Category: Miscellanea

Last year, around 10,600 tax-filers reported annual incomes over Rs.1 crore. The number dropped to 1,257 for those with an yearly income of over Rs.5 crore. Hardly surprising, given that less than 3% of people file tax returns in India. The base of income tax should be widened to raise the level of tax collection to GDP. The best way to do that is to expand the coverage of AIR. Also, moderate income tax rates, simple and transparent tax laws will improve compliance and stop generation of black money.

Scrutiny of cases where misuse of tax exemption has been noticed and modifications in reporting procedures to capture their activities, funding patterns and income are among measures taken for streamlining procedures. The Directorate of Exemption has already identified a substantial number of cases, which are being selected for scrutiny. These cases pertain to the new proviso added to section 2(15) of the Income-tax Act, applicable from 2009-10.

The new norm disentitles tax exemption to any trust or society, engaged in the advancement of any object of general public utility, if it collects fees or other charges for services rendered in the nature of business, commerce or trade.

The Directorate has suggested a criteria for selection of cases during the current year. It includes quantum of refund claim, quantum of investment, gross receipts and income from business and profession.

Modifications in Form No. 10-B associated with the auditors’ report for charitable institutions has also been planned to get full details of activities of these entities. The proposed modified features include disclosure of nature of charitable activities and places of primary business.

Further, complete information with regard to donation by both internal and external donors with details of Foreign Contribution Regulation Act (FCRA) approvals would also be required in this format.

Details of exemption claims made simultaneously under different provisions, yearwise break-up of accumulation and utilisation of funds, information in respect of cash transactions, Tax Deducted at Source (TDS) compliance and other business transactions would have to be furnished once the Central Board of Direct Taxes (CBDT) approves this new form.

A new income tax return form for public charitable trusts is also being prepared by the Directorate to facilitate comprehensive reporting of their income and expenditure. It would facilitate e-filing and help in selecting cases for investigation and would also provide details of foreign, anonymous and corpus donations, donation in kind and FCRA approvals.

If the country needed a wake-up call, it has got it in the run-up to choosing a new managing director of the International Monetary Fund. First, there was the small matter that its favoured candidate for the post was over-aged — a fact ignored for several days amidst expectant speculation. It now turns out that China, while seeming to go along with the BRICS position that the choice should not automatically go to a European, has done a deal while quietly offering support to the French candidate. There is a precedent worth recalling: the election of the United Nations Secretary-General. The Government backed Shashi Tharoor’s candidature when he had little hope of winning because the US preferred a candidate from another ‘risen’ country with whom it has a military alliance, South Korea. India, in comparison (and rightly so), seeks strategic autonomy in international relations.

Such tactical mistakes are not without cost. If it turns out that China has in fact done a deal, securing the No. 2 position at International Monetary Fund (IMF) for its national as quid pro quo for supporting Christine Lagarde, then India has scored an own goal. From the perspective in New Delhi, a European or American would have been preferred in that position, rather than a Chinese. Indeed, the Prime Minister is known to have argued in the past that having a European at the head of the IMF has served India well. What might happen in the IMF could be a precursor of other things to come. Pushing for re-ordering the global order, and a declining role for the West, means that the default country that gets to fill the power vacuum will be China — which after all has an economy thrice as big as India’s, a much greater role in world trade, a pivotal place in the currency market, and much else.

BRICS solidarity is also a double-edged sword. In the Doha Round of trade talks, the rich countries have been able to drive a wedge between ‘emerging markets’ like India and the more numerous poor economies, by pointing out that the two groups’ interests are not synonymous. In a recent meeting of the World Trade Organisation, some of the fiercest criticism of BRICS positions came from poor countries in Africa. In short, India should be careful about what it wishes to achieve in international affairs and how it leverages group dynamics; it might well get what it asks for — only to discover that the earlier arrangement was more to its advantage.

The only thing that has saved the Union Government’s fiscal strategy so far, especially in the face of sluggish revenue receipts, is the less-than-budgeted defence expenditure. It was widely expected that immediately after the state Assembly elections were wrapped up the Government would attend to the extant fiscal challenge. Apart from the heroic increase in petrol prices, no other action has been taken. On the other hand, it appears that the Finance Ministry may not be able to meet the disinvestment target it had set. While no one expects last year’s bonanza to be repeated this year, even budgeted amounts may not be forthcoming if the overall approach to macroeconomic management remains lack lustre.

The delay in tax reform — with the introduction of a Goods and Services Tax still on hold and the apparent inability of major political parties to focus attention on issues pertaining to revenue mobilisation and revival of growth — is raising fresh concerns about the sustainability of even 8.0% economic growth. With the international economic environment remaining precarious and far from stable and with regional security re-emerging as a major policy concern, the gathering clouds do not bode well for growth, revenue generation and fiscal correction. It is not our intention to sound needlessly alarmist, but the time has come to ring a warning bell. India’s macroeconomic authorities must focus on fiscal stabilisation and Mr. Mukherjee has to provide the leadership as Finance Minister.

This, however, is not yet an outright downgrade of US sovereign debt and it is unlikely that the US government will default on its credit obligations in the near future. However, if concerns about fiscal health intensify (US treasury credit default swap spreads have been rising steadily), the status of US treasury bonds as the ‘default’ safe haven (and by extension the US dollar) in times of rising risk aversion will come into question. Europe’s travails rule out any European alternative. The only viable safe haven appears to be gold and German bonds, since Germany’s robust growth (and, consequently, its fiscal health) seems to be miles ahead of its moribund neighbours. One could argue that emerging markets like India and China, despite their immediate inflation problem, should get the safe haven status. Their underlying growth momentum (cyclical corrections notwithstanding) remains strong and their fiscal health, at least in comparison with the Western world, certainly looks to be in the pink. On the other hand, emerging markets could face other problems. Where US treasury yields to rise on the back of fiscal anxieties, it could turn off the spigot of cheap dollars that have been flooding these markets. Asset prices in these markets could see a sharp correction. Commodity prices that have ridden the wave of easy liquidity could also be hit. The worst-case scenario would be one in which rising interest rates and a heavy fiscal burden could drive the US economy down and that, in turn, would pull the global economy back into the throes of a recession. Though this seems a tad unlikely at this stage, one cannot simply wish the likelihood away. The world expects better leadership from US politicians, but S&P is clearly doubtful if this would be forthcoming.

“The world is a happier place today and we can actually measure it because we have been tracking it,” said John Wright, senior vice-president of Ipsos Global, which has surveyed the happiness of more than 18,000 people in 24 countries since 2007. But he added that expectations of why people are happy should be carefully weighed. “It is not just about the economy and their well being. It is about a whole series of other factors that make them who they are today.”

Brazil and Turkey rounded out the top five happiest nations, while Hungary, South Korea, Russia, Spain and Italy had the fewest number of happy people. Perhaps proving that money can’t buy happiness, residents of some of the world biggest economic powers, including the United States, Canada and Britain, fell in the middle of the happiness scale. “Sometimes the greatest happiness is a cooked meal or a roof over your head,” he explained. “Relationships remain the No. 1 reason around the world where people say they have invested happiness and maybe in those cultures family has a much greater degree of impact.”

In India, the easy fixes to curb tax evasion and the generation of black money have all been exhausted: there will be few, if any, taxpayers who try and evade what they owe the government. The tax administration is robust enough to detect and capture evasion by these citizens. The problem lies elsewhere.

The white paper itself illustrates these issues. Three examples can be highlighted. The issue of taxation of wealth generated in the businesses linked to exploitation of natural resources such as mining, hydrocarbons, telecom and other related sectors; the problem of income in “vulnerable” sectors such as real estate and, finally, the issue of political willpower required to make a difference. In each of these, this government has been an abject failure.

Consider the natural resources sector first. The problem lies in the vast discretionary powers enjoyed in allocating these resources. From spectrum allocation to that of issuing mining licences, there has been little or no transparency. The result is that there are inbuilt drivers to generate illicit wealth. If anything, this government is complicit in this process: it is deeply unhappy with auctions as a process to allocate these resources. In a firstcome- first-served process, there is ample scope for corrupt practices. Clearly, it has to address that issue before it can even argue that natural resource allocation processes are a problem. In fact, the sector can only be dubbed as a ‘politically exposed sector’.

In case of ‘vulnerable’ sectors such as real estate, the cause and effect are mixed: real estate is both a recipient and a generator of black money. Illicit gains made elsewhere can be parked in residential and commercial property without much fear of tax enforcers. But that is just one part of the problem. The high taxes — stamp duty is a prime example — levied make evasion a worthwhile chase. And high stamp duty being an important source of revenue for many states ensures that undervalued transactions are a norm and not an exception.

Finally, this government lacks the willpower to deter potential tax evaders — the big fish that is. The surest way to do so will be to disclose the names of evaders that are available with the government. Given that our politicians are sure to figure on such a list, confidentiality of agreements with other governments and, hold your breath, human rights of tax evaders (page 68 of the white paper) come in the way of public disclosures. This is difficult to believe.

“No one is going to believe if we say our problems are because of Greece. Our problems are self-inflicted”, says the celebrated banker, reasoning that the “root cause of India’s troubles lies in a decline in its values”.

“It isn’t a question of some fiscal, inflation or some other problem like a fall in the value of the rupee. It doesn’t have to do with the change in recent times in our tastes with regard to music, clothes, marriage or some social mores. Those are irrelevant. What is hurting is that our core values are disappearing and it has been six decades of decline with the political, economic and industrial leaderships dropping in integrity,” he says. Blending his characteristic wit with banking analogy, Vaghul says,

“the root cause of our financial crisis is that we have created derivatives without underlying assets,” referring to the decline in values in all spheres of life. Holding forth on the importance of upright leadership at an event here to remember banking stalwart and former SBI chairman R. K. Talwar, Vaghul said work ethics ought to be the cornerstone on which to build careers and industry and that the decline in values witnessed all around reminded one of the importance of the philosophy of those like Talwar, who thought everyone was an instrument of the divine.

Limited liability allowed Elizabethan adventurers to finance voyages to spice islands; it allows Silicon Valley technologists now to make similarly risky bets. But limited liability is a concession — something granted by society because it has a clear purpose. It is unclear why in parts of the world anonymity became part of the deal. Efforts to withdraw that unjustified perk deserve to succeed. In dozens of jurisdictions, from the British Virgin Islands to Delaware, it is possible to register a company while hiding or disguising the ultimate beneficial owner.

This is of great use to wrongdoers, and a huge headache for those who pursue them. Anonymously owned companies can buy property, make deals (and renege on them), launch intimidating lawsuits, manipulate tenders — and disappear when the going gets tough. Those who seek redress run into baffling bureaucracy and a legal morass. Seeking real names and addresses means dealing with lawyers and accountants who see it as their job to shield their clients from nosy outsiders.

Owning up

Reform ought to be simple. Anyone registering a limited company should have to declare the names of the real people who ultimately own it, wherever they are, and report any changes.

Lying about this should be a crime. Some dodgy places will try to hold out. But anti-money-laundering rules show international co-operation can work. You can no longer open an account at a respectable bank merely with a suitcase of cash. Let the same apply to starting a limited company.

Breath: Take a few deep breaths and relax. Concentrate on your breathing as it comes in and goes out of your body. This has a calming effect and allows other thoughts to float away.

Write it down: Pen down your thoughts. It helps to get them on paper and off your mind. This keeps your head from being filled with everything you need to do and remember. List and prioritise: Tasks that are critical to do today, tasks that you need to do in the next 1-2 weeks — prioritise what’s urgent and important.

Eliminate: Now that you’ve identified the essential, identify what’s not essential and eliminate those items. It declutters your mind really fast.

Decide now: List the things which you are yet to decide. Stop procrastinating and tackle them. Do a physical activity: Spending some physical energy clears the mind. Reduce TV time: It fills your head with noise. By reducing it, you will find that you have time for the more important things in life.

Take a break: Short breaks during work hours will help you feel more re-energised and fresh. Go slow: Life is not a race all the time. Do things one at a time. Relax and move at your own pace. As a result, your mind is less hassled.

Forgive and forget: Harbouring negative emotions of anger and frustration only add to the mental stress.

Many other things are wrong with this government. For a start, its leading lights are simply too old. The prime minister will be 80 in a few months, while the foreign minister is already 80. Mr. Mukherjee is 77, and Mr. Antony 71. Among those exercising the sovereign functions of the state, only Mr. Chidambaram (67) is below 70. In the Cabinet as a whole, 15 of 34 ministers are 70 or older. Any government with so many old people, who have little to look forward to other than political survival for a few more years, is likely to be short on energy and initiatives, and tied to old ways of thinking. It also matters that most of the stalwarts in the Cabinet are political lightweights who have no real clout with voters in their states.

A lightweight prime minister has around him a bunch of other lightweights. This may have to do with the nature of the Congress party — if it is to be protected and preserved as family property, the party’s only real vote-getters must be from the Gandhi family; and young ministers like Jyotiraditya Scindia and Sachin Pilot cannot be allowed to flower too early or they might outshine Rahul Gandhi. It is frequently said that the bane of this government has been its recalcitrant allies. Perhaps, but how much of the failure to carry them along rests with the Congress? How often has the UPA actually met as an alliance? Why does it not have a common minimum programme, which everyone has agreed on? Why is there no effective system of discussion and consultation? Is it simply because the leading lights of the UPA lack political ability — the prime minister is reticent if not retiring, the home minister gets people’s backs up, and the finance minister has too much on his plate to focus on anything in particular? In any case, the ministerial mathematics tells its own story: 28 out of 34 Cabinet posts are with the Congress, as also all seven positions of minister of state with independent charge; that’s a score of 35 out of 41. Of the six posts with five allies, the government has got almost unstinting support from Sharad Pawar’s Nationalist Congress, Farooq Abdullah’s National Conference and Ajit Singh’s Rashtriya Lok Dal. When push came to shove, the Dravida Munnetra Kazhagam too played along, even allowing its Cabinet representation to shrink. The sole problem case can be said to be Mamata Banerjee. Is this really an unmanageable situation, or a failure of management?

 In that sense, the two are on different planes. But it is necessary to ask whether the Dravida Munnetra Kazhagam (DMK) is no better than some of the Akali factions when they cock a defiant snook at the law. It was left to the General who led Operation Bluestar to express his unhappiness at a memorial being built in memory of those killed by soldiers during Bluestar, since those killed included terrorists and armed separatists.

As for Mr. Raja, he is technically innocent, since no court has declared him guilty, but he has been indicted in no uncertain terms, as a simple reading of the Comptroller and Auditor General’s (CAG’s) report on the telecoms scam shows. He twisted the principle of ‘first-come-first-served’ by fixing arbitrary cut-off dates and other criteria in such a manner as to make the ultimate choice of licensees completely arbitrary, and therefore devoid of principle. Even when it came to simple paperwork, he gave licences to companies that did not qualify or were not eligible because they had not given the prescribed information or the prescribed documentation in time. Whether he committed any crime is something that is yet to be determined, as also the question of any quid pro quo. But on the evidence already set forth, it is clear that Mr. Raja is not someone who should be getting lionised by any serious political party, given that his handling of a ministerial portfolio did not set standards worthy of emulation. That the DMK has chosen to lionise such a person tells the country that politics in Tamil Nadu is as disconnected from propriety as it is in Punjab.