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For the record: Taxation policy has to be non-adversarial, says Arun Jaitley

Excerpts from 16th DP Kohli memorial lecture by Finance Minister Arun Jaitley in Delhi, April 27.

Written by Arun Jaitley | Updated: April 28, 2015 10:13:17 am
economic activity, economic development, global investment, investment, india investment, business editorial, indian express editorial, Arun Jaitley, Taxation policy, Indian economy, Goods Services Tax, india tax system, Indian express column, ie column, income tax department, income tax rule, The finance ministry on Saturday announced it would infuse Rs 6,990 crore of capital into nine public sector banks.

Excerpts from 16th DP Kohli memorial lecture by Finance Minister Arun Jaitley in Delhi, April 27

I have always believed that 1991 was a defining moment for India. What started in 1991 could have started at least a decade or more before that. If we had discarded the politics of sloganeering and accepted the course we adopted in 1991, probably we could have been many, many steps ahead of where we are today. Nonetheless, 1991 marked a process when India decide to unleash the energies of its citizens rather than restrict them.

After having grown at a moderately reasonable pace, it appeared that somewhere down the line we lost a little bit of the credibility of our decision-making process. Our growth rates started slowing down, inflation rates started picking up. Indecisiveness was costing us heavily.

The whole institution of weaker governments and power centres outside the government was an experiment that did not help. Our concentration on distributing existing resources rather than concentrating on increased productivity itself sent the wrong signals.

Our taxation was then being perceived as being ultra-aggressive, not investor-friendly. The assessee, who should be a partner in the development process, was being perceived as adversarial. 2014 brought about a significant change.

After 30 years, we had a clear mandate and a government with virtually a single-party majority, and a much larger majority with allies, was voted into power. Almost 90 per cent of economic decision-making is executive.

In the last few months, there has been an increasing realisation that availability of capital within the country is significant but not adequate and therefore, we need additional investment. It is investment and investment alone that will enlarge economic activity. That economic activity has to be profitable, that profitability has to result in larger jobs, larger revenues, larger infrastructure creation, and large poverty alleviation schemes. It is for this reason that sector by sector — whether it was insurance, defence, real estate — some unopened sectors of the Indian economy have been opened up for larger global investment.

It’s extremely important that we ease the processes by which we do our business. Sluggish processes will never help an economy. Clearances that are multiple in number won’t help. It took us 10 years to decide on our policy with regard to our insurance investment limits. The idea of GST was mooted by the Vijay Kelkar committee in 2003.

We can’t countenance a situation that any investor, domestic or international, decides to invest in our country, we lay out the red carpet, and between his decision to invest and the actual manufacturing process starting, he has to visit dozens of offices, each informing him why permissions are either delayed or cannot be granted, and it’s years before his business can take off. So, from environmental clearances to entry-point restrictions, to replacement of all prior permissions to the extent possible with a regulatory mechanism for resolution of contractual disputes, the exit of those who cannot survive in business through a proper bankruptcy law or code — these are all areas that are important for us in order to ease the process of business.

Our taxation policy has to be non-adversarial. It is for this reason that at the outset, when the government took over, I had clarified that the present government doesn’t intend either to tax people retrospectively or unless a particular process of careful due diligence is followed to act on existing legislation that had provided for retrospective legislation. We’ve kept that point.

Our broad policy on indirect taxation is reflected in the fact that within our first few months we’ve brought about a real consensus with the states on the Goods and Services Tax — a bill pending parliamentary consideration. India becomes one common market and therefore, one-sixth of the global population housed in India has access to that market and the taxation process becomes simpler with no tax on tax.

Eventually, it brings down inflation, increases tax buoyancy and adds to our GDP. This will probably be one of the most important indirect taxation reforms in this country.

On direct taxes, as more and more people get into the taxation process, and our approach on unaccounted money is guided by that factor, we want to increase the volumes of taxation and then enable the government to make taxation rates more reasonable. In the budget this year, I announced one of the more radical steps: our direct corporate taxes have to become globally competitive. If global investors have to pay more tax in India than in other economies, then competing economies are more attractive investment destinations.

Our decision-making has to be much quicker. Our process of political consensus has to be statesmanlike and mature, and finally, the environment of suspicion with regard to decision-making has to end.

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