How about an ethics policy in the Budget?
Can the Finance Minister think of introducing ethics in business transactions through the Budget 2011-12?
India has a sound Constitution, strong democratic principles, well-recognised demographic dividend, abundant natural resources, internationally recognised and well-sought after information technology, and an enviable culture, heritage and civilisation. With all these favourable factors, it discards the opportunity to reach the top of the world because of the greed, corruption, malpractices, lack of commitment and accountability from a few who matter. The series of scams reported every now and then only smack of disrespect and disregard for the laws of the country, and its image and reputation. It is a shame that things go from bad to worse, and there is no sign of improvement. This needs to be seriously dealt with, and it should be possible to a great extent through simple rules with strict enforcement. Here are a few suggestions for Mr Pranab Mukherjee as he prepares to unveil his Budget in a fortnight.
Business Ethics and Corporate Tax
Tax evasion and tax avoidance have been an open secret. These need to be plugged through checks and balances by way of practically enforceable rules and regulations. Adherence to tax rules and laws of the country in general, corporate governance principles, sensitivity to corporate social responsibility, compliance with financial market regulations and provisions of the Companies Act, satisfactory conduct of bank transactions and discipline followed as a borrower, and so on, should be assessed, rated and made public. Concessions, reliefs and special benefits, if any, from Government and authorities that are to be granted to corporates/firms/others, should have a bearing on this assessment. Excise and Customs duties payable and paid should reflect in the profit-and-loss account of companies, and should be independently verifiable by tax authorities, accountants and auditors. The board of directors should separately certify that all tax dues have been paid. There can be a thumb-rule to verify the levies payable/paid in relation to production, sales, imports and exports. Any violation/non-compliance should attract punishment and the financial regulator should be notified. Corporate governance and accountability to the Government and shareholders have to be made transparent through balance sheets. Once in a while shareholders' assessment of the company's response to investors also needs to be independently assessed through surveys. These steps may appear cumbersome, but need to be considered for implementation with the aid of information technology.
I-Tax of Individuals
There is a feeling that the tax and number of tax payers are insignificant and do not compare well with the wealth created, economic growth achieved in the past few years, jobs created both in India and abroad, transactions taking place — particularly in real estate, gold and commodities market.
In the absence of tax compliance, ways have to be thought of that link the transactions with income tax compliance. Banking inclusion at the initiative of tax authorities is the only solution to bring under the tax-net traders, skilled and semi-skilled professionals, service providers, etc. Bank accounts should be made obligatory for all. The simplest way is to insist on PAN number for all transactions above a limit and compulsory payment through cheques and plastic cards. Payment by cash is very common — particularly for buying gold and jewellery, land, furnishing of houses, etc. Tracking transactions using IT will go a long way in improving tax compliance and revenue collection both for the State Governments and Central Government. It will also facilitate for providing unique identity cards for a large segment of population. Tax returns should also reflect movement of assets and liabilities yearly. As it is, there is no way to know assets owned by an individual easily.
Tax on Dividend, bonus shares and stock-option issues
Canons of taxation demand that broader shoulders should carry heavier weight. Instead of periodically increasing prices of petroleum products, the Government can introduce levies on dividend payments beyond a cut-off, say Rs 5 lakh and above. Likewise, levies on bonus shares and stock-option issues can be made, and these funds can be used to meet the demands of oil companies. Increase in oil prices has a chain effect, and all items become costlier. It may not be judicious to leave the oil prices to market forces, for some more years of regulation may be required till the economy matures, and inflationary expectations and conditions stabilise. Pricing of commodities, levying of taxes, etc., which affect mass-consumption items directly through inflation, need to be carefully considered. Revenue mobilisation is easy by taxing such items, but it hurts the masses, incurs the wrath of the public and leads to unpleasant consequences. As rightly said, “Once a nation begins to think, it is impossible to stop it.” That is what we are witnessing now on account of the 2G scam and spiralling prices all around.
black money
The most painful thing is the prevalence of black money particularly in real estate, charities, etc. Innovative ways have to be introduced through Budget provisions to prevent such practices. Middle-class people are the worst affected, as they are compelled to bribe to realise their dream of acquiring houses. Morale and confidence in the system evaporate. This is not good for the society and the economy in the long run. The easiest way to solve this issue is to have a tie up among all parties to the transaction through IT and see that cash element is kept to the minimum. Black money in real estate transactions has to be eliminated gradually. Monitoring of real-estate deals can bring a lot of relief to people and the economy.
As it is, agricultural income is exempt from tax. However, there is nothing wrong if farmers with large holdings are made to file returns beyond a cut-off at least. This will at least pave the way for an assessment of wealth created in the economy and improvement in distribution of fertilisers and other essential items meant for poor farmers. Income-tax payers should be taken out of the public-distribution system wherever possible.
This appeared in The Business Line dated 14/02/11.
