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Category: Editorial

Where is the Wealth of Commons?

Editorial

By the time this communication reaches you, the Commonwealth
Games would have commenced. Over the last three weeks, the Commonwealth Games
have hogged the headlines in the print media and have been the topic of debates
/ discussions on numerous prime-time shows. Much has been said about corruption,
the callous approach in which the Organising Committee, sections of the
bureaucracy, and other agencies have functioned. The object of this editorial is
not to debate upon the absolute chaos which one is witnessing, but to dwell upon
much larger issues which have emerged through debate and discussion on the
Games. The Commonwealth Games are supposed to promote the principles of the
Commonwealth Organisation. Most of us are unaware of the Singapore Declaration
of 1971, in which, promotion of the principles of human rights and good
governance is a significant aspect.

The debate that has been carried on in the media brings to my
mind four specific aspects which we as a nation must address if we are to become
a country that merits the attention of the world. The organisation of the games
reflects four ills which are unique not to the Games but pervade the national
scene. Lack of prioritisation, degeneration of national character, lack of
foresight or vision and finally, our love for the event rather than the object
behind it.

The first is lack of prioritisation. It is said that the
ultimate cost of the Games is going to be equal to the cost of agricultural debt
waiver. Assuming that there is some degree of exaggeration, the money disbursed
is going to reach some pockets, whether they are of corrupt politicians,
bureaucrats or the resident or foreign agencies. The real point is that even if
the money was spent more efficiently, it was not going to benefit the common
sportsman at all. In my view, the organisation of the Games was flawed right
from the conceptualisation stage. The whole objective of hosting the Games was
to create a sporting infrastructure, which would be available to sportsmen at
large. Creating world-class facilities at one location would never serve any
purpose since the access to them is limited to a few. The resources should have
been utilised to create different facilities across the country or at least, the
facilities should have been spread out much more than they are today. It is here
that there is a gross error in priorities.

In a country where resources are scarce, we must see that
they are spent with the right priorities. Despite all its promises, even the
current government has been unable to allocate enough resources for education.
Spending on the health sector is also meeting the same fate. Sixty-three years
after independence, our development is extremely skewed. While we may have made
substantial progress in the field of infrastructure, particularly in the field
of communications, unless we pay attention to the basic pillars of human
infrastructure that is education and health, we will fail miserably in achieving
the dream of a powerful Indian nation. Even when we spend on education and
health, we need to get our priorities in place. We tend to pay a lot of
attention to higher education like creation of better management and engineering
institutes while the real need is to improve the quality of primary and
secondary education. Even in the health sector, we tend to concentrate on super
speciality hospitals while the need is to create a vast network of primary
health centres that will cater to the needs of the common man.

The second problem is in regard to the steady degeneration of
national character. A Union Minister commenting on the collapse of a bridge said
that the bridge in question was not to be used by sportsmen but by members of
the public. The statement is shocking to say the least. Another bureaucrat has
gone on record to say that the standards of hygiene in other parts of the world
are different from ours. This has become a common phenomenon in public life. We
break with impunity the laws we make, and think nothing about the breach of
ethical standards. The problem is that we do not seem to feel aggrieved. It is
this silent acceptance that perpetrates the decay of moral standards. It is only
if we perceive that there is a problem, will we strive to rectify it, otherwise
we will simply lower the bar and that does not augur well for us as a nation.

The next characteristic which was displayed in the
organisation of the Games is a complete lack of foresight or vision. The Games
were allotted to us as early as 2005. Yet, for the first three years from that
date, we did nothing of note in that regard. It is reported that tenders for
work were floated as late as in 2008. Again this lack of foresight / vision is
not unique to the Games .The site of the new Mumbai airport was selected more
than a decade ago. If there are environmental issues today, they would have
existed even then. It is only now that we are looking at environmental
clearances. Further, the site at which the new airport is proposed is such that
experts state that it is not capable of expansion and it will suffer from
congestion in about 25 years. This reflects a complete lack of vision. Today,
the vision is limited to the next election.

The last aspect is our love for events rather than for the
objective behind those events. Out of the aggregate spending for the Games, a
significant quantum is supposedly to be spent on the opening and closing
ceremonies. The programmes planned are such that the limelight is on actors and
not on sportsmen. Success in the Games is to be measured by the creation of
sports persons who will dominate the world of sports and not a spectacle that
the world will see and quickly forget. This is true of many of our festivals and
programmes. The Ganapati festival is an illustration. While it was initiated all
those years ago with the object of ensuring social bonding, people seem to have
lost sight of this very objective.

Having highlighted all these problems and issues, I believe
there is still hope. This is for the reason that whatever ills the media may
suffer from, it has made people aware. The Right to Information Act has created
a virtual revolution. The youth of today give strength to this hope. In them, I
see the urge to act. The ‘meter jam’ agitation is a case in point. It reflects
the non acceptance of injustice. If the “educated” class can lend a helping hand
and contribute their might, things will gradually change. Young India has a vast
pool of talent. All we need to do is harness it to create quality in public
life!

Once the games are over, all the discussion will be forgotten
and the country will bask in the “glory” of the medals that we are likely to
garner in the absence of participation of top sportsmen and athletes. It is this
national apathy which the organisers are banking on and we, the educated class,
must strive to avoid. We must demand an inquiry. Into the shoddy organisation,
total lack of governance and gross wastage of national resources contributed by
the diligent citizens of this country.


Anil Sathe
Joint Editor

The Bursting of the Bubble

Editorial

The last few months have seen the eruption of a major crisis
in the financial services and banking sector, particularly in the USA. Entities
hitherto regarded as icons and pillars of Wall Street have bitten the dust. Even
entities regarded as too big to fail have succumbed to this financial crisis.
Giants such as Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill
Lynch, AIG, Washington Mutual, have all either gone under or had to be bailed
out by the US Government or other entities. Giants such as Citibank, UBS, Morgan
Stanley and Goldman Sachs have been shaken to seek financial assistance. This
crisis is already being compared to the great depression of the 1930s. It is
therefore evident that what we are witnessing is not just a minor storm which
will quickly blow over, but a full-fledged hurricane which will leave
devastation in its wake. Given the dominance of American financial services
entities and banks over the world economy, the repercussions are bound to be
felt all over the world.

What does this imply for us here in India ? The Government,
the Finance Minister and various other government functionaries have been rather
too quick to clarify that this will not affect India significantly, since Indian
banks and financial services companies have not over-extended themselves. While
the direct impact may not be as significant as in the US, even in these early
days after the eruption of the crisis in the US, one reads various reports
everyday about the indirect effects of this crisis in India.

One direct impact of course has been on the subsidiaries of
such companies in India, where bankruptcy/sale has created uncertainty about the
continuation of business by these entities. Employees of such subsidiaries are
suddenly left wondering whether they will have their jobs at the end of the
month or not. With job uncertainty looming, employees are hesitant to spend as
freely as before, impacting demand for goods and services.

Most infotech companies in India have had a high level of
exposure to the banking, financial services and insurance sector. The chaos and
turmoil in this sector will significantly impact their growth, and the frenzied
hiring by companies will definitely now be a thing of the past. Unrealistic
salary hikes may no longer be the norm for the next few years.

The second impact will certainly be on foreign direct
investment. Many of these entities had been investing directly themselves or had
been active in raising foreign funds for investment in India either through the
private equity route or through different types of funds. Such initiatives will
obviously now be significantly reduced, as these entities would focus their
energies on raising funds to ensure their own survival. Lending by these
entities would also be restricted, in order to limit their exposure.

Liquidity has almost dried up, particularly for risky
businesses and ventures. Banks and financial companies have become extremely
cautious in lending. Businesses which had based their expansion plans on the
basis of recent growth figures have started cutting back on their proposals to
expand. This is bound to affect growth of Indian industry and business — the
days of assured growth are over.

The real estate market, which had assumed the proportions of
a speculative bubble, has been particularly impacted in two ways. There are few
takers willing to splurge their liquidity on buying real estate, or renting real
estate at the prevailing unrealistic levels. Real estate developers have so far
been desperately holding on to their prices, hoping that the crisis will soon
tide over. However, the easy flow of money that fuelled the growth in real
estate prices has dried up, and not only that, money committed to certain
projects by some foreign investors is no longer forthcoming. Further, most of
the foreign capital in this sector which had been attracted on the back of
assured returns offered by Indian developers would soon start falling due for
payment, aggravating the liquidity crisis of Indian real estate developers.
There is bound to be a shakeout in this sector, with the highly leveraged
players forced to sell out to better capitalised developers. Hopefully, real
estate prices will now gravitate to more realistic and sane levels.

Our understanding of finance is undergoing a thorough
revision. Complex financial concepts such as value at risk, complex derivatives,
securitisation, which were once regarded as cutting tools of the financial
services business, are now shunned. Stand-alone investment-banking, so far
regarded as a money-spinner, is no longer regarded as a viable business.
Government intervention, which was sought to be minimised during good times, is
now welcomed.

All in all, the next couple of years at least should see
tightening of conditions on the economic front, with a natural fallout on all
services and businesses, including on our profession. Fortunately, the
Government still has scope for liberalisation of various sectors of the economy,
which can help improve efficiency and create opportunities for business, so that
we continue to see some growth, unlike the developed countries of the West,
which expect to see a decline.

As professionals, we also have the advantage of seeing newer
areas of practice emerging, which can help us grow in spite of the slowdown. We
need to prepare ourselves to meet this challenge, so that we are not caught
unawares by the slowdown. We also need to be extra careful in our audits, to
ensure that we are not blamed for business failures sought to be covered up by
managements.

There is however a silver lining. Major bankruptcies, such as
in the US, are unlikely in India. In the long run, new financial structures will
emerge. The US dominance may reduce with Asian countries emerging stronger. This
crisis may mark the beginning of a new phase in the world economy, with
opportunities for all of us in the long run.

Gautam Nayak

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The Challenge of Change — Always Ahead

Editorial

Ever since we took up the study of chartered accountancy, it
has been ingrained in us that constant professional change is something that we
have to necessarily live with and adapt to. No other profession is perhaps
subjected to so many changes happening at such frequent intervals in the subject
matter of its practice. All of us have got accustomed to and have adapted to the
annual wholesale changes in the tax laws. However, today in India, we are at a
stage where every sphere of our practice is in a state of flux, where change is
happening at a much greater pace, requiring us not only to learn new laws and
skills, but also to unlearn a part of what we have learnt in the past.


In auditing, our core area of practice, we not only have
various auditing standards to comply with, but totally new accounting standards
and practices of IFRS to understand over the next couple of years. As if that
were not sufficient, a Companies Bill has been introduced to replace the 52-year
old Companies Act that we are familiar with.

In internal auditing, we have a new set of standards being
put in place, which we need to adapt to and comply with. Our income tax law has
always seen new taxes or new provisions every year — we are threatened by
wholesale changes in the form of the new Direct Taxes Code. Fortunately, that is
not likely to happen in the immediate future. Our service tax law is ever
changing with new services and new provisions added every year — along with the
recently introduced VAT law and Central Excise, this is now likely to be
encompassed within a totally new goods and services tax, in a couple of years.

The amount of knowledge that we would be required to acquire
over the next two or three years makes us think that perhaps we are once again
studying for our CA course !

The recent downswing and turmoil in the world economy and the
Indian economy throws up its own challenges. There is of course the challenge of
ensuring growth in one’s professional career, in spite of severe downturns in
the business cycle. More significantly, the recent business failures have raised
questions internationally, regarding the relevance of auditing as practised
today, and various accounting concepts, such as mark-to-market. We are yet to
embrace some of those concepts in India, and even before we do so, they may
undergo significant changes or be discarded internationally !

Why, even the manner in which we practise has to undergo a
change. The increasing strength of global firms, the increased expectations of
clients due to globalisation, the increased competition for talented people due
to entry of global businesses in India, increasing computerisation and e-filing
— all these are challenges which one has to face.

Each one of us has to clearly now sit down, think, choose and
chalk out our own growth strategy. Should one consider joining a large firm
drawing a good remuneration ? Should one network with other similar minded
firms, with each firm focussing on a niche area of practice ? Or should one
merge with other similar minded firms ? Should one convert the partnership firm
into a limited liability partnership ? Should one continue on one’s own with a
focussed approach of concentrating either on a few areas of practice or with a
few clients ? Or should one join industry ?

We are fortunate today to have so many choices of change.
Each alternative has its own risks and rewards. Based on one’s own perception of
levels of acceptable risk and desired rewards, each one of us has to make a
choice. Not making any change by ignoring the massive changes happening all
around us is not an option at all — that will only result in our professional
stagnation or decline.

We need to look at the challenges or threats that we face as
opportunities. Many of us may not have learnt certain laws in the past, such as
sales tax or VAT, excise duty, etc. The introduction of new laws facilitates our
learning of these laws from their inception, and provides us an opportunity of
offering services in newer areas of practice. The introduction of service tax in
1994 is a classic example — so many of us have learnt that law and are today
focussed on that area of practice for our growth.

The Journal, as always, seeks to support you in your efforts
to meet the challenge of change. In this issue, under the painstaking efforts of
the past editor of the Journal and Chairman of the Diamond Jubilee Celebration
Committee, K. C. Narang, we bring you special articles contributed by eminent
chartered accountants and other professionals from various spheres of life, to
help you understand and prepare for changes happening or likely to happen in
different spheres of our practice.

We hope this will facilitate your making the right choices in
time to meet the challenges of change, and ensure your rapid professional
development and growth.


Gautam Nayak

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Money Makes the world go round

Editorial

The last month has witnessed some big-ticket entertainment,
coming not only from a cricket league but also from the spectacle of a Union
Minister and a powerful cricket czar exchanging public blows in relation to the
affairs of the league, resulting in the revelation of various alleged
malpractices being indulged in the organisation of the tournament. Various other
public personalities and organizations have also been dragged into the fight,
with their actions also coming under the public scanner. The last month also
witnessed the arrest of a senior income tax official at Thane, while in the
process of collecting bribes; the official seeking to implicate her senior. What
is the connection between the two events?

Both these happenings are evidence of the fact that the urge
to make money at any cost has permeated all spheres of our society and resulted
in the debasement of the functioning of various organisations and institutions.
The IPL has generated tons of money for the organisation (and others?), and, in
the bargain, seems to have attracted all sorts of malpractices to generate
further funds. The allegations indicate that the IPL seems to have been run as a
closed club to generate unimaginable sums of money for those who were fortunate
enough to be close to the organisers. The fight seems to have been caused by the
desire on the part of the organisers to keep gatecrashers out of the party.

Over the years, unfortunately, one has seen politics becoming
a highly profitable business, just as organised crime has always been highly
profitable. The unimaginable amounts that a politician—the son of a labourer—had
earned during his short stint as Chief Minister of a mineral-rich state, would
put most businessmen to shame, and would probably suffice to meet the needs of
quite a few generations. The mind-boggling amounts which some bureaucrats and
tax officials are rumoured to demand and earn in a year far exceed an entire
lifetime’s earnings of most people. Entertainment and sports are now big money
spinners, and the combination of the two, which the IPL represents, is a highly
potent mixture. No wonder IPL has attracted the attention of businessmen,
politicians and, as rumoured, perhaps even the underworld.

As the old song goes, “Money makes the World go Round”. It is
true that money greases the wheels of business and commerce. Nobody disputes
that everybody requires a certain amount of money to lead a decent life. Making
money is fine, so long as it is not at the cost of throwing values to the winds.
The problem really arises when the greed for money overtakes all other human
emotions and values and the pursuit of money is seen as an end in itself, and
not as a means to achieve the end of leading a quality life.

Unfortunately, in India, the general values of life seem to
be taking a backseat more and more to the business of making money at any cost.
Corruption is just one offshoot of this trend. Power is seen to be associated
with money. A person with money power believes that the law can be manipulated
to his advantage to serve his own ends. While the common man is invariably
harassed for minor transgressions of the law, even major violations are swept
under the carpet if the right influence is exercised. Are we therefore
unfortunately metamorphing into an unequal society, with different rules for the
haves and the have-nots? This has the potential to create unrest and
dissatisfaction, which could create difficulties for the entire country.

For truly sustainable progress and development, it is
essential that every person has equal opportunity, and is treated equally under
the law. For proper functioning of civilised society, enforcement of laws has to
be evenhanded and firm—having laws which are selectively enforced is a sureshot
recipe for chaos. Only a society which rewards merit and innovation can progress
in the long run.

A related question is whether we, as a generation, are guilty
of not doing enough to impart true education to our succeeding generations,
thereby increasing the potential for chaos? With children more and more exposed
to the outside world, the influence of parents (or grandparents) over children
is not as much as it used to be in the past. Extra efforts are required to
counteract stronger negative external influences. Our education system, being
based on secular ideals, does not make any attempt to inculcate human values in
our children. These values are to be found in all religions—respect for others’
lives, property, etc. In running down religion in the name of secularism, are we
doing ourselves a disservice? The products of our education system may be
wizards at making money—but have they been brought up with values conducive to
being members of a civilised and peaceful society, where everybody can live in
harmony?

Each one of us needs to take some time out to think—are we
merely enjoying the fruits of our forefathers’ efforts, or are we making efforts
to contribute to a value-based society, so that our successors too will be able
to live in a better world? In what way can each of us contribute to restoring a
sense of values in society collectively?

Gautam Nayak

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TDS Compliance

Editorial

The best way to ensure
statutory compliance is to make the process as simple as possible, so that the
person who has to comply with the law, finds it less burdensome to comply with,
rather than undergoing penalty for non-compliance. Unfortunately, as witnessed
by the recent amendments in tax deduction at source (TDS) procedures, the CBDT
is seeking to make compliance so cumbersome that it makes the compliance
extremely onerous, if not impossible for most tax deductors.

All these years, the CBDT has
failed miserably in its attempts to ensure that there was proper compliance with
TDS provisions, and that tax collection by way of TDS matched with tax credit
given for TDS. This was on account of the complicated and ambiguous provisions,
which made the law difficult for most tax deductors to understand, and the
manner in which the law was administered, with many tax officers not fully
conversant with the correct provisions of law. Poor tax administration caused
revenue leakages in the system.

Realising that it was unable to
set its own house in order, the CBDT now seems to be going to the other extreme
of casting the entire burden of creating the data, on the tax deductors. This is
acceptable to some extent, given the benefits of computerisation that would flow
to tax deductors and deductees. But the extent of compliance being cast now
makes it so onerous, that it would require almost every business to hire
additional people to comply with such requirements, the total number of people
required probably exceeding the size of the entire Income Tax Department.

The requirements of Form 24C
seem to reveal a mindset of the CBDT, that businesses are in existence only to
comply with the requirements of the tax authorities. It would be almost
impossible to compile the monthly data in the manner sought. Just to give an
example, details of total payments to contractors during the month have to be
given, including those from which taxes have not been deducted. Payments to
contractors may be debited to printing & stationery, travel & conveyance,
advertisement, staff welfare and dozens of other accounts. To identify and
compute the monthly value of such payments and others every quarter would
involve more work than that required for filing the return of income !

Is this a financial stimulus
package being thought up of by the CBDT to create employment ? It will certainly
have the opposite effect, as businesses already suffering from eroded
profitability will not be able to bear the burden. Maybe taxes could be reduced
on businesses to ease the burden, by reduction of the size of the Income Tax
Department, given the extent to which its functions are being outsourced.

The increasing scope of
mandatory e-payments and e-filing also makes one wonder whether the CBDT is
aware of the ground realities in this country, where most places do not even
have continuous electric power to run their computers, or where internet
connectivity is often irregular. Outside Mumbai, one often hears narratives of
how all details were filled in and payment or uploading was about to be done,
when there was a power or internet or website failure, necessitating initiation
of the entire process again after power or connectivity was restored.

Only 30 banks permit e-payment
of taxes. What about those deductors who have their accounts with other banks ?
Many people prefer not to have internet banking, on account of their fear of
fraud.

Under such circumstances, it
would perhaps have been far better to make e-payments and e-filing optional
rather than mandatory. The least that one would expect is to keep such e-payment
or e-filing as simple as possible, so that it is easy to comply with, given the
constraints that we suffer from.

The worst part of the
amendments is the new rule 37BA providing that credit for TDS would be granted
on the basis of the returns filed by tax deductors and reflected in the TIN
system, instead of on the basis of TDS certificates. Today, it is well-known
that on account of various flaws in the system, the credit appearing in the TIN
system rarely reflects more than 50% of the TDS deducted from a taxpayer as
evidenced by TDS certificates. The major culprits for such failure are
nationalised banks and Government Departments, which do not comply with the
requirements or do so incorrectly. There is no provision for a taxpayer to
penalise or force a tax deductor to file his TDS returns correctly. When the tax
authorities, with their powers to penalise and prosecute, have not been able to
enforce proper TDS compliance, how can a mere taxpayer without any powers ensure
this ?

Such a provision amounts to
cheating a taxpayer of the legitimate taxes contributed by him, for no fault of
his. It amounts to expropriation of taxpayers’ money by the Government over and
above the taxes that it has recovered. One understands that even today, a
sizeable amount of taxes paid to the Government has not been credited to
accounts of taxpayers but is lying in suspense, on account of incorrect PAN,
other details, etc., mentioned by tax deductors or banks. The CBDT cannot escape
its responsibility to come out with a better scheme to ensure that every
taxpayer gets credit for all taxes deducted from his income, besides all taxes
paid by him.

Gautam Nayak

 

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E-filing, e-payment and e-TDS — Successful ?

Editorial

The Income Tax Department does not seem to believe in the
proverb ‘Act in haste, repent at leisure’. All its recent actions show that it
believes in introducing new procedures in a hurry without creating the necessary
infrastructure for it, without learning from its past mistakes, and without
regard to the enormous difficulties to taxpayers. It believes that keeping quiet
about the problems caused by premature introduction of such initiatives can
enable it to claim its initiatives to have been a success — forget about
taxpayers who suffer the brunt of such problems !


The new PAN numbers were introduced without the necessary
infrastructure in place, resulting in non-allotment of PAN, mismatched PAN cards
and allotment of multiple PAN numbers.

When e-filing of TDS returns was introduced, along with the
Tax Information Network (TIN), we were informed that all data relating to TDS
and payment of taxes would be captured by the system, doing away with the need
for issue of physical TDS certificates and the need for filing challans along
with the returns of income. The reality, as many taxpayers have found to their
dismay, is that the TIN displays only a part of the tax deducted at source from
their receipts, and that correction of data captured by TIN is an extremely
difficult task. To top it all, their legitimate refunds are held up on account
of such system problems, due to the CBDT insisting that credit for TDS should be
granted only on the basis of the TIN figures, and not on the basis of physical
TDS certificates, as provided by law. Many taxpayers were slapped with huge
demands, instead of the large refunds due to them. A few taxpayers were
fortunate to receive their refunds after approaching the Ombudsman (one such
order is reproduced on page 163).

With e-filing of returns, we were told that this would speed
up the processing of returns and issue of refunds. The reality we find is that
the processing of returns filed for assessment year 2007-08 has barely begun,
though by now, the processing of such returns should have been completed.

We now have a situation where taxpayers who want to file
their TDS returns are told that such returns will not be accepted unless the
returns contain a minimum percentage of PANs of deductees. No groundwork has
been done to ensure that all deductees necessarily obtain and furnish their PANs,
no provisions have been made to enable deductors to force deductees to obtain
and furnish PANs, and yet deductors are prevented from complying with their
statutory obligations ! All this, merely by issue of a press release ! To top it
all, it is highly likely that penalties would be levied on such deductors who
are unable to file their TDS returns for no fault of their own.

As if this were not enough, we now have mandatory e-payment
of taxes for certain categories of taxpayers from 1st April 2008, for corporates,
and individuals and partnership firms who were liable to tax audit in the
earlier year. Banks are still unprepared for such large e-payments. It takes at
least 20 days to activate this e-payment facility with most of the banks. Many
banks refuse to open an account if such account is merely intended to be used
for e-payment of taxes. This would in effect force taxpayers to change their
longstanding bankers, though they may be fully satisfied with their services.

One individual taxpayer, who pays advance tax of about Rs.50
lakhs in each instalment, and who approached one of the nationalised banks which
is authorised for such e-payments, was flabbergasted to discover that the bank
would accept e-payment of a maximum amount of Rs 5 lakhs in a day. He is still
trying to figure out how he can make his advance tax payments !

The Society has made a representation regarding the
difficulties being faced by taxpayers in complying with e-payment at such short
notice (reproduced on page 245), but does the Income Tax Department ever heed
any advice or take into account the difficulties of taxpayers? In this
consumer-centric age, should not the voice of taxpayers be heard and respected
by the Income Tax Department, which depends upon taxpayers for all its
revenues ?

One thought that payment of taxes and filing of tax returns
were sacrosanct duties of taxpayers. It however appears that the Income Tax
Department, which is resorting to such initiatives to conceal its own internal
deficiencies and problems, is putting hurdles in the way of taxpayers who wish
to comply with their obligations. A strange situation indeed !

Let us hope that the Income Tax Department realises the need to consult
taxpayers and their representatives, take into account the various difficulties
being faced, provide the necessary infrastructure and enabling legislation, and
then undertake new initiatives. This alone will lead to real success of such
initiatives !

Gautam Nayak

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Reforms — Fast Forward ?

Editorial

The UPA Government has finally won the trust vote, and is no
longer dependent on the support of the Communist parties. So far, over the past
few years, it was held out that the Government wanted to usher in reforms, but
that since these were opposed by the Communist parties, these could not be
effected. Now that it is free of its shackles, there are high expectations from
the Government on the reforms front. The Government has given indications of
imminent reforms in the banking, insurance and pensions sectors. These are of
course important parts of the structural reforms necessary to ensure that the
economy continues to grow at a healthy pace, notwithstanding the global
slowdown. One hopes that these reforms will finally see the light of the day.


Unfortunately, the past track record of the Government, even
on non-controversial reforms, does not provide much encouragement. Take the case
of the Companies Bill. When the UPA Government came to power four years ago, a
White Paper for Company Law reforms along with a draft Companies Bill was
circulated. We were told that the Government was determined to ensure that the
Companies Act was replaced by a new Companies Act, which would be more
company-friendly and suited to the present business environment, within its
term. The Minister concerned had gone so far as to point out that his
predecessors had not succeeded in doing so, as their Governments fell before the
law could be passed, but that he was determined to ensure that the new Companies
Act was in place during his tenure. What is the position today ? Till today, the
new Companies Bill has not even been introduced in the Parliament.

We have had umpteen number of committees recommending a
complete overhaul of direct tax laws. For each of the last three years, we have
heard promises that the new direct taxes code would soon be in place within the
next year or so. At least, there has been some consistency in this. Whenever
this has been mentioned over the years, the time frame has been consistent —
within the next one year ! Till now, the new direct taxes code has not even been
placed before the Cabinet, nor any draft circulated for public comments.
Perhaps, this is fortunate. From what feedback one has received from the people
involved in reviewing this draft legislation, the harshness and complications of
the provisions have only been enhanced in the draft code, rather than being
simplified and reduced.

The Limited Liability Partnership Bill, which would allow
professionals to compete with their global counterparts by having larger
partnership firms, was introduced in the Parliament with much fanfare in
December 2006. It was then referred to a standing committee, which has given its
suggestions in November 2007. On 1st May 2008, the Cabinet approved a new draft
of the Limited Liability Partnership Bill, which was to be introduced in the
Parliament. This Bill is yet to be enacted by the Parliament.

While one does not doubt the importance of the reforms
relating to banking, insurance and pensions, the smaller and easier reforms can
definitely be pushed through with much lesser effort on the part of the
Government. One understands that the Government has different priorities, but
surely a part of its efforts can be directed towards such necessary but smaller
reforms.

While enacting these laws, it is essential for the Government
to ensure that these laws are fair, clear and do not leave much scope for
harassment. What businessmen are looking forward to is clarity and fairness of
various legal provisions, so that they can focus on carrying on their business
more efficiently and on expansion of their businesses, rather than wasting their
time in unwanted litigation, cumbersome compliance procedures and warding off
undue harassment by Government officials. It is only then that businesses and
the economy as a whole can continue to grow rapidly, so that India’s economic
potential is truly unleashed.

It is now accepted worldwide that the international clout of
a country depends upon its economic strengths. Other countries are willing to
bend backwards to accommodate the views and expectations of economically strong
countries, to secure economic benefits for themselves. One hopes that the
Government creates an environment in which businessmen can thrive, so that the
country as a whole improves its bargaining power.

In the whole debate on the nuclear deal, the merits and
demerits of the deal to the country were not even considered. One wishes that a
day will come when all political parties keep the long-term benefits to the
country as their paramount touchstone for deciding on whether to support the
Government or not, rather than let individual politicians’ personal agenda or
their party’s agenda or ideology come in the way of what most Indians believe is
in the interest of the country. Only then can we be said to have matured as a
real democracy !

Only time will tell whether these expectations of ours from the Government
and politicians are too high !

Gautam Nayak

levitra

Chairman’s Foreword

Chairman

The theme of this conference and the Diamond Jubilee issue of
the Journal is :

‘Challenges of change — always ahead.’

It exemplifies what Peter Drucker once said :

“One cannot manage change, one can only be ahead of it”.

Bombay Chartered Accountants’ Society — BCAS — in its
existence has always been anticipating change. It has been innovating its
educational programmes to arm its members to be always ahead — to meet the
‘challenges of change’. Change also demands that we continuously rewrite our
rules whilst retaining our values. BCAS initiatives also :



  • attempt to bridge the gap between expectations and realities.



  • pursue excellence through curiosity and creativity. Hence, the motto on BCAS’s
    journal is ‘curiosity to creativity’.



  •  aim to create opportunities for the accounting fraternity to learn and
    re-learn.


Six days after the birth of our Institute, seven visionaries
established this organisation to chisel talent to meet the needs of trade and
industry and has since then been evolving and innovating. The Society is an
adjunct to the Institute. It is there to support the Institute in achieving its
objective of being ‘partner in nation building.’

It was Leo Tolstoy who said, “Faith is the force of life”.


It is the faith that the founders of BCAS had in the
accounting fraternity of this metropolis (great city) that continues to inspire
us. It was their dream — nay — vision to make BCAS an institution that disperses
knowledge and trains chartered accountants to serve the ever changing needs of
society. It is this vision which was articulated into a ‘vision statement’ by
the Narayan Varma committee in the year 2002; which in concrete terms guides the
present and will guide the future activities of the Society. It is rightly
said :

“Great leaders institutionalise.”

In order to achieve our objectives we seek not only the
co-operation of our fraternity, but also the co-operation of sister professions
which we have received in abundance. We take this opportunity to express our
gratitude for their contribution.

Questions arise :


What makes BCAS what it is today ?; and

What prevents BCAS — an oasis of intellectuals — from
becoming irrelevant like some institutions ?

The answer lies in the fact that BCAS has been fortunate in
always having leaders who perceived the need for change, has responded to the
environment and delivered change. This is what makes BCAS vibrant and
challenging. It continues to challenge the old and the young alike — challenges
them to contribute both to their personal growth and the growth of BCAS.
Individuals do not come to lead and leave. They continue to serve and face
challenges of change to keep BCAS always ahead. It is because of this
that the BCAS is an epitome of excellence in the art of being always ahead.
Our leaders consider it a privilege to be part of it and serve it.

It was Eric Hoffer who said :

“The future always belongs to those who earn it, and the only
way to predict the future is to have the power to shape it.”

It is also said ‘everything is possible for those who
believe’ and I say that the founders of BCAS believed and the leaders of BCAS
today believe in its contribution to the growth and shaping of our profession.

I believe that my fraternity has the vision to both predict
and shape its future and to be a part of the exciting times that the trade and
industry is going through and beholds for the future. I also believe that in all
this along with our Institute, BCAS has the ‘wherewithal’ to contribute.

In an environment where Indian businesses are expanding
beyond our territorial waters and foreign investors consider India as an
opportunity, we professionals need to hone our skills to meet the needs of both
these challenges. In honing the skills of my fraternity BCAS has played a
crucial role by being ‘always ahead’.



  • It was ahead of others, as mentioned earlier, when it was established just six
    days after the birth of our Institute; to impart skills.



  • It was again ahead when in late eighties it encouraged the study of
    international tax.



  • It is again ahead today when it conducts programmes on ‘business consultancy,’
    ‘alternative dispute resolution,’ ‘internal audit’ and ‘corporate governance’.



To respond to ‘challenges of change’ we need to examine the
change that has happened and is happening in both the social and economic
environments. A few illustrative changes are :

  • live-in relationships are accepted and are also being judicially recognised.

  • divorce and adultery are not shunned but are accepted as ‘freedom of choice.’

  • single motherhood  is accepted.

  • gays and lesbians live openly and are no longer shy of their affiliations.

  • every centre of power, big or small, is suspect of conspiracy and corruption.

  • individuals and organisations blatantly use authority without accountability.

  • business failures because of un-ethical practices – sub-prime is the latest which has shaken some of the world’s largest financial institutions.

  • laws are violated  with  virtual  immunity.

  • reported instances of our professionals involved in unethical practices.

  • professionals are accused of being collaborators in fostering corruption.

  •  society existing at flash point – riots, dharnas and agitations based on religion, language, caste, creed and even on admission to educational institutions virtually taking place every day.

  • society today approves, accepts, tolerates and at times even applauds corruption – the change in character.

Our tolerance or acceptance of the above changes over a period has increased.

If one were to analyse these they represent different facets of the same animal corruption. In factual terms it is conflict between:

1.    standards of behaviour with practicality, for ex-ample, business considers tax as a cost and we support and contribute to this thinking whereas the excessive use of tax havens has been held to be not only immoral but against law. Professionals in U.5.A. have been fined for encouraging use of tax havens .

2. being lawful  and practical.

In this environment we professionals are challenged to retain our professionalism. Society conveniently forgets that we professionals also emanate from the same environment but expects professionals to live in an oasis.

Let us not forget that Arthur Anderson went down with Enron because there was loss of values. Whenever, wherever a seam occurs the first question is :

‘Where was the auditor ?’

In other words, we are challenged by the dangerous play of convergence of commitment to principles with convenience. I repeat and question:

Is it the time to rewrite our rules without changing our values?

BCAS believes that a professional without ‘values’ is not a true professional. BCAS attempts to inculcate values through its study circle and articles in the Journal. It is not shy of discussing the multiheaded monster’ corruption’ which is becoming the scourge of Indian psyche.

Friends, this conference is a symbol of BCAS’s commitment to excellence in serving the accounting fraternity and to create opportunities to learn. The symphony of professional thoughts which is going to be presented today will be a treat to our ears and will at the same time be ‘thought-provoking’. The special issue of the Journal also aims to achieve the same objective. The credit for this goes to the cast and the crew of this conference and our learned contributors who have diligently toiled to give us ‘thoughts to think’. A review of the papers and articles exhibits the mastery which the authors have over the subjects. They have made complicated, confounding and confusing issues simple. They have dealt with the issues with luminous clarity. Their level of excellence, I am sure, will be a source of inspiration to the younger members of our fraternity.

I would conclude by saying  :

‘BCAS is a journey and not a destination and pray that this journey will – nay – shall continue.’