Responding to criticism regarding levy of more cesses in the Union Budget 2016-17, Revenue Secretary Hasmukh Adhia said it was required as the Central government’s revenues have been impacted due to higher devolution of tax share to states. He said levy of cesses will be sparingly done after the goods and services tax (GST) is rolled out. Excerpts:
There are too many cesses being levied while we are moving towards GST …
The reason for this is that when we go towards GST we should have a single, uniform rate. That’s one year away from now at least as it appears and till the Constitution Bill is passed. But till then this power of cess is available with the Government of India and in view of the fact that because of 7th Finance Commission the government’s revenues have considerably reduced and 10 per cent increase in devolution to states has really put pressure on our revenue. On top of it, if there is responsibility for spending on infrastructure, rural areas — at a time when private sector spending is not happening — the government has to take a call. So, where will Government of India will bring the money from? Cess is one way of increasing our resources because cess and surcharges are non-shareable. That’s why the Centre gets extra kitty. People don’t get too much burden of tax, and the government has got some extra kitty available for this useful purpose.
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That’s the idea and this will stop once GST comes as far as cesses on service tax and excise duty is concerned. Then all these cesses will have to merge with GST. It is not that government does not have power to levy cess in that era, but it will be in consultation with states and the GST council. But that time we can take care of this and we can do it sparingly. But this is a year (2016-17) in which we had a dual challenge, to increase spending and to maintain the fiscal deficit. This is the only way out, so even at the price of small compliance cost involved for business people, it serves our purpose of maintaining fiscal deficit and at the same time increases our resources.
How have you tried to address the tax litigation issue in the Budget?
In the Income Tax (Act), major culprit for litigation is the penalty percentage. It’s so high — 100-300 per cent is the range. So even for smallest of the offence one has to pay 100 per cent penalty. People don’t mind paying the original sum of the tax, but when he is given such a big bill of penalty … so then naturally he will fight up to the Supreme Court … we have reduced the penalty rates to 50 per cent and 200 per cent and also we have finished the discretion and put in the Finance Bill the three categories of offences. Two rates are there and nothing in between. We are specifying the situations in which 50 per cent will be levied and the situations in which 200 per cent will be levied. So people will get lot of relief. No discretion also so the litigations will also reduce … so in the dispute resolution we have said, forget about penalty, we’ll not take penalty from you. Just pay your basic sum and interest up to the date of assessment, and if the amount is more than Rs 10 lakh, then 25 per cent of minimum imposable penalty will be charged.
Do you think companies like Vodafone will use the one-time dispute resolution window provided in the Budget?
The government has already given the signal and that’s how far we can go. You can’t expect us to let go of the original demand also. That’s what the government is saying. The government, after considering all options, has taken this option and it is available now for anyone to take it.
One criticism of compliance window is that there is lower penalty for domestic black money, while there was a higher rate for the same held overseas…
The distinction is because our ability to reach up to all the foreign assets is not there. The base is large for domestic taxpayers.
Have you made any assumption for collection under this compliance window?
Not at all. These are kept outside our revenue estimation. Whatever we get, will be extra. There will be no prosecution, only penalty will be levied.
There has been some disappointment on the corporate tax roadmap as the Budget announced limited reduction for small companies…
Nothing like that … there’s a cost. If we reduce it for everyone, the cost is Rs 15,000 crore less taxes we will get, while what we have done for small companies, the cost will come to Rs 1,500 crore. And what the finance minister had promised was that we will link it with the phase out of exemptions but now the phase-out is only kicking in from April 1, 2017, and that also in a limited way. So, the benefit we will get will only be in 2017-18, not 2016-17. In 2017-18 also, that benefit will be as per our estimate — Rs 3,000 crore. So benefit from phaseout of exemption is very gradual. Now if people expect us to immediately reduce it for everyone, it’s not possible.
There has been no mention about MAT. Will a reduction happen simultaneously with corporate tax exemption phaseout?
Why will we reduce minimum alternate tax (MAT) now when already the average rate of taxation is 22-24 per cent. Only when all the exemptions go, can we think of reducing MAT. Even now, a new company which comes into SEZ before April 1, 2017, will continue to take advantage for next ten years. MAT reduction is out of question as of now.
Like you mentioned, GST will probably be rolled out at the start of the next financial year …
We don’t know. It all depends on when Constitution Bill is passed, but ideally it should be started from the new year so that the business people are not thrown into tizzy. They start their new account, new tax systems, new tax methodology and we will need some time to explain to people what we are doing.