Sunday, June 1, 2014

An Open Letter To Prime Minister AND finance Minister BY CA

As expected and wish expressed  by me in my earlier article Shri Narendra Modi is now new Prime Minister of India. My expectation that Shri Arun Jaitley will be new Finance Minister has also materialized.

I am confident that the changes in government will be for much better and strong India and strong Indian general public (not only government servants while on post)

In this write-up I put some more suggestions to  improve economy of country, and economy of general public.

Quality of Government spending need improvement:

In my earlier article I had suggested  improvement in honesty, integrity, productivity, efficiency of government and its various wings, and respect for public as mool mantras
If these are implemented, the quality of government spending will improve to a great extent. The government spending on various projects like infrastructure projects, social welfare projects, regular expenses need to be improved.

Timely spending, spending through banking channels to all beneficiaries, avoidance of wastage of money and resources, result oriented spending etc. will go a long way to improve quality and results of government spending.

More contribution of government spending towards  capital formation and  creation of  durable assets, will go a long way in improving quality of government spending.

Corruption free government is impossible- we must have check and balances:

We must recognize that most important reason of corruption is greed. And greed is god made. By rules, regulations greed can be controlled and balanced, However, it cannot be removed altogether. Therefore, greed for power, and money will be natural causes for corruption.
If one want to fully control corruption of all types, then I am afraid that the speed of working will reduce very significantly.

Improve accountability and reduce discretionary powers:

By improving accountability, answerability for wrong things done, and work not done on time and with proper care,  and reducing discretions, greed and corruption can be controlled.

Implementations of projects on time even if at some extra cost:

Government projects are prone to considerable delays causing cost and time over runs. Direct and indirect costs for delays is very high. In commercial arena, delayed projects are usually failed projects. I remember great Dhirubhai Ambani had policy of completing projects before time at crash costs. His ideology was that by completing project before time, we can reduce overall costs and start availing opportunities and earning earlier which will repay the extra costs.
The same thing applies to projects of government. Any project must be taken with arrangements for timely resources in all respect and with mind set to complete the project in optimum time frame work.

Subsidies must go for capital formation and not for revenue expenses:

Government subsidies must go for capital formation and not to meet revenue expenses- say dal-roti. For example, instead of granting subsidy  for kerosene oil to BPL people it would be better to provide them pressure cookers,  solar power run systems, fuel efficient stoves etc. which will go to reduce consumption of fuels, will reduce carbon emission, will improve health and environment. All these will have short term as well as very long-term gains for the nation at large.

Use information technology to reduce travelling:

Use of information technology in a big way can reduce personal meetings, physical conferences, and expenses on local and outstation travelling.
Reduced conveyance in local area and travelling outstation will reduce wastage and idle time of people, reduce travelling costs ( by rail, road, air, and water) reduce fuel consumption, reduce carbon emissions of vehicles and aircrafts.

Meetings over phones, by video conference, discussions through electronic media etc. will expedite discussions, conclusions, decisions and implementations.

The habit of personal interaction is very costly and require lot of extra and idle time and costs involved in going from one place to other places. Interaction through electronic media can increase available working hours by 25-45% depending on present style to changed style of working.

Clean all sins schemes:

As stated earlier, it is difficult to remove corruption in totality. For the past corruption damages have already taken place. It is difficult and very time consuming to conclude corrupt means adopted, and gains made out of the same. Even if all these are established, it will  also be  difficult to recover money made by corrupt means. Signs of corruption and money made out of corruption , as found in records of various investigating agencies is just tip of the iceberg. Only few people are indicated as involved in corruption. It is difficult to find out and establish corruption in other cases.

Therefore, it is advisable to bring out few types of clean all sins scheme under which one can declare his cash and other assets at present market value and pay a fees @ 35% for assets in India and @ 40% for assets brought from abroad. Assets which are lying abroad and cannot be brought into India may be disclosed at present market value @ 50% fees.

On such declaration enquiry about assets disclosed  and its value  should only be permitted and on  its approval by authorities, no  other question should be asked.  In case there is dispute about valuation of property disclosed under the scheme, then additional fees can be ascertained by market informers, and negotiations. On payment of additional fees, based on settled valuation, if any,  the declaration must be approved.  There should be no further interest or penalty.

There should be no stigma or disqualification of any type( as a citizen of India)  against the person making disclosures  and any of his family members or firms, AOP, BOI, Company etc. in which he has made disclosures.

An open letter for the would be new Prime Minister and new Finance Minister: Honesty, integrity, productive, efficiency and respect for public, must be regarded as mool mantras.
May 1, 2014
General elections and new ministries:
General elections are going on. Results of general elections are expected on or around 16th of May 2014. Through this open letter author make requests and suggest to the new Prime Minister and Finance Minister to modify some of public and fiscal policies for the benefit of public at large. The Prime Minister (I hope and expect that  Shri Narendra Modi will  be the new Prime Minister) must also exercise his influence through general public policies to amend fiscal policies. The fiscal policies should not continue to be just as handmaids of bureaucrats as has been during last about 25 years.

Public must be respected at all levels:

In government departments and establishments public must be respected. A common man should not be left to feel that the government officers  are his masters, they belong to a very high class of people and the public is a very inferior class of citizens of India.
Government officers and other employees of government and allied organizations (Central, State , local  and PSU)  must really consider themselves to be at service of public and regard public and time of public.

Government officers must keep in mind that it is public who pays taxes from which they are paid salaries and provided facilities. The public need help, assistance and services of government establishments, and public is in a way customer or client of  government departments.

Government officers must be taught and trained to respect public and to act as a service provider and not to act as a harasser.

Government officers and staff have no respect and regard for public, time of public and difficulties of public. This is  one of reason of corruption. If government officers have respect for public, corruption will gradually reduce.

Disrespect of public through legislation must come to an end:
Legal provisions must be designed to keep controls, check and balances and must provide reasonable procedural and other restrictions to avoid misuse or abuse of legal provisions. However, legal provisions should not be designed in a way that public is considered chor, tax evador, a criminal etc.

In any tax law or general law there should not be any provision, which smacks feeling that the public /  tax payer / other complier of law is not law abider  or is a chor or  tax evader. Provisions  which presumes use of  undisclosed income or black money are legal assumptions that public is tax evader. If a person is under suspicious circumstances of having black money, the government agencies must do their home work and prove such a situation. For example, there should not be presumption that if a government authority feels that the market value of a property is higher than the disclosed consideration, the difference is undisclosed income. Such presumption presumes public )who is paying tax) as chor and disregard the ground realities that the government officers might have made high valuation because he was not bribed. Bribery in registry and stamp  departments are considered as a common phenomena. We find that even circle rates are fixed at very high rates than the real market value in zeal of raising more revenue. 
When in a case of hard core criminal, punishment cannot be given until crime is proved beyond doubt, then why a person is considered as having committed crime just because of few technical or procedural lapses or delays?
The provisions to consider  technical or procedural lapses or delays must be relaxed and there should not be presumption of criminal intent. There should not be prosecutions for such matters.

Productivity and efficiency of government departments must improve:

Productivity and efficiency in government departments must improve. It is felt that there is huge wastage of human resources and other facilities in government departments. About 2/3rd  of public spending on human resources in government departments is wasted because people work only for about 1 /3rd ** of time in government departments. 3 months in a year to deal with time barring matters   and about 2-3 hours daily instead of 8 hours.
** Exceptions are  Railways ,  Post and Telegraph department  and hospitals where , about  55- 70% working in different departments take place.At operational level just working improvement can make a change.

Improved productivity will reduce  costs, inflation and taxes:

Improvement of real working hours, productivity and efficiency in government and semi government departments, will reduce government expenditure on salary, better use of machines and material,  and will  lead to lot of government saving and will enable government to reduce introduce more schemes for welfare of public, reduces  taxes, reduce inflation and make government, and public both prosperous.
Let us take a simple case of few workmen – workmen who are regular in work, devote full time, work sincerely and honestly , have little or no idle time, are more productive and efficient – they can earn more and really earn more in comparison to those who are irregular, have lot of absents, do not work full time (have more idle time)  and do not work sincerely and honestly are bound to have lesser earnings.
So better use of resources with better productivity  and efficiencies by working honestly  must be mool mantra of new government.

For the benefit of  rural  public- consolidate  small villages:

Consolidation of small villages – There are large number of small villages with abysmally low population not even exceeding 2000 people and such villages are scattered over a very large land area. It becomes physically and financially difficult to provide good services like medical facilities, education facility, connectivity with roads, electricity and roads, transportation, security etc. Whatever facilities are available they cannot be fully utilized due to low population. The cost per capita also goes up. If such villages can be consolidated and suppose 30 such villages are consolidated and can be converted into a small township of about 50 thousand people, it will be much easier to provide qualitative essential services. For this purpose scheme like  “EKIKARAN SE GRAMOTHAN”, VILLAGE DEVELOPMENT BY CONSOLIDATION can be formulated.

Productive use of assets of worship places:

We  know that famous temples have huge surplus funds and precious metals and stones. These are making few worship places as wealthiest organizations whereas we find large number of schools, colleges, hostels, laboratories, research facilities and even factories having lack of funds and facilities.

Every day large quantity of milk, fruits, vegetables, are offered to gods and a significant portion of these goes to waste through drain. Whereas large number of hungry people do not get sufficient food to live healthy.

It is well known that we do not have a school, dispensary or play ground in many small villages but we definitely have many public temples or other worship places even in smallest villages. These worship places have considerable collection of cash money and other gifts. These institutions enjoy tax exemptions. No doubt these institutions have significant role in our life, but it is also true that they are sitting on huge wealth and that wealth is remaining unproductive. Therefore, it must be made compulsory that such institutions shall mandatorily contribute to setup school, hospital , dispensary , play ground etc. in the nearby area as well as at other places when there is funds available. The wealth of temples, maszids, churches, gurudwaras, synagogues etc. must be used in productive manner and in service of living persons, animals and living plants.
God does not take anything from us, but give us when we work. But we offer ghee, sugar, milk, fruits, vegetables, and other eatables daily to statutes of gods and goddesses. God can very well be pleased with a bath from pure water if offered with pure heart. Therefore, regulations can be made that in temples such wastages shall not be allowed and all food offered to god will be distributed to poor people- this will also make it reality that in every living person there is god and the food given to poor persons is accepted by god as food offered to god.

Government and its officers must act honestly:

Government must act honestly in all manner. There should not be dishonesty at the legislative level. The law as it is written and interpreted must be honored.  Making amendments in law with retrospective effect just to overrule beneficial interpretation can only be regarded dishonesty at legislative level   The officers of government must act honestly and fairly

Businessman must be respected:

“Honesty is the best policy” is self evident as we find by and large  honesty in business deals and execution. Dishonest business cannot survive. Even transactions done verbally are honored. Considering total volume of business, there are very few cases ( by numbers and amount both) of dishonesty and unsettled disputes in business deals. Dishonesty really takes place due to personal reasons and not business reasons.

Unfortunately government officers have tendency of treating businessman as dishonest. The reason may be “choro ko sare najar aate hen chor”. We find that there is volume of litigation for and on behalf of and against government. This is because of reason that government and its department do not work honestly. Even incentive provisions introduced by government are not acted in proper and honest manner and we find litigation.

Without prosperity of   business, economy cannot prosper in long-term. Businessman must not have fear of government departments. Government departments must deal businessman and public in reasonable, fair and honest manner. Government posts must not be regarded as a money minting posts. If the government officers are honest, reasonable and fair, I am sure the public will not be afraid of them and will be more willing to make full disclosures and compliances very willingly.

Contribution of businessman in creation of infrastructure, jobs providing goods and services to society must be regarded as a major contribution to society.
If a person has fear of harassment from government officer, he is likely to make efforts to avoid the concerned department. There should be atmosphere for  voluntary compliances and disclosures and not forced compliances and disclosures.

Essential goods and services must be fully tax exempted:

All essential goods and services must be fully tax exempted, there should be free movement of such goods and persons dealing in such goods and providing such services must be regarded as an essential segment of business with least of intervention of government. Off course some check and balances are required to be maintained so that there is no misuse of such tax exempted goods and services.

Speculation in essential commodities must be stopped / reduced:

Speculation must be reduced and more check and balances must be provided. Speculation in essential commodities must be stopped.

Games and sports:

Games and sports must be promoted for better health and not as a specialized profession to allow very few to make huge money. Sports stars who are money makers sport professionals and make huge money earned by popularity must be asked to pay games and sports cess which should be used for providing games and sports facilities for general public.
Any kind of speculation in games and sports must come to an end.
Growth momentum needs continuity:

It is desirable that the growth should be maintained in near future as well as in long term. For that it is essential that the Government must adopt such policies, which can boost growth. For growth it is desirable that consumption as well investment both should improve. For better utilization of national resources also some efforts are required to be made. Some suggestions are as follows: -

Growth oriented tax policies –

Lower rate of tax, better compliance and finality of  tax collection should be the basic approach. Provisional collections and excessive collection are not good.
There is no purpose of first collect and then refund or allow credit as is presently by way of TDS/ TCS/ VAT/ CENVAT etc.
To promote consumption and improve public life small consumers and service users must be exempted from Service tax. For example, telephone bills with less than Rs. 700 per month per phone  may be exempted. .
All indirect taxed on non essential goods and services, should be reduced by at least 3% on most of items.

By providing  incentive for growth by way of increased investment and production the economy can be improved. For this purpose incentive can be extended by way of –
Extra shift allowance for working multiple shifts, this will help in increasing competitiveness by reducing cost due to better use of assets.

Incentive by way of additional depreciation for new investments in all type of buildings, all type or plant and machinery including vehicles can be provided @ 20- 40%.
Introduction of liberal depreciation allowance for let out house properties because let out property also suffer wear and tear, require repair and replacement. Due to very high cost of land and increased cost of construction,  reduced rate of interest, the return by way of rent is very low. Therefore, to promote investment in buildings some substantial concessions are required.

 In view of  lower and likely further fall in interest rates coupled with  high long-term  inflation  it is necessary that we must save more for better post retirement life. Therefore, more benefits to induce saving is required. The savings made by people will again help in growth. For this purpose deduction under section 80C may be raised to Rs. three lakh and such deductions be simplified and broad based. Income from such investments may also be taxed at lower rate.
To provide investment in agricultural activities special incentive may be granted by way of higher depreciation, additional depreciation, lower rate of interest on bank loan to the persons who provide tractors, trailors, irrigation equipments, harvesting and processing equipments, etc. to farmers on rent, hire or job work basis.

Depreciation to salary earners:

Depreciation may be allowed to salary earners on durable assets purchased by them like vehicles, household appliances, computers, fitness equipments, entertainment equipments etc.
Salary earners also require these assets for better and healthy living, time saving and to maintain health and efficiency. These items costs substantially. There is no reason to deny deduction to employees if employee is required to purchase such things, when we find that employer will get deduction if he purchases and provide to employees.
Government can also change its policy of providing motor cars,  residential accommodations and furniture  etc. to its employees, instead government can also ask its officers to have such assets on personal account and allow employees finance by way of loan and allow interest and depreciation as deduction. This will reduce idleness of government properties and misuse of government properties.

Capital formation  should be encouraged:

Capital formation is very essential for any individual and  his  family for all times.  If one has capital he can create jobs. If one has no capital he will seek jobs. Therefore, capital formation must be encouraged. The provisions which goes against  capital formation must be discarded. There is no purpose of keeping clubbing provisions to club income of spouse or minor children. They have hardly any impact on overall revenue. However, if such provisions are withdrawn, and capital formation is allowed to individual and families, it will go a long way in long-term  prosperity and viability of any family.

There are various provisions under which certain capital receipts are considered as income. These provisions may not test the legal scrutiny as to intra virse the Indian constitution. Because tax on income cannot be so widened as to tax capital. Such provisions should be omitted and instead of them provisions of considering income as taxable if it is proved that capital receipt or exempted income shown is really taxable income must be taxed. Considering all people as tax evader under law is not proper. 

Wealth Tax may be abolished or
limit can be raised to Rs. five crore:

There are few potential wealth tax payers and wealth tax collection is also not significant. However, since it is alive and basic exemption is also low at Rs. 30 lakh only, the Assessing Officers have to spent considerably time to review the files of assessees and to find out whether the assessee has filed W.T. return, if not whether he is a potential W.T. payer. In that case he may issue notice calling upon the assessee to file W.T. return. But ultimately any commensurate revenue may not be raised by way of wealth tax.
In case WT is not abolished  the limit of exemption should be raised to Rs. five crore in view of considerable appreciation in value of gold, silver, and properties during last few years.

Result orientation:

The law, procedures and practices must be made simple and result oriented. There is no use of spending resources on un-necessary procedures that too on petty matters. ABC analysis as a tool for Always Better Control must be used by government and government departments. There should not be un-necessary litigation by government. The public should also not be forced by government officers to indulge into litigation due to harassing policies of government officers.
The approach of new government must be based on honesty, integrity, respect for public, productive and efficiency  must be regarded as mool mantras.

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