OPINION: Prosecution with non-bailable warrants for tax evaders is draconian provision

It will be quite counterproductive   

Union Finance Minister in its latest budget has overlooked the small and medium sector of industry.  He has also promised to make suitable amendments in the budget after receiving various proposals.

Country’s exports are dipping and Current Account Deficit reaching an alarming stage.  Under this situation boosting of export is very essential.  Finance Minister praised small and medium sector in its contribution in the country’s exports and manufacturing activities.  However, while announcing some incentive to boost export his memory failed on small and medium sector.  He announced 15% investment allowance for those investing more than Rs. 100 crores in Plant and machinery.  The same benefits should verily go to small and medium sector as well.

It is an irony and perverted welfare which our government is exhibiting by providing relief to different sections.  Unfortunately the richest of the rich are getting more tax incentives through various tax exemptions.  For instance, the average effective income tax rate for companies was 22.85% against the statutory corporation tax rate of 32.445%.  Companies having a profit of less than 1 crore; between 1-10 crores; 10-50 crores; 50-100 crores; 100-500 crores and more than 500 crores have respective effective tax rate of 26.26%; 25.16%; 23.21%; 22.54%; 21.63%; 21.67%.  However, there are some special incentive to some corporate sector in the form of Accelerated Depreciation Allowance and this forms 42% part of the total tax concessions to the big corporate sector amounting to 34320.8 crore in the year 2011-12 which went upto 38000 crores in the 2012-13 budget.  The 15% investment allowance announced in this budget is in addition to the depreciation allowance.

On the face of these concessions big corporate have slowed down their investment in the recent past. 

On the other hand, small and medium enterprises have been starved of credit and deprived of many other essential amenities and facilities that could ensure their functioning.  Moreover, they typically face much higher rates of effective taxation and are always under threat of income tax surveys and raids.

Between 2004-2008 our economy was booming and corporate profits were shooting up.  As a proportion of GDP corporate profit was 11.5%, 12.9% and 14.3% respectively of our GDP in the years 2005-06, 2006-07 and 2007-08.  Profits were infact jumping over the growth of economy itself.  It was high time for the Finance Minister to reduce exemptions.  Against this unusual tax boosting our big corporate are making big investments in other country’s when investment in our own country is drying. The decline in our exports is not due to global slowdown but fault lies with us.  While India’s exports fell 4.5% in the first nine months of the year China’s rose over 8%, Hong Kong 4.6%, Philippines 8.6% Vietnams 6.4% and Thailand’s 4.6%.  Against this disturbing situation government is urged to look towards all sectors of industry with same spirit rather than the squint look.

Finance Minister has introduced provision for tax evaders for above Rs. 50 lacs for prosecution with non-bailable warrants.  There is no doubt that evasion of any tax should be checked but such a draconian provision will be quite counterproductive.  The total world has known that there is widespread corruption in India and with this provision only corrupt practices will get boost and not the collection.

(Disclaimer: The views expressed by the author in this article are his own and do not necessarily reflect the views of City Air News.)