditure only in the year of
redemption. This is a long overdue reform, as the Government itself certainly
should not resort to such window-dressing of accounts.
This time, while the service
tax rate itself has remained unchanged, contrary to expectations, the service
tax provisions seem to be fairly harsh. To tax sale of residential houses, where
the inputs are already subjected to various taxes such as VAT and service tax,
does seem unjustified. It is obvious that builders will pass on the entire
additional tax burden to buyers, irrespective of the actual effective tax burden
on the builders—one more excuse to raise prices. The very fact that homes in
India are still unaffordable for the vast majority of us, is all the more reason
why such a tax ought not to have been levied. One hopes that this amendment will
be reviewed. When air travel has just become affordable to a large number of
people, taxing domestic air travel also seems premature. These amendments would
be more appropriate when the Goods and Service Tax (GST) is actually
implemented, so that the impact is not as much, due to the full set off on taxes
paid on inputs being available against the final tax payable.
With a fresh date of 1st April
2011 now being announced for both GST and the DTC, the same date as for
implementation of IFRS , and with the Companies Bill expected to be shortly
passed, we have to unlearn what we already know and gear ourselves up to go back
to our studies to learn the major part of our professional areas of practice
afresh. Maybe we should now ask for a practice holiday, like a tax holiday, to
enable us to equip ourselves through this relearning!
Gautam Nayak
