Soon after the budget annoucements, my first thoughts were: Wish I was a farmer, enjoying tax free income and a debt write off. But, no. Life is not easy for them. They are at the mercy of the weather gods and also money lenders.
The budget was quite a damp squib for the corporate sector - the retrospective amendments are derogatory to the very concept of fairness. Mercifully though, no increase in tax rate nor any major new taxes. Call it shaken but not stirred enough for reforms or stirred but not shaken enough for reforms. Something did seem to be lacking.
For the Budget related lawstreet click here. Or as always read below.
Stirred but not shaken enough
4 Mar, 2008, 0000 hrs IST,LUBNA KABLY, TNN
Zenobia Aunty, who grew up in rural Dhanu, can understand the plight of a farmer. But even she has questions to ask her favourite finance minister. Are we pumping money — in this case Rs 60,000 crore in the right direction? Who will save the farmers from the clutches of the money lenders where the poorest of the poor actually go? Further, will this write-off of debts make defaulting on loans a habit? To be fair to P Chidambaram, even if this debt was not written off, the banks may have had to write off their non-performing assets. While this columnist could not find any mention of an expenditure outlay for compensating banks, she understands that they will be. Well, this means, banks are better off than otherwise.
Yet, we must think of an alternative long-term solution. T K Arun, has earlier written about how Magarpatta’s village folk got together, pooled their land, set up a company, developed their lands into modern townships and are now crorepatis. If Shankar Magar, one such villager whose photograph was carried in TOI’s budget day edition could prosper, so can others. ‘Super-boss’, for whom this columnist currently works advocates a ‘corporate-farmer’ partnership model. He thinks that if farmers pooled their land together under a cooperative mechanism, this cooperative then dealt with a corporate house and entered into an agreement for 15 years or so for corporate farming it would be a ‘win-win’ situation for all. The corporate entity would have one organisation to deal with; a larger area of land would be available for corporate farming and farmers would be assured of transparency and better profits. ‘Super-boss’ hopes someone takes up this idea and he isn’t even asking for a fee.
With the rationalisation of tax slabs, individuals stand to gain, but India Inc is in for some disappointments. Perhaps WTO commitments put paid to the strong demands to extend the tax holidays for undertakings in EOUs, STPI, EHTPs, etc., and this expires on March 31, 2009. While the corporate tax rate remains the same, there is bad news if you are a MAT company. Even as the tax rate remains unchanged at 11.33%, book profits will now include deferred tax and provision for dividend distribution tax (including surcharge and cess), and this means more MAT tax. In fact, with this move the Finance Bill, like any other good Finance Bill has sought to overturn judicial decisions. Further, how can a Finance Bill be complete without any retrospective amendment? So this takes place retrospectively from April 1, 2001 and may result in reopening of several cases.
In between the lines are a few more shocks. Generally when you receive an invalid notice — notice sent to you beyond the due date, you still appear before the tax authorities and cooperate with them, without prejudice to the fact that the notice was invalid. Well, better beware. If you do appear in any proceeding or cooperate in any inquiry relating to an assessment or reassessment, it shall be deemed that the scrutiny notice was served to you in time. You cannot then battle out on the ground that the notice was invalid. Talk about being caught between the devil and the deep blue sea. Another retrospective amendment, this time dating back to April 1, 1989: now, there is no need for the tax officer to mention reasons for initiating penalty proceedings. ‘Just do it’, seems to be the new mantra at the tax office.
Retrospective amendments are unfair to the taxpayer, but some traditions do not die — like FBT they are here to stay. However, global employees may get some respite. The Finance Bill provides that if FBT is recovered from them in respect of their ESOP plans by their employer, such tax shall be regarded as tax paid by them. They can claim a credit for such tax in their home country (the country where they are deputed and are now a tax resident). However, this will ultimately depend on whether such other country accepts this. Gopal, our techie next door neighbour is not too optimistic. There has just been a half-hearted attempt to mitigate the cascading effect of dividend distribution tax, no relief will be available to intermediate companies in case of a multi-tier structure or if the ultimate parent is a foreign company.
Bond markets got an unexpected boost. Foreign Currency Exchangeable Bonds can be converted into shares of any group company. The conversion shall not be regarded as a transfer, read it to mean, no capital gains at this juncture and it comes with a retrospective effect by a year. Going forward, there will be no TDS on interest against demat corporate bonds traded in Indian stock exchanges. PC could well say, Mein hoon Bond. Yet, shaken but not stirred enough for reforms, this about sums up the budget for Zenobia Aunty.