By Ravi Vishvanathan, CFO, PayMate (@ravivishi)
“The opportunity of a lifetime must be grasped within the lifetime of that opportunity.”
Great Civilizations were created by great leaders who grabbed every opportunity with both hands and made things happen at the right time . “Opportunities are like Time’, once it lapses, it is unlikely that the opportunity will present itself again in the same form.
Post 2008 Financial Crisis, the nature of world trade has been undergoing a change and gathered momentum in the last 5–6 years due to multiple factors including economic, political etc.. The huge trade surplus enjoyed by China with practically the entire world was a sore issue for most countries & USA-China trade war was just a manifestation of the same.
The biggest factor playing out in the eighties was ‘ how to scale up supply chain requirements globally & procure goods for the end customer at the most optimum cost’. China became the world’s de-facto manufacturing hub and consolidated its position over the last 25–30 years. However we seem to be in the next wave of change now and the opportunity has presented itself in the most unlikely and unexpected manner.
Covid 19 hit the globe like nothing before and while the world is grappling with this black swan event and its challenges on the medical and human front, Global Trade seems to be on the mend again and there is a major re-think on depending solely on China for supply chain procurements. e.g. Japan has created a dedicated fund to assist its companies in moving their manufacturing base from China to other locations.
India is ideally placed to grab the opportunity due to a few compelling reasons like large domestic market, improved ranking in ‘ease of doing business’, close ties with the large economies etc. Government has been working on various areas that are important to attract investors, both domestic and foreign and a lot more needs to be done in these areas.
On Taxation system, we have been hearing about reforms for the last several decades but unfortunately every time the law is supposed to have been simplified it has become more complicated. Potential global investors are apprehensive about the opaque taxation system of India. Even if we discount it, we have to agree that the same is not unfounded. Our taxation reforms should result in repeal of several sections in the act
A few examples :
1) Fringe Benefit Tax was introduced in India and tried out for a couple of years. Ultimately the tax had to be rightly abandoned but the damage was done.
2) Retrospective Tax — From a perception standpoint, suffice to say this did more damage than any other factor and thankfully has been addressed but again with lot of collateral damage.
India should seriously look at a major overhaul and reform of its tax system and a few measures (indicative and not exhaustive) could be: -
1) Lower the tax rate for all tax payers to a maximum rate of 15–20%. Remove all deductions and keep it simple. The multi slab individual tax rates should go. We should not wait for the next budget to correct this.
2) Dedicated corridors can be created for manufacture of specific products like shoes, sports equipment, toys (global brands) etc., with tax incentives for incremental export and additional employment generated. States should compete with each other for such corridors by offering transparent norms, speedy clearances, and low local levies like stamp duty.
3) Abolish Angel Tax altogether.
4) Abolish Long Term Capital Gains on sale of listed shares — This has never generated meaningful revenue and sooner we abolish it better will be investor sentiment
5) Stop differentiating between domestic and foreign investors.
6) Make provision for quick release of refunds to assesses.
7) Esops should be taxed at the time of final sale of the exercised shares.
8) Certificate for lower/zero rate for deduction of tax should be given on self-declaration without any intervention, specially to loss making companies. Start-ups and other companies incurring losses or operating on very low margins face a huge cashflow issue due to tax deduction from their revenue.
9) Appeal by the department against an Order should be strictly based on merit. Disincentive to stop frivolous appeals by the income tax authorities, need to be put in place.
10) Make in India can be a huge success only when the domestic entrepreneurs are confident of smooth operations without constant knock on their doors by taxmen. Any survey, calling for details etc. should be mandatorily done remote and there should be no inspection/visit etc.
11) While GST introduction was one of the most forward looking reform measures in tax administration, it is important now to reform and simplify the same and eliminate the glitches and complexities. Sectors like Real Estate, Automobiles etc. need immediate GST reforms.
To sum up, post Covid-19, the world will never be the same again. Some of the bottlenecks in India like Transport challenges, high pollution etc. need to be addressed but we have obvious advantages in other areas, which are more important at this point of time. If we get some of our basics right on the taxation front and a few other areas, this may be a game changing moment for Indian Manufacturing sector.
It will be good if the following golden words of one of our greatest thinkers is adopted by our taxmen.
Just as one plucks fruits from a garden as they ripen, so shall a King have the revenue collected as it becomes due. Just as one does not collect unripe fruits, he shall avoid taking wealth that is not due because that will make the people angry and spoil the very sources of revenue’
Chanakya in Arthshashtra.
