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'The FM's earlier Budget was more proactive and forward-looking. This one does not have much direction'

There have been, as always, many changes proposed in the Budget. But, on the whole, it was just a mixed bag. There are some provisions that are good for assessees and some that aren't. There could have been a clearer direction given. This Budget does not take us forward much.

As the finance minister stated several times in the course of his speech, taxation is an instrument of fiscal policy in addition to a revenue collection measure. He has accordingly justified several of his proposed amendments. If it is to be used as an instrument of fiscal policy then it must be made to have a far-reaching effect.

What are our country's greatest needs? One is surely education. Another is creating employment opportunities. A third is population control. A fourth is that due to heavy taxation in the past there was not adequate capital generation. The fifth is that business should be encouraged and the country's reserves increased. I feel that many of these important objectives have not been served.

The FM himself recognised that the private sector has contributed a great deal to developing the software sector without aid and interference from the government. This same principle should have been applied to encourage education, population control etc by giving some initial incentive to the private sector so as to spotlight the sector and cause funds and time and energy to flow here. Tax incentives could have been given to these major activities, where government efforts have been insufficient all these years.

I would say that this Budget is just average. The FM's earlier Budget was more proactive and forward-looking. This one does not have much direction.

The finance minister has said that individuals will soon be able to pay their taxes at nationalised banks where they have accounts. When do you think that will happen? Normally the President's assent to the Finance Act is given by the end of May and such provisions often come into effect from June 1 of each year. June is also the time when companies have to pay the first instalment of advance tax. This is also the time when returns of salaried employees have to be filed.

The finance minister also said something about the PAN replacing the ration card. How would that be possible when some people have not yet been given their PAN numbers and others have been given two numbers?

I agree that the PAN number system has not been efficiently administered. This time the FM has stated that numbers will be allotted within 30 days but actually I feel that in this new millennium it should be done within 30 minutes. A person should be able to submit his application form and be present or have his representative present while the computers are checked to see that there is any duplication etc. He should get his card before he walks out of the income-tax office. It is only then that the PAN can be a truly effective substitute for the ration card.

In terms of taxes and provisions, non-resident Indians are on a good wicket by and large. I am disappointed, however, that some procedures that apply to non-residents have not been simplified, such as section 195 of the I-Tax Act which relates to deduction of tax at source on all payments to non-residents. This creates problems, particularly for NRIs selling property. Also, the PIO card has not been very much publicised or effective, and dual citizenship has not yet been introduced.

Perhaps dual citizenship will be introduced when Mr Clinton visits India in March.

The FM did say Section 54EA and 54EB of the Income Tax Act would be abolished and announced that there would be a scheme under which capital gains would be treated as exempt if an investment is made for five years with National Bank for Agriculture and Rural Development. We await the details of this scheme but it will certainly affect mutual funds, whose main source of investment has been capital gains. This will, in turn, have some effect on the stock market as the flow of funds reduces to some extent.

I think last year's was a much better Budget. It was the first in a long time that provided for the future in terms of provisions relating to corporatisation, restructuring of companies and matters such as Y2K. In the past, provisions would have been introduced, litigation would have resulted for 20 years and then there would have been a retrospective amendment to the I-Tax act. Last year, the FM provided for the future in a positive way by pre-empting such disputes. This year that thrust is lacking.

An annual Budget is necessary (even when one-third of India is below poverty line). There has to be an estimate of revenues and a provision for expenditure. However, we find that amendment of the laws is something that is somehow linked to the financial Budget. While there is a connection between the two, in that, every amendment to the fiscal laws will have an effect on the revenue, frequent amendment is something that creates instability in the laws. It does serve some purpose to have an annual set of changes in the manner in which we do, in that the FM can keep up to date with changes in technology and world trends.

But since one-third of our population is below the poverty line, there should be a greater emphasis on the flow of funds and assistance by the private sector to these persons by giving the firms some tax incentives. This is unfortunately an area that has been ignored. Only the numerous government employment schemes etc are rehashed and multiplied and have no noticeable effect.

This Budget is not very burdensome but it is not very helpful either. There have been 70 amendments proposed to the IT Act and the WT Act and each of these will have some effect on certain sectors of the economy. But, on the whole, the structure of the tax system has been retained. I am very glad that gift tax has not been reintroduced and that our tax rates are lower than those in many developed countries.

In terms of good intentions and series of programs, the Budget gives an impression of doing a lot of things for the rural sector. But I have my strong reservations on the effectiveness on the implementations of the programs.

The agricultural sector has witnessed violent fluctuations in production performance after the reforms. Much of it is due to deceleration in the productivity growth. Public sector investment has suffered a setback and the private sector investment has not been able to overcome the deficiency. Therefore more efforts are required to stimulate the rural economy. The Budget makes a feeble attempt in this area.

The FM did recognise the role of the private sector in developing the IT (infotech) sector. But he should have given a greater emphasis to the role of IT (income tax) in developing the private sector.

There are not very many major positive features in the Budget. One long-term positive feature, which I do see, is the attempt to reduce tax incentives for exports. This is the first time that there has been a five-year phased plan in the tax laws and, whether one agrees with the proposed measure or not, the FM has understood the impact that sudden changes can have and, so, has spread out this effect over five years.

There has been no change in the law relating to taxation of property income except for a minor one -- if a structure on agricultural land is used for purposes other than agriculture (eg, if it is let out) then the income generated will not taxed as agricultural income but as rental, business income, etc. Property tax normally refers to the municipal taxes levied. This is not a central subject and is not affected by this Budget.

There is no separate provision for salaried people. The FM has, however, stated that the surcharge will be increased for non-corporate tax-payers having total taxable income above Rs 150,000 per year. If a person's taxable income is less than this, the surcharge will remain at ten per cent of the tax. Above this figure, it would be 15 per cent of the tax.

Article 14 of the Constitution of India prohibits discrimination by the government on the grounds of gender. However, there are many laws that discriminate against us poor men! Like the reduction in taxes for women.

Everyone talks about taxing farmers but, for a start, agricultural income tax is a state subject and there are many states that do tax agriculture. In fact, when V P Singh was FM, I remember that he had stated that there was no tax on farmers and that it ought to be introduced.

In fact, in Maharashtra there was an agriculture income tax that was at the rate of 50 per cent on income over Rs 30,000 per cent and V P Singh apparently did not know that! So, I think that much of the talk of taxing farmers is misconceived particularly in the context of the Union Budget.

Maharashtra has removed the agriculture tax but other states like Tamil Nadu still have it. While I think there should be a level playing field and everyone should contribute taxes, we must also recognise the ground realities and it is probably better at this stage that the poor people of our country don't have to face tax collectors.

Anil Harish is an advocate and partner of D M Harish & Company.

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