Feeling rich, Pranab-da?

The pre-budget bulge in your purse is just a routine trick your babus and the industry play on every Finance Minister every year...


Rohit Bansal | March 19, 2010

It took actor Aamir Khan to highlight what veterans in the tax machinery have repeatedly failed to bring out in the open. The day after the budget, the actor used his quick quote in a leading newspaper to ask why refunds by the income tax department were unduly delayed. Aamir also complained about the inherent harassment that honest taxpayers have to go through to procure their refunds. I wondered where the actor got this idea till I met the retired tax policymaker who cursorily mentioned this to Aamir. But there was something else he spoke of too. He told me of an unreported phenomenon that had me gasping at the babus’s ingenuity in pumping up the direct tax revenue collections just before every budget to make the honourable Finance Minister look good.

It appears that each year before March 31, the tax chiefs of important circles ask top corporates, banks and high-net-worth individuals (HNIs) to deposit excess amounts of advance tax. A normal HNI in Delhi or Mumbai may be requested to put in an extra Rs 1 crore. A large corporate could be told to place a deposit of Rs 1,000 crore! Surprisingly, these folks comply. For two reasons. First,  they obviously want to help out the taxman concerned to achieve the revenue target given the circle she heads. Two, because the money, in most cases, is in any case parked in their treasury operations, and it will earn very decent  interest when it is returned as a refund (corporated refunds can be fast tracked, you see).

The implication of this quid pro quo is that the relevant tax circle meets its target, the FM looks good when he presents the annual revenue his boys have garnered and the corporate or HNI concerned earns interest besides bailing out their local assessment officer. By next year, almost no one bothers to point out that the nation-wide tax collection figures were inflated anywhere around 20-30 percent. This goes on every year.

But there’s one constituency that does suffer. Ordinary refund seekers find themselves last in the queue for refunds. Some really “resource-less types” are put on the hold until April next year. This is unfair.

Music director Anu Malik just last week said he’d like to see Aamir Khan as the FM. Aamir is neither equal to the task nor stupid enough to give this a minute’s thought. But certainly, given his quick uptake, he can use his stardom to bring out unfairness embedded in our policy fine print. As widely reported, the top finance ministry team met him ahead of this year’s budget. Perhaps, Aamir should take the cue and apprise himself of more such injustices; but doing so, he should remain selective and modest, and not fall prey to lobbies or go around blowing his own trumpet.

CII, FICCI stumped By FM

The redeeming feature of this year’s budget was that industry lobby organisations CII and FICCI din’t have space for much headway. This isn’t a reflection of the lack of effort or the formidable advocacy skills of Chandrajit Banerjee or Dr Amit Mitra. Even as the devil in the detail unfolds, it is fair to say that finance minister Pranab Mukherjee left little room for the apex chambers to swing any unexpected concessions. This, in fact, is the way it should be. Most tax concessions have gone on for far too long. They have given undue discretion to junior officers and have done  little to enhance the prestige of chartered accountants who have to hang around income tax offices on behalf of the seeker. Cleaning up the entire edifice of largesse is a courageous decision. It is hoped that the direct tax code next year will focus on this.

Telecom towers can’t be infrastructure, surely....

It is hard to meet a top official and not find him polite and helpful. But the lower you go down the rung, the going gets tougher. This isn’t just true for a DGP versus a police constable. It is equally true for those who are batting for Indian infrastructure. For all the lip service that policy statements pay to India’s need for bijli, sadak, paani and bandwidth, would you believe that there still isn’t a coherent and commonly accepted definition of what exactly qualifies as “infrastructure.” A tax assessment officer looks at his book in a different way. The bank has a different yardstick. But the Reserve Bank of India (RBI) has taken this question to a different plane. When faced with the case whether telecom towers qualified as infrastructure, two departments within our apex bank have taken an opposite position on whether the lender should get special sops reserved for lending to “infrastructure.” The department within RBI managing non-banking finance companies (NBFCs) feels towers are infrastructure, after all our cell phones won’t function the next second without them. But the department within the same RBI managing policy directions to banks has rejected this argument. The NBFC wing has since change its mind too!

Rohit Bansal is CEO of India Strategy Group, Hammurabi & Solomon and an HBS alum.



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