Taxation reforms on RAPID road – * Prakash Chawla

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When Prime Minister Narendra Modi addressed officials of Central Board of Direct Taxes (CBDT) and Central Board of Excise Customs (CBEC) in June last year, he gave them an acronym RAPID to follow as they carry out their job of collecting revenue for the national exchequer.

At the conclusion of the ‘Rajaswa Gyan Sangam’  the senior most tax officials were to carry with them the RAPID message in true spirit: Revenue, Accountability, Probity, Information and Digitisation. The crux of the Prime Minister’s message was that the rule of law must be enforced upon those who evade taxes but those paying or willing to pay taxes should be able to fulfill their national obligation with a sense of pride and not fear.

Fear could go only when the taxpayers are empowered with right information, right laws, tools and are dealt with officials with integrity and accountability.  While taxation laws have been historically complex and can land honest taxpayers in a maze of rules and sub-rules, this government has been trying to make things easier for the individuals, trade and industry, willing to pay their dues happily.  It must be said, however, that many a time the tax laws are difficult to change, because they are embroiled in litigation with the courts scrutinizing every bit of rules. For instance, the much debated retrospective taxation was considered to be one of the reasons for the policy paralysis during the previous regime. Retrograde taxes from retrospective effect have been given go-bye, even though the suits pending in courts have to be disposed of by the judiciary.

To make life easier for the taxpayers, the Finance Ministry has been working continuously to reduce the burden of compliance. For instance in the previous budget, the Finance Minister Arun Jaitley announced restricting the scope of domestic transfer pricing which was brought in the Finance Act of 2012 as an anti-avoidance measure.

Similarly, the threshold for audit of business entities which opt for presumptive income scheme has been raised from  Rs `1 crore to Rs 2 crore.  The limit for maintenance of books for individuals and HUF is being increased from turnover of Rs 10 lakhs to Rs 25 lakhs. For professionals the presumptive tax limit is applicable up to Rs 50 lakh per annum.  These  provisions obviate the need for small businesses  to maintain the books of accounts .

Several user -friendly provisions have been incorporated in the Income Tax Act to provide ease of doing business to the Foreign Portfolio Investors with regard to transfer of shares or stake  interest.

But the biggest and most influential tax reform is coming about in the form of the Goods and Services Tax (GST) in July or latest by September this year. Though the entire political spectrum deserves to be complimented for coming round and finally supporting the game-changing Constitutional Amendment in Parliament and then passage of the enabling legislations, the steadfast approach of the Prime Minister made it happen with a lot of conviction.   Even as full swing preparations are underway for the GST roll out, the Prime Minister himself is overseeing the progress and the readiness of the Centre, states and the business establishments for the indirect tax that would redefine the way, businesses and consumers pay taxes on goods and services.

Unlike the earlier dispensation which was origin or manufacture based taxation, the GST would be destination or consumer-based levy that would involve subsuming a slew of taxes and seamless system of payments and credits. Eventually, the consumers would pay a single tax, instead of being subjected to host of imposts like excise, additional excise, Value Added Tax or Sales Tax, service tax and octroi.

Different estimates suggest that the GST should result in addition to the country’s Gross Domestic Product, at least by 1-2 per cent as several of the trade and industry links which managed to stay outside the tax net would have to adopt to the new taxation regime for their own interest and operational efficiencies. The concerns over the impact of GST on prices may not hold good; on the contrary, in the medium to long term, prices should ease with credits being available to the trade channels across the entire value chain. Moreover, the transaction costs resulting from delay in cargo movement at the inter-state borders would bring down the costs for the consumers.

The trade and industry is being geared up for the smooth functioning of the GST with the entire machinery of the CBDT, CBEC along with the state governments being deployed into training the personnel and interacting with the trade. For the initial stages, there has been a demand from the business bodies about some amnesty if there are un-intentional lapses resulting from the migration to the Goods and Services Tax Net (GSTN) based system. Perhaps, it could be the GST Council which should take a call on the issue as there is a merit in the contention. After all, stakes are too high for making GST a success and showpiece of India’s tax reforms.

Even the global rating agencies and the multilateral organisations would be keeping a close watch on the implementation of the GST. Its smooth roll out should definitely push India up, at least by a few notches, on the World Bank Index of Ease of Doing Business. Taxation is one of the key barometers which work as a catalyst for investment from the domestic and global sources. For now, India has got it right.

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Prakash Chawla is a senior journalist and commentator. He mostly writes on political-economy and global economic issues.

Views expressed in the article are author’s personal.

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