Tuesday, July 2, 2013

The Right Hand of Sarkar Doesn't Know What the Right Hand is Doing

Put on notice---Times of India

Where the finance ministry is concerned, you're damned if you do or don't

Does the right hand of the government know what its left hand is doing? More to the point, does the right hand of the government know what its right hand is doing? Various sarkari departments and ministries seem to be working at cross-purposes not only with each other, but also with themselves. The finance ministry is a case in point.

In an attempt to check the growth and use of black money — India's so-called parallel economy, said to be one of the largest of its kind in the world — the finance ministry is trying to turn our country into a 'cashless society' by urging people to use credit cards for as many transactions as possible. Indeed, there is a proposal that is actively being pursued to introduce microcredit systems which would enable the customer to purchase even so low-cost an item as a paan from a paan shop on credit.

At the same time, the income tax department, which also comes under the ministry of finance, has issued a set of directives to its officers regarding the scrutiny of returns which includes issuing notices to people who spend more than 2 lakh a year on their credit cards, which works out to under 18,000 a month.

Most middle-class urban families who use credit cards for buying fuel for their car/two-wheeler, going to the movies a couple of times a month, eating out occasionally and doing their grocery shopping would end up spending about that much, if not a bit more, on their cards.

If all such people were to be served IT notices and face scrutiny, the tax department would have its hands so full it would have no time or energy to go after the really big fish: the IPL match-fixers, bookies, smugglers, hawala dealers and the other scamsters who are the real source of black money.

The finance ministry would also like us to save more, particularly by investing in the stock market or in equity-related mutual funds (MFs). Such investments provide much-needed capital to business and industries to help them expand, which in turn will give a boost to the economy which has slowed down for an 8%-plus growth rate to just about 5%.

To encourage investments in stocks and stock-related MFs, the finance ministry provides a number of tax-friendly incentives, such as dividends from such investments coming free of tax liability to the investor. But if you invest more than 2 lakh a year in MFs you are likely to come under income tax scrutiny and receive an invitation to come and see your income tax officer.

The finance ministry wants to woo foreign investors to India, to help boost our sagging economy. But even as finance minister P Chidambaram goes on foreign tours to tom-tom India's business-friendly climate to potential investors, the finance ministry under the previous FM, Pranab Mukherjee, framed GAAR (General Anti-Avoidance Rules) which basically assume that all taxpayers must be deemed to be guilty unless they prove their innocence. Thanks to GAAR's looming shadow, would-be foreign investors are understandably chary about coming to India to do business.

You've been put on notice. The right hand of sarkar doesn't know what the right hand is doing. Little wonder it can't seem to get anything right.

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