Steven L Dsouza, Mumbai

Dear Pranab Mukherjee,
Hon’ble Finance Minister of India,

Sir,
I place before you some expectations and wish list for the forthcoming budget, It represents the hopes and aspirations of all the stakeholders from the common man, the salaried worker, exporters, entrepreneurs, and industrial sector. I was pleasantly surprised when representations made by me for some trade associations, made before the last July budget were positively considered, and this has inspired me to do a thorough research and come out directly ,with some meaningful suggestions.

A. RESOURCE MOBILISATION –REDUCTION FISCAL DEFICIT

1) The biggest task before the Finance Minister is to balance Govt. Expenditure of roughly , Rs. 1.86 lakh crores stimulus / tax foregone ,with the RBI governor D. Subbarao advice to reduce the fiscal deficit & avoid a “Chakravyuh” like situation in these kalyug times. Fertilizer subsidy overshoots, and postponement of 3 G spectrum auctions have thrown all earlier projections out of gear, with deficit going beyond projected 5.5% to expected 6.8%. A gradual increase in cenvat and Service Tax rates is inevitable. The FM in December 2009 had promised Parliament disinvestment through big ticket PSU share sales in 2010, of profit making Navratnas, as well as those PSUs required to meet mandatory listing norms of 10% public ownership. These norms need to be enhanced to 15% public ownership, as the best way to meet public expenditure for public welfare through disinvestment of public sector units, in these times of global depression. At prevailing market rates, this dual step of sale of shares15% public ownership / 5% stake offering in big ticket PSUs, should bring in Rs 35,000 to Rs 50,000 crores ,next fiscal.

2) Expediting the 3G spectrum auction process in next fiscal year 2010-11 should a t least bring in roughly another Rs.35,000 crs to Rs.40,000 crs,

3) These two big ticket measures, coupled with a gradual hike in diesel, petrol and gas prices before the budget, and expectation of reduction in fertilizer subsidies due to increasing availability of KG Basin gas input at administered controlled prices are the most practical measures to bring down the fiscal deficit to manageable levels with out sacrificing on growth expenditure

4 ) Hike in central excise and service tax duties looks inevitable, given huge fiscal deficit expected around 6.8%, and the RBI Governor “chakravyuh” warning of inflationary govt. expenditure. I suggest a dual graded withdrawal of stimulus package- increase Cenvat rate by 3% for sectors that have done well, and hike of only 1% for still recovering sectors. This cross subsidization and gradual and graded removal of fiscal stimulus package is much better option than across the board enhancement of rates.

5) Noble laureate and renowned economist Amartya Sen ,has suggested that unless basic health and primary education standards are lifted, from present abysmal state, the country cannot progress to its expected role of a global economic super power. Accordingly I suggest that existing education cess be maintained, but rate reduced from 3% to 2% to be used exclusively for primary education programs. An Additional Basic Health cess of 2% to be introduced, to be used exclusively for basic health programs slated under National Health Mission. The high income bracket beyond Rs 10 lakh annual taxable income, should not mind this small token contribution to basic need of the poor, given that we rarely have charitable industrialists like Bill Gates ($10 Billion announced recently for global vaccination programs ) and Warren Buffet among our business magnates today.

6) Service sector in India has registered the highest growth in January 2010 , ever since September 2008, when the global recession began The stimulus package for services sector having brought about a noticeable recovery in growth rates. Given huge fiscal deficit, the rate may be restored to its original 12%., barring few sectors like export of services, which need total exemption.

7) The Wealth Tax rates on the Wealth of our umpteen neo-rich billionaires and millionaires need to be enhanced, Presently, they are ridiculously low. Germany, US and other developed Nations have higher and more realistic rates. It is only fair that the super rich and the wealthy should contribute a part of their wealth earned from society, back to society .Why should only the salaried working class bear an inequitable, disproportionate and unfair tax burden if calculated on earning capacity basis?

8) Financial wiz-kids have uncanny ability to enrich themselves at cost of investors .President Obama has put curbs on this practice of “bonus” payouts. Britain charges 50% tax on these “bonuses”. To discourage this out right daylight loot, and to keep this virus from the capitalist west away from our system, a similar 50% one time income tax payout levy, deductible at source, be levied on all “ fat bonus” payouts in financial sector.


B. INCENTIVES AND DEVELOPMENT SCHEMES

1) The 2% interest subsidy on bank credit to certain employment intensive exports sectors, valid till March 31, 2010 be further extended up to March 31, 2012

2) President Obama focus is on tax incentives for companies creating jobs The time limit for notification of industrial parks under New Industrial Park Scheme be extended up to March 2014 (Section 80-IA and 80 IB tax holiday benefits) from present deadline of March 2010 to boost to infrastructure and housing projects. Renewal energy projects be brought under the scheme, to help reduce costs, and give boost to green energy ventures, in line with our resolve made at Copenhagen to control carbon emissions.. Software technology parks, mostly in mofussil areas and away from metros have greater employment potential than IT-SEZS, WHICH ARE TECHNOLOGY DRIVEN. Accordingly, the STPI units, granted direct tax exemption on exports till March31, 2012 be granted a further extension of exemption for 2 years-i.e-till March 31, 2014

3) About Rs. 60,000 crores of fruits and vegetable rot away, only about 1.5 to 2 % of it is processed. To create more employment and give a fill up to the rural economy, the government must announce incentives / subsidy etc. to promote the food processing industry especially considering that high local and state levies have virtually destroyed this industry.

4) There has been a massive increase in foodgrain, edible oil, sugar and vegetable prices over the past few months. The existing PDS system has failed, especially since it is prone to misuse, pilfering and does not cover the homeless poor, who need it most. The UPA Govt must fulfill its promise to provide foodgrains (25kg) at subsidized prices to the poor, including the homeless, and other essential commodities to BPL families after revamping the PDS system. We are waiting eagerly for the UPA Government to fulfil its promise of introducing The Food Security Act at the earliest. This is especially since yesterday the Prime Minister announced that the food crisis to here to stay.

5) Last year Rs120 crs was allocated for the UID project. We expect at least another Rs 600 crs to be allocated for this nation wide important identification project this year.

6) Budgetary allocation for desalination plant near Chennai was made few years back by Mr.P.Chidambaram. Asimilar allocation of central grant for desalination plant near Mumbai, the biggest tax paying city of the country be made, since the financial hub of the country presently reeling under acute water shortage.

7) The National Solar mission offers to buy power at enhanced rates and supply it to the National Grid and cross subsidize the different rates. The existing condition of cap of units up to 15MW be maintained. Another condition be incorporated that solar photovoltaic cells should be sourced only from domestic producers to be eligible for the scheme. Such a clause would help revive the ailing solar PVC industry, presently all closed or sick, due to cheaper cost disadvantage up to 50% of Chinese PVCs. Similar repurchase facilities be incorporated for all renewal energy schemes, and cross subsidization with other power fed into the national grid be made applicable, especially for wind power projects. This is a better way to encourage renewable energy schemes than to give incentives upfront which past experience in some abandoned wind energy projects has shown, is liable to misuse.

C.RELIEFS-CHANGES-DIRECT TAXATION

1) The section 80 C limit be hiked to Rs.1.5 lakh from Rs. 1 lakh for permissible tax deductions.

2) To make term deposits with banks attractive, eligibility for deduction the period for deduction be reduced from 5 years to 3 years.

3) Conveyance allowance deduction limit be hiked from Rs.800 per month to Rs.1800 per month. Salaried employees have to pay tax beyond permissible limit from April 2009 with retrospective effect. This retrospective levy be nullified, and tax beyond enhanced conveyance allowance limit be made applicable from 1st April 2010.

4) The rent available for deduction for self employed assessees be enhanced from Rs.24,000 per year to a more realistic Rs.60,000 per year, in tune with revised market rates and inflation.

5) Real inflation rates have hit the salaried sector hard. Some relief be provided at least for one year only AY 2011-2012, be allowing standard deduction at 20% before introduction of new Direct Tax Code from 1st April 2011.

6) The year’s inflation, loss of jobs and loss of purchasing power has hit the common man very hard. Income Tax exemption limits for senior citizens, women and general assessees be increased across the board by at least Rs.30,000- Rs.40,000 per year, , keeping in view, that balance of equity with fiscal deficit concerns has to be addressed in this budget.

.7) Anti avoidance measures to prevent misuse of DTAA (Double Tax Avoidance Agreement) on lines of the Chinese model be incorporated in existing Income Tax Act 1961 to prevent re routing of black money through the tax haven, especially Mauritius route. A lot of speculative volatity in stock market could be brought down by this measure in any case, the DTC (Direct Tax Code) to be introduced in April 2011 has similar provisions, and there is no harm of this provision being made effective from 1st April 2010 itself by announcing this measure in this budget.

8) Perks of salaried employees have been made leviable to income tax w.e.f April 1, 2009 , with retrospective effect. Please make it leviable with prospective effect from April 1, 2010, otherwise a considerable portion of savings of the working class will be diverted to meet this unfair burden.

9) Based on recent ruling in Sumitomo Mitsui Corporation case by AAR (Authority for Advance Ruing) an explanation on differentiation between royalty and business income be inserted in relevant section of Income tax Act 1961 to remove ambiguity on the disputed issue,clogging our tribunals.

10) Post Vodafone huge income tax demand, there is lot of ambiguity whether income tax is leviable on transaction done overseas, but “source of income” is in India. The Budget should settle this ambiguity post Karnataka Samsung decision, and come out with suitable enactments itself, to end ptotracted litigation and confusion in matter, which is an impediment to attracting direct FDI(foreign direct investment) into India.


D.RELIEFS-CHANGES-INDIRECT TAXATION.

1) Service Tax levy on fund management services be exempted for the ailing life insurance sector, to give it a level playing field with the mutual fund asset management companies and funds managed by the banking sectors.

2) Service tax exemption for exporters in 10 notified services related to exports be widened further to giving a boost to exports which have suffered as a result of global recession and increasing transaction costs.

3) Excise duties and service tax-whether directly or indirectly, on buses used for public transportation be abolished. Use of public transportation will increase only if JNNURM largesse is matched with matching fiscal incentives. Presently many transport corporations are running into losses, and tax levies including high state VAT levies, make it unviable. Many municipalities, especially in smaller towns, do not have funds to defray their share of cost for JNNURM buses. Abolishing excise duties will reduce cost and kick start the scheme, especially in smaller cities and towns. Presently even private contractors are refusing to give buses on hire due to non receipt of payments and huge losses. All levies relating to public transportation , whether by rail, buses, or even inland waterways , should be abolished .This is the only way to de clog our roads, make our cities more liveable, especially in the metros, and help reduce pollution caused by cars and autos..

4) Mega Power projects have resorted to imports from Chinese suppliers for equipments used in power projects. A Countervailing duty (CVD) of 5% be imposed, to provide a level playing field for the domestic suppliers especially BHEL, L&T and other entities. The Zero import duty for capital goods imports in sectors like power , oil and gas, fertilize mining etc should be matched with similar incentives for domestic industry to provide a level playing field.

5) CBEC chairman that announced few months back that e filing of service tax returns will be made mandatory. The process be streamlined and expanded all over the country since lesser interface with tax authorities and e governance will reduce scope for complaints and corruption.
Yours sincerely,

Steven L Dsouza,
Malad(west) , Mumbai 400064
Telephone-9820377203/9870285998/ 022-28890890
Email-stevenemelia@rediffmail.com, steve_1962@ indiatimes,com
Dated 4-2-2010.

(Former Additional Commisioner of Customs, Central Excise and Service tax, an a MBA from one of top ten business schools in India, presently working as Mumbai based corporate management consultant and tax advisor to leading corporates/ consultancy firms across India.)