By Gopal K Agarwal,

The turnover tax is III-advised as all transactions do not lead to profit

IN its first Union budget the United Progressive Alliance was expected to give a clear direction to the economy of the country. The UPA government had inherited a healthy economy with very strong fundamentals, burgeoning foreign exchange reserves, economy growing at more than 8 per cent annually, fiscal deficit and inflation under control and a booming stock market. All were the result of economic policies followed by the previous NDA government. There is no doubt that there were certain sectors like agriculture and small-scale industry which needed some drastic steps and had been identified by the NDA for focus in the coming period but the NDA lost the elections. Thus, everybody expected the Congress and its allies to clarify their policy on each of these issues.

The Indian economy in at a critical juncture. Internal contradictions at the government due to differences in the economic views of the Congress and the Left do not leave much room for innovation. This is evident from the criticism of the budget by the Left Front.

In his budget speech, the finance minister paid a lot of lip service to rural development the there are no concrete provisions or policies. Almost all the policies of the NDA government are being continued. But instead of going support to the small-scale sector, 85 items have been dereserved Second, he has spoken so much on education and imposed a cess of 2 per cent scates the board on all taxes, but it has not been clarified ut to how this fund will be spent In our bureaucratic set-up imple mentation has always been a prob lem. If the government does not specify how the benefits will be delivered to designated beneficiaries, no amount of good intentions will bear results. If all these hands are left to the states to be utilised as they see fit, certain failures would appear inevitable. Third, the finance minister has announced that a consortium of private banks will give loans to the tune of Rs 40.000 crore for infrastructure development. This kind of announcement regarding intention of the private banks has no meaning as these will be commercial decisions and the credit can not be taken in the budget. Fourth, announcements with regard to water conservation, that wells, ponds, etc, will be revived, is also an eve-wash, as thus will be done over a period of 10 years and that too without any fund allocation

To meet his revenue requirement ment the finance minister says there will he a 40 per cent increase in revenue collection from the corporate sector without any increase in tax rates. He plans to achieve this through stricter compliance of tax laws. This may strike some as highly unrealistic.

After criticizing the NDA government on disinvestment, the UPA is to continue with disinvestment of NTPC. It also proposes to raise FDI caps in three sectors, including telecommunications which the NDA was reluctant to do.

Conomions on taxable income up to Rs 1 lakh have created some confusion. It would have been much better if, instead of this, the basic exemption limit of Rs 50,000 had been increased. The current change will create resentment amongst those whose income is slightly higher than the cut-off mark. The increase in service tax by 25 per cent of the earlier level 8 per cent to 110 per centy will also have an inflationary effect. Service tax has a cascading effect and the government needs to control inflation to control fiscal deficit, which is already showing signs of increase. Moreover, increase in excise on steel will abe be inflanon ary as this basic metal and this will have repersime to the housing sector.

There is a big blow to the securities market by the imposition of an unreasonable as on all transactions. The transaction tax in illad voed, as, first, all transactions do not lead to profit. Second, 80 percent of the stock market turnover is either arbitrage business or jobbing transactions at a very meagre price differencs of as low as Rs 0:05. Thus will lead to a complete erosion of Inquility in the market which is very casential for true and bar price decovery and reduang impact cost (that is, the effect of bulk purchase order on the price of a scrip). Even without this step the market was very nervous about the policies of the UPA government and the influence of Left partisan economic policy.

The low interest regime of the NDA government, which was a major factor facilitating industrial development and growth in the housing sector, etc, is showing signs of reversal as interest rates are firming up. If this government does not take major initiatives which are missing in the budget, the impact on the economy could be severe.

(The writer is member, Central Economic Cell, BJP)

FM has paid lot of lip services to rural development without concrete announcement of policies, says Gopal k  Agarwal

The Government has turned out to be a damp squib. The Congress and the Left, earlier highly critical of the economic policies of the NDA Government, were expected to give a clear direction to the country’s economy. The UPA Government inherited a healthy economy with very strong fundamentals, burgeoning foreign exchange reserves, a economic growth of eight per cent, fiscal deficit and inflation under control and a booming stock market. All these were the result of the sound economic policies pursued by the NDA Government. Everybody expected the Congress and the Left Front to implement their distinct policy statements in this Budget. However, the ideological differences in the economic thinking between the two does not leave any room for economic innovation. This has come out very clearly in the criticism of the Budget by the Left Front.

First, in his Budget speech. Finance Minister P Chidambaram paid a lot of lip services to rural development without concrete announcement of policies. Almost all the policies of the NDA Government are being continued. Instead of providing support to the smallscale sector. 85 items have been dereserved.

Second, Mr Chidambaram has spoken so much of education and has imposed a cess of two per cent across the board on all taxes, but he has not spelled out as to how this fund would be spent. Will this amount be in addition to the amount earmarked for education earlier? In our bureaucratic setup, implementation of policies has always been a problem. If the Government does not specify how the benefit will be delivered to the actual beneficiaries, all the good intentions will not bear fruit.

Third, Mr Chidambaram has announced that a consortium of private banks will give loans to the tune of Rs 40,000 crore for infrastructure development. Announcements regarding intentions of the private banks will have no meaning as these will be commercial decisions, and its credit cannot be taken in the Budget. Fourth, in the field of water conservation, Mr Chidambaram’s announcement that wells, ponds, etc.. will be repaired and renovated is also an eyewash as this will be done over a period of 10 years and that too without any fund allocation.

To meet revenue requirement, Mr Chidambaram has stated that there would be a 40 per cent increase in revenue collection from the corporate sector only without there being any increase in the tax rates. He plans to achieve this through greater and stricter compliance of tax laws which is unrealistic and impractical.

After criticising so much the disinvestment policy of the NDA Government, Mr Chidambaram, in continuing with the disinvestment of NTPC, a profit-making company, has also announced the setting up of a disinvestment commission.

The Left Front’s rhetoric of opposing FDI in strategic sectors has been given a raw deal by announcing increase in FDI in all the three strategic sectors of telecommunication, aviation, and insurance. Telecommunication is one sector in which even the US does not allow majority holding to foreign investors.

Tax concessions in income tax on the taxable income of up to Rs 1 lakh is creating confusion. It would have been much better if instead the basic exemption limit of Rs 50,000 was increased. This will create resentment to anybody having even a slightly higher taxable income of more than Rs 1,00,000.

The increase in service tax by 25 per cent of the earlier level of (eight to 10 per cent) will also have an inflationary effect. Service tax has a cascading effect and the Government needs to control inflation to control fiscal deficit, which is already showing signs of increase. Further, increase in excise tax on steel will also be inflationary as it is a basic metal for infrastructure development. and will harm the housing sector too. The imposition of the anretisonable transaction tax on all securities transactions came as a big blow to the securities market. It seems the Government has not applied its mind as to whether this can be absorbed or will it completely kill the capital and bond market. Transaction tax is bad as every transaction does not lead to profit. Second, 80 per cent of the stock market turnover is through either arbitrage business or jobbing transactions at a very meagre price difference of as low as five paisa. This will lead to complete erosion of liquidity in the market which is very essential for true and fair price discovery and for reducing impact cost (that is, the effect of bulk purchase order on the price of a scrip).

The low interest regime of the NDA Government, which was a ma- jor factor in facilitating industrial development, housing sector, etc., is showing signs of reversal as interest rates are firming up. If the UPA Government does not take major initiatives, which are missing in the Budget, then we may soon see reversal in the country’s economy.

(The writer is member, Central Economic Cell, BJP)

By Gopal K Agarwal,

India had draconian tax laws which harassed honest taxpayers Compliance was difficult. Non-compliance was at a premium and led to generation of black money, which was not available for investment and economic development. There was a growing understanding that if the government has to increase tax collection, more people have to be brought under the tax net.

Government recognised that this requires simplified and ra- tionalised procedures Laws must be made less draconian. the tax department friendly to the assessee. Successive budgets were moving in this direction. The NDA government set up the Kelkar Committee on tax reforms. The widespread discussion on its recommendations helped in creating a positive environment.

The government has to work with the premise that citizens are honest and law-abiding, any action against them can be taken only when proved guilty. This is a basic law of jurisprudence and will have to be adhered to, or the re is a danger that the country will see a rise of state terrorism, wh ich will justify all action under the guise of enforcing compliance.

Certain provisions in the recent budget amount to state terrorism. The finance minister is creating an extremely unhealthy environment for taxpayers. He has been directing tax officials to ensure increased tax revenues. They have been given targets.

These targets are passed down the line. The officials work out a collection strategy and identify parties from whom mobilisation can be done. The income tax of officer is revenue-minded and makes an addition to a taxpayer’s account in order to meet his mobilisation target. The Commissioner of Income Tax, Appeals, is revenue-minded and upholds orders passed by the income tax officers.

The taxpayer approaches the judiciary. The nightmare gets worse when the finance minister wants to influence the judiciary so that it does not grant any relief. Taxpayers are informed that an addition is being made to their income and unless they pay up, their assets will be attached. If they protest they are told that they can go in for appeal to have the additions reversed and have their assets released. The situation is tailor-made for extortion Further, the FM has directed the tax department to resort to harsh measures like surveys and raids. The victim pays a huge amount of money to be allowed to carry on with his life and business. Laws like informing the tax department of any purchases above Rs 50,000 can only lead to harassment of the general public. It is not just applicable to single transactions but to the aggregate amount. Even assesses who will pay no tax will be included, the report will have to be in a computer-readable form, and figures relating to the beginning of the financial year would have to be furnished.

TDS was to be implemented when the tax information network was complete. People were to be protected from the hassle of seeking TDS certificates by having TDS deductions reported directly to tax authorities and entered into a central database. Each taxpayer would have access to the database through a Permanent Account Number (PAN) identification and password. The database is nowhere in sight, but the budget has gone and changed the TDS reporting requirement. Amendments to section 203 and Section 203 AA say that TDS details should now be sent to the income tax authority or a person authorised by it and no certificate is required to be issued to the person whose tax is deducted. This means that people whose tax is compulsorily deducted will not even have a piece of paper to prove their tax payment. And they will be at the mercy of income tax officials to get TDS certificates.

A new section, 277A, has been introduced in the Income Tax Act, where the assessing officer for the purpose of filing a complaint of prosecution u/s 277A, has to simply record the intention of the third party to abet the tax evasion and not to substantiate his charges. The explanation to the proposed section provides it shall be sufficient in any charge to allege the general intent to enable such other person to evade any tax, penalty or interest.

Explaining the concept of tax on securities’ transactions, FM said in his budget speech that it is to simplify the taxation of capital gains. The new proposals are neither simple nor revenue yielding. To keep track of such transactions and ensure that the tax payable is correctly worked out and paid would be an uphill task. The objective of generating more money for the government would be frustrated.

Service tax is in the form of double taxation and has a cascading effect. It is successively being increased without relief in the direct income tax. The government will have to make laws simple, non-draconian and introduce checks on the income tax officials. The only way India can be a true welfare state is by providing economic freedom to its citizens. Else, all the rhetoric about the government being a welfare state is merely lip service.

(The writer is a member BJP’s Central Economic Cell)

By Gopal K Agarwal,

UPA should set its priorities right and stop ignoring questions of national interest, say

It’s time the citizens of the coun I try took a firm decision They should either accept the hypocrisy of the current regime with regard to policies like secularism, economic reforms and creation of employment opportunities on the one hand and its indifference to in ternal security on the other, or they should prepare to confront the Government to answer certain ques tions before the nation.

Everybody will accept that there cannot be any compromise as far as the security of the country is concerned. It is an established fact that Pakistan is involved in cross-border terrorism and India has been trying to convey this to the whole world. But the recent joint statement of Prime Minister Manmohan Singh and President Musharraf was conspicuously missing the above point. It seemed to convey a shift in India’s stand on the issue. There is a sudden spurt in violence in the Northeast, where Pakistan’s ISI’s involvement is suspected. But both the Home Minister and the Defence Minister seem helpless about it.

More worrisome is the Congress’s dillydallying on the issue of illegal Bangladeshi immigrants. General SK Sinha, the former Governor of Assam, in his report to the then President, had pointed out that large-scale illegal immigration from East Pakistan (now Bangladesh), over several decades, has been altering the demographic complexion of the State. These demographic changes are a major cause of concern, he had further pointed out, which can lead to severing of the entire Northeast from the rest of the country. This will have disastrous strategic and economic consequences. Even countries like Malaysia have taken a tough stand on the issue of illegal immigrants. But our Government, in its zeal to please the minority, cannot take tough decisions.

The Congress is resorting to the rhetoric of its “secular” credentials and hypocritically trying to please the minority. It has set up a commission on the reservation for minorities. which was stalled by the Election Commission. Further, the announcement of reservation to mi norities in Andhra Pradesh was quashed by the High Court. I must add that all the rhetoric about secularism by these people is based on deception, of which all of us are well aware. Yet it persists.

Most people of the country will agree that we need a strong and effective law to combat terrorism but this Government has repealed POTA and has not brought any law in its place. The Government could have modified some provisions. The discovery of explosives in the form of scrap shows the recklessness of our Government in handling the sensitive issue of internal security. At the present juncture, any compromise with the internal security of the country is unacceptable and the Government should come out with a firm stand.

Internal security is not the only issue of concern. A lot of confusion has been spread about economic reforms mainly due to differences in thinking of the Congress and the Left parties- whether it is foreign direct investment, PSU’s disinvestments or panel of experts in the Planning Commission. If India has to progress economically, it requires a clear-cut direction and roadmap.

Then, look at the hypocrisy of the Left. In West Bengal, they are taking help of foreigners, but at the Centre, they are opposing it. They don’t want the disinvestment of PSU’s and want to keep them as their fiefdom. The Left would like them to bleed and would continue wasting the exchequer’s money. People know that many of the PSU’s are being misused by ministers and are working with complete inefficiency to the extent that they have not even completed their accounts for several years Such wastage of money will con- tinue. The Finance Minister wants to unleash a reign of terror in the name of tax collection. He is giving draconian powers to raid, harass and confiscate properties of the taxpayers to a level of an inspector in a department which is known to be the most corrupt of all the Government departments.

There are many major issues where the present Government should concentrate-like controlling spiralling inflations, creating employment opportunities as promised. putting new life to road construction. building social security network. keeping the rising interest rate under control and, most of all. Strengthening internal security. But it diverts public attention by raking up emotive issues like removing Veer Savarkar’s plaque from the Cellular jail, arresting Ms Uma Bharati on the issue of hoisting Tiranga, making noise over detoxification of the educational system. All this while it could have easily reviewed the portions which it found objectionable. It is going to the extent of creating a situation in which the Opposition is provoked continuously, especially when the Leader of the Opposition is not allowed to speak in the House. The Opposition is further provoked when a group of ministers is set up to review every decision of the past Government.

It is time the Government got down to constructive work. It must get rid of vindictiveness and authoritarianism and stop victimizing people of different ideology. By appointing its own persons, the UPA Government is being instrumental in destroying some of our great institutions which have been established by our forefathers.

(The writer is National Convener, BJP Economic Cell.)

By Gopal K Agarwal,

Why the politician feels free to disregard Hindu sentiment

Years of subjugation and Hindu philosophy have created a mindset which does not react to aggression or exploitation. There are circumstances that call for collective wisdom to dictate action-when castes, creeds or religious communities must revolt against any act on the part of an individual or institution causing hurt to its pride or identity. I think the Hindus have lost this capability.

Every politician and many institutions in the country are competing to hurt Hindu sentiments in the race to appease other groups. This is being done with the clear intent to gain in votebank politics. Who is to be blamed for this shameful disregard to Hindu sentiment? Any community which cannot stand up for its institutions or its symbols, or is a silent spectator to the ridicule of its pride, must go down unsung in history. It is better for it to perish than to lead this shameful existence.

Petty politicians like Jayalalithaa have become bold enough to act in concert to malign a 2500-year-old Hindu institution. This institution represents the greatest philosopher and unifier of the country. Shri Adi Shankaracharya had a clear vision to establish Shankar Mutts in the four corners of the country as seats of knowledge, public service and national integration.

They say nobody is above the law. Only fools buy this argument. In our country, not only do criminals roam free but they also occupy seats of power. Else, how can you explain persons like Shibu Soren occupy- ing high positions and Raja Bharyya, who is a hardened criminal, be-coming a minister in the government? Yet this argument is being used to arrest a respected personality without proving his guilt and staging his trial by media through selective leaks.

In the Mahabharata, it is said that public ridicule of any respected person is a punishment worse than killing him. Yet what have so-called leaders done with Shankaracharya ji? We are all mute spectators to this heinous crime.

The law was bent in the Shah Bano case to appease one community. A religious leader of the community was not taken to court because it may have created a difficult law and or- der situation and the case against him was dropped. But then, those were treasured vote banks.

It is a good thing to be liberal in one’s thoughts and deeds. Indeed, “Vasudhaiva Kutumbakam” (the world is one family) is a great philosophy. But when this very philosophy becomes our weakness, then it is the duty of every thinking and proud individual to set it aside and fight for his rights and demolish those demons who are creating a divide and rule politics. “Arise awake and stop not till the goal is reached thus spoke Swami Vivekananda. He further said, “Say with pride that I am a Hindu”.

The writer is a member of the BJP’s Central Intellectual Cell.

By Gopal K Agarwal,

Income tax amendment affecting donations to charitable organizations

Imposing tax on these charitable organisations by the Government is injustice to the people and is absolutely unfair. On one hand, Government gives subsidies to many commercial organisations and on the other hand, it is taxing these organisations, which run gaushalas and other charitable projects for the welfare of all.

Social service has been an important aspect of our life. Our scriptures have motivated people to devote their resources and energy for the welfare of our fellow men guiding us to a life of austerity. This path has led to establishment of many charitable and religious institutions in the country. It has been one of the main reasons for our social fabric to remain intact, in spite of being devoid of any regulatory mechanism for social security. Whether as the welfare of the destitute and incapable or the old people stray animals etc., these institutions depended on the donations from the influential and wealthy people since centuries. Now slowly and steadily, the government is putting cuts on these channels without establishing an alternative welfare mechanism.

A recent announcement in the Budget 2008-09 has amended section 115 BBC of Income Tax Act, incorporating taxation on all anonymous donations at a flat rate of 30 per cent. It will affect lakhs of charitable institutions across the country. It is unthoughtful and inhuman on the part of the Government that it has imposed 30 per cent tax on guptadan received by the charitable trusts. As a result of such a tax, a large number of small and big non-governmental organisations engaged in charitable activities for the underprivileged would be left with lest resources. These institutions will now have to pay 30 per cent tax on the entire quantum of their receipts compris ing anonymous donations.

Imposing tax on these charsta ble organisations by the Gover ment is injustice to the people and is absolutely unfast On one hand, Government gives subsidies to many commercial organisations and on the other hand, it is taxing these organisations, which run gaushalas and other charitable projects for the welfare of people.

Unlike foreign countries, India does not have any comprehensive policy on social security. In this situation, at least Government should not impose tax on these charitable organisanons, because all these institutions are for the support of the needy people. Guptadan in itself is a sonakar for the people. Our Shatrus preach donations for charitable causes without expecting any name or fame in return.

A petition has been filed before the  Petition Committee of Rajya Sabha, under the Chairmanship of Shri M. Venkaiah Naidu, against the imposition of this tax.. The petition was admitted on April 16. 2008. The petition is for considering grant of exemption from payment of income tax to certain categories of charitable organisations. The types of charitable organisations being recommended for Income tax exemption are orphanage, old age home, neat house and cow pen (Panjrapole and Gaushala) institutions which are related to handicapped people, hospitals for birds and cattle, institutions which provide free treatment for deadly diseases, inshunans dich pro Vide free shelter to oppressed people, institutions which serve meal free of cost, institutions which are meant for providing humanitarian assistance in case of natural calamity and disaster and institutions which are related to wadow and boyvoted women. The petitioner has prayed that since the aforesaid categories of charitable organizations take care of the safety, well being and survival of the oppressed and destitute persons, take care of the treatment of terminally ill patients, protect cattle and livestock including infirm animals, especially draught cattle and help translate the ideals of the Constitution, they should be exempted from payment of Income tax

The categones of charnable institutions mentioned in the petition, working for physically challenged bird and animal hospe tals, institutions treating comical disease like canoer free of cont providing fome relief to the victures of any calamity providing Ince meals and the organisations work ing for widows and destinite should not be saved rather they should be encouraged by the government.

We need to build public opinion in favour of this petition and request the committee to with hold the Government from imposing this tax.

By Gopal K Agarwal,

Monthly economic round-up

The month of August witnessed several important events having serious economic implications. The first was the economic outlook report of the Government of India for the year 2005-09. This report gives mixed indications on economic front the overall picture is not very healthy The highlight of the report estimates the economy to grow at 7.7 per cent in the next year as against nine per cent in 2007-08. The growth in the agricultural sector is to fall at two per cent as against 4.5 per cent last year. These are because of sharp inflation in global commodity prices and tightening in credit following sub-prime crisis in the US. These factors are leading to lowering of growth and causing pressure on our fiscal system through larger subsidy bills and supply constrained in physical and social infrastructure like electricity, water, road/rail transportation and agriculture. The investment rate is expected to remain the same, but savings are projected to decline. The capital inflows are also expected to fall to $70.9 billion from $108.03 billion last year. Inflation will remain the prime cause for concern in spite of all the efforts of the government. The government is also faced with an uphill task on the focal front, Its fiscal deficit target will overreach from growing off-budget liabilities, which are estimated to be at five per cent of GDP.

India’s high credit growth is a cause of concern, according to IMF’s latest Global Financial Stability report, and is one of the areas of potential concern. It said that swapping dollar debt for yen. which led to the forex derivative mess, although high, but manageable and not a cause for concern. In its report, it said that even after some efforts made by the central bank to rein in loan growth through a series of monetary and prudential measures, credit continues to grow at close to 25 per cent. In order to arrive at risks in the financial markets of the emerging market economies, IMF assessed fundamental conditions in those countries that are separate from those related to sovereign debt. One of the major indicators that are looked at is the growth in bank credit. Other indicators are the current account deficit as a percentage of GDP. the ratio of bank credit as a percentage of GDP and external position as percentage of GDP Though there is no potential threat on other parameters for India. Credit growth poses a potential threat.

Under this background, there was some relief to the exporters when rupee breached 44 marks. This is good news for exporters, but importers specially oil companies will have to face the pain of expensive dollars. According to a Nasscom study, this trend will help software company’s earnings. The Indian software sector is expected to register 10- fold increase in revenues over the next seven years.

The government announced on August 15 a change in the provident fund investment policy, where the government has allowed private sector-managed provident funds and superanmat ing trusts to have greater exposure in stock markers. They can now directly invest up to 15 per cent of their investible funds in shares of companies on which derivatives are available in BSE and NSE. The other changes made in the investment patiers include merger of central government se curities, state government secun ties and units of gilt mutual funds into a single category and allow ing investment up to 55 per cent of the investible funds; providing a flexible ceiling for various category of instruments, instead of fixed investment ceiling as a present. This policy change will provide more liquidity to the equity market, but allowing private players to manage provident fund investments in capital market in dangerous.

(The writer is National Convener, BJP Economic Cell.)