Updated: March 1, 2020 7:53:28 am
One of the most powerful bureaucrats in government, Revenue Secretary Ajay Bhushan Pandey has been at the helm of significant reforms such as the sharp reduction in corporate tax rate, introduction of faceless e-assessment, and measures to bring down litigation in tax matters. Under his watch, the government has sought to put higher burden of taxes on top earners while providing relief to taxpayers at the bottom. Pandey believes that recent decisions by the government, including the option of choosing a tax rate, will help in laying the foundation of a simple tax regime with minimal exemptions, which will benefit both the taxpayers and the tax department.
ANIL SASI: This year, the Budget projected a nominal growth of 10 per cent, and the tax revenue target is 12 per cent. Is this putting undue pressure on taxmen, which is resulting in some degree of harassment? Or is this an unrealistic projection?
In an ideal situation, if the economy is going to grow by 10 per cent, then the tax collection will also grow by 10 per cent… All of us know that the level of compliance has to be improved. And, therefore, the question of tax buoyancy comes in… (For the 12 per cent target) we have presumed a tax buoyancy of 1.2, which is not very unrealistic. If the economy grows at 10 per cent, then the tax will grow at 12%…that is without any overreach.
ANIL SASI: But the tax buoyancy projection this year is 0.5, at least in terms of the numbers in the Budget. So the 1.2 buoyancy presumption is a huge jump from there…
No, I don’t think it was 0.5. If you see the tax buoyancy this year, we had estimated the nominal growth rate somewhere around 12, 13, 14 per cent, and there we had estimated our tax growth at somewhere around 17-18 per cent. Again, it (tax buoyancy) was 1.3 or something. Now the nominal growth rate in the current year (2019-20) has come down, and therefore our tax collection will come down… Of course, another thing is the corporate tax cut, because of which the growth rate… But for 2021, if the economy, like we are estimating, grows at 10 per cent, then the 12 per cent growth rate is not an overestimate, it is not unreasonable.
ANIL SASI: The corporate tax was implemented in the middle of the year, when most corporates would have already done their planning for the year. Was it a desperate move? Also, doesn’t the income tax rejig in this year’s Budget over-complicate things?
Normally such things (corporate tax cut) are done at the time of the Budget. However, when we found that our economy needs certain special measures, particularly in the month of July, a conscious view was taken by the government as to why wait till the Budget… We issued an ordinance and later on converted it into an Act… So that we get the benefit right from April 1 (2019) itself. So it was, kind of, a beneficial retrospective legislation.
The personal income-tax rate with different slabs doesn’t create any complication. Today, everybody files electronic returns. You don’t have to actually calculate it (the tax rate). You have to enter your income, and the system calculates whether it is 5, 10, 15 or 20 per cent. That is how it is done in most modern economies. It is very, very scientific.
SUNIL JAIN: Your government talks of stopping tax terrorism, yet tax disputes are rising. Instead of trying to resolve the disputes by asking people to pay the principal but not the penalty/interest in various dispute resolution schemes, why don’t the tax boards review the orders passed by the taxman? If the order makes little sense, just revoke it and the tax disputes will fall.
It is a very good suggestion. You know we conducted an exercise just before the Budget, and in the Budget we came up with the ‘Vivad se Vishwas’ scheme (for resolution of pending tax disputes). The Bill says that if there is an appeal or dispute pending anywhere and if the department has won at, say, the first stage of appeal, then the taxpayer has to pay the tax, but not the interest or the penalty. If, on the other hand, the taxpayer has won at some stage of the appeals process — and the tax department is challenging this in a higher court — then, we’re saying, pay 50 per cent of the tax. In both cases, the interest and the penalty are to be waived. Hopefully, going by our experience in the Sabka Vishwas scheme for indirect tax, a large number of people will use this.
The point that you are making is very valid, but that takes care of the disputes now. What happens to the future disputes? We have examined the causes of disputes and identified 20 issues which are the main reason for disputes. We plan to go to the Supreme Court with these issues and get a clear verdict on them. This will, then, settle the issue once and for all and, even in future, there will be no disputes since the SC will already have ruled on the principal. You talked about us needing to be proactive; this is being proactive.
P VAIDYANATHAN IYER: In the past few Budgets, including the recent one, we have seen Customs duty being imposed on several items. There seems to be a gradual move towards protectionism. Does the government realise that such protective walls are not a great idea for an economy which wants to open up and be part of a larger global supply chain?
In this Budget itself we have reduced Customs duty and removed anti-dumping duty on raw material. So our general principle is that if a raw material is not available in the country, there should be minimum barrier for it in terms of Customs duty. Also, as far as finished products are concerned, we have to take a very, very balanced view. While we may want manufacturing to be done in our country, it doesn’t mean that if there is an inefficient industry, it should be protected. In the finished products segment, we are also becoming competitors. In many countries, hidden subsidies are given… (Because of this) the finished goods, in some sectors, enter our country at a price that is highly incompetent. If we do not balance it with an appropriate amount of Customs duty… Ultimately, domestic manufacturing and ‘Make in India’ will have to be protected. It is a fine balancing exercise. Customs duty on a finished product should be such that it encourages ‘Make in India’, but at the same time protect the interest of the final consumer. That is exactly what we have done in this Budget.
For example, while we have said that all parts of mobile phones will be imported without duty, we also want those parts to be manufactured in India. We cannot continue to import those parts for all times to come. Someday India will have to manufacture it, and there should be some incentive for people to make it….
ANIL SASI: But has imposing Customs duty helped? In the manufacturing sector, not a single facility has come up. Even in the mobile telephone sector, the whole focus is on assembly and not manufacturing. I don’t think the value chain has really been set up. Everything is coming from China or elsewhere.
The duty intervention is just one part of the measures that are being taken. In my personal view, duty alone cannot solve all the problems. The duty can serve as a facilitator but it cannot actually replace the need for other initiatives. For example, corporate tax. Now, if you have reduced corporate tax, somebody can ask if this alone can bring in the required amount of investment to the country. The answer obviously is no, because you also need other policies for it. You need permission for starting an industry, getting land, getting the environment certificate, getting water and power at appropriate rates… The ministries concerned will have to work on these. This time, what we have tried to address is the taxation part.
AANCHAL MAGAZINE: The Vivad se Vishwas scheme is voluntary, and while it is yet to be rolled out, the targets for field formations have been fixed. Won’t it put undue pressure on them? Will bigger cases such as Vodafone come under the scheme? Also, under the Sabka Vishwas scheme, is the net amount much lower than the gross amount that you have collected?
Of course, the Vivad se Vishwas scheme is voluntary. The Bill is in Parliament, and once it is passed, it will become a law. We have also begun advance preparations. The total number of cases involved in the dispute is around 5 lakh, and we have close to 10,000 assisting officers. Each assisting officer will have about 50 cases. We have told the department and the assisting officers to make a list of those 50 cases so as to proactively go and facilitate the taxpayers. We don’t want a situation where a taxpayer says I want to avail this scheme, but I don’t know where to go. We want our officers to talk to the taxpayer and tell them that this is the scheme, you can take advantage of this, it is completely voluntary for you, but if you want any assistance from us… So we have defined the performance expectation in that sense… The exercise is to facilitate things and that is why these protocols have been set up. You can’t say that it is to put pressure on the department, or that (officers) will go and harass people… Of course that is not the intention and that can never be tolerated.
SANDEEP SINGH: The sunset clause for the SEZ sector is expiring on March 31, 2020. Some big companies in the sector have an offer to set up their campuses in Vietnam, and they are actively considering it. Do you plan to extend the tax benefits for the sector after March?
If my memory serves right, the sunset clause was announced sometime in 2016. All companies had a choice, and they had to organise their affairs in such a manner that any unit set up till March 2020 will continue to get exemptions for 15 years… So that is there. And once a sunset clause has been announced so long ago, and we are moving towards an exemption-free regime… I think if the sun has set, then the sun has set, at least at the official level. This is the stated policy of the government.
UNNI RAJEN SHANKER: The new tax under the Liberalised Remittance Scheme (LRS), isn’t it double taxation? Also, is it to discourage Indians from going abroad for travel or education?
See, first of all, as for the LRS, I will give you a little bit of background. It is usually not tied to any commercial or other activities. People can send up to $250,000 every year, almost free. You just have to go to the bank. Now this total remittance and LRS in 2009-10 used to be about US $780 million. Now, in 10 years, it has grown up to US $16 billion. This much money is going abroad and there is nothing wrong with it, but when we were doing our analysis, we found that a large number of people were sending huge amounts (abroad) and not filing income-tax papers or showing a very disproportionately lower income. Suppose if someone has to send one lakh US dollars (abroad). Forget about the exceptions, but that person should be approximately in the income-tax range of around Rs 20-25 lakh. Otherwise, why would he send one lakh US dollars? Now, let’s say he claims to have taken a loan from the bank, but the bank wouldn’t give you a loan of one lakh dollars unless your income was in that range, or there is some other underlying income. This 5 per cent is like the TDS (tax collection at source, at the rate of 5 per cent for education purpose, imposed under the LRS). So you send the money and save 5 per cent, and then when you are filing and paying your advance tax in that quarter you can make adjustments… This is not an additional tax, it’s just TDS. For example, when your employer deducts tax while paying your salary, it is not an additional tax. It is TDS. You can take credit when you file your income tax. Earlier, money laundering and other such activities would happen. We found that in this manner we can curb it. In fact, I will extend this argument. When your salary is paid, the TDS is collected. Somebody can say that why are you asking me for TDS, I will file my returns and will pay the money at that time. But the whole idea is to ensure that most of the people remain in that disciplined regime, where they continue to pay tax as per their expected income.
P VAIDYANATHAN IYER: On GST compensation, the law itself says that for the next five years, the GST will take care of the 14 per cent growth rate from the base year and compensate states. Now there is a GST compensation cess also, which the government has said will restrict itself to the cess amount that is collected. In terms of growth rate, if the difference doesn’t match up to what is available from cess, how do you take care of that?
You have to see what the Constitution provides as far as the compensation is concerned, and what the compensation law provides. So after a lot of deliberation, the Constitution was amended and the compensation law was passed by Parliament. It’s generally accepted by all the states and Union Territories, including the Central government. What does this compensation law say? Compensation law says that at 14 per cent growth, if there is any shortage, it will be met by the compensation fund. Now if there is a shortfall… The shortfall can happen an account of two things. One is that my overall collection hasn’t matched 14 per cent, maybe because the economy didn’t grow up to that level so the tax collection didn’t grow that far, and therefore you have a gap that you couldn’t collect that much base revenue. So your base revenue was much lower than 14 per cent, and your compensation requirement was very, very high, and you don’t have enough money in the compensation fund, and this is exactly what you’re asking. Now the answer is given in the compensation law itself. The government has not said that it will restrict… It is what the compensation law says. Compensation law says that the compensation will be paid only out of your compensation fund — so whatever money comes into the compensation fund, only that money will get paid. Now if there is a shortfall which is more than what the compensation fund is giving, then the GST Council has to see what measures it can take to either increase the compensation cess amount or consider the raise.
RITU SARIN: I want to ask you about the bank account details we got from Switzerland and other countries abroad via automatic exchange in September. My information is that 10 lakh accounts have come to us, and it has gone to risk assessment. Do we by now know of the accounts we want to act against?
We are sharing and receiving information from about 90 countries. This is the second year when such an automatic exchange has happened… A complete process is going on and every year, around September-October, we finalise a list of those who have to be audited. For example, last year, we selected a few lakh cases for audit and scrutiny. This is based on many factors, and the information that we receive from foreign countries is also used as one of the inputs to select cases for scrutiny. The quality of information is improving and such an automatic exchange is a good thing for all countries.
KRISHN KAUSHIK: How big a concern within the ministry is the slowdown at the moment?
The growth rate is lower than what we had expected. But if you look around the world… Today, the world is so integrated, and if we take a view that the world will go one way, and India the other way, that will not be a very practical approach. So this (the slowdown) is the situation around the world… In India, we are trying to ensure that we continue to grow at a high rate. The amount of interventions that we have made in the last six-seven months across various sectors, along with the steps in this Budget, will ensure growth, despite the fact that there is a worldwide trend of low growth… From our side we are making a sincere attempt to find ways to beat that trend and achieve higher growth.
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