Simplified tax compliance will enhance India's global edge

Raavi Birbal Advocate, Supreme Court of India

Though some of the latest taxes and compliance procedures are supposed to be game changers, exorbitant and globally incompetent tax rates and liabilities, ambiguous and cumbersome compliance systems weaken   Indian corporate against foreign rivals.  GST, inflation in minimum wages, coupled with liabilities of Provident Fund, ESI, gratuity, bonus amendments etc make it high time for the Indian legislature to ask itself  a question: can the corporate wallets of different genres across the country bear such a burden? Inflated provisions may lead to cost escalation resulting in higher priced products making it difficult for sectors to remain economical. Such bumps may prove disastrous.

These may even result in more imports, rather than achieving the aim of Make in India. In fact, such moves may even make our businesses migrate to countries such as Indonesia, Bangladesh, Vietnam, etc.
Concerns, which cannot sustain the amendments, may be forced to close, retrench or reduce hiring. For instance, recent announcements of a hefty percentage increase in minimum wages in some states forced many smaller units to shift out, leading to dislocation of  a battery of workers. 

Not just the rules need to be relaxed, compliance provisions too need to be ironed out. Finance Minister Arun Jaitley once indicated that India needed a lower tax regime and higher compliances to provide more competitive services. Authorities need to be fair in interpreting provisions and there should be no grey area in such laws. Current complicated laws encourage inspector raj, rather than serving the intent of legal provisions such as providing adequate social security. Many a time, the industries are forced to meet extortionist demands as it makes economic sense for them to compromise rather than comply. Exorbitant demands coupled with stringent laws also refrain many multinationals to invest in India.

Unclear provisions are the culprits that have created latitude for authorities to misinterpret. For instance, under the Indian Provident Fund Laws, 12 per cent of an employee’s basic salary and other components gets deposited in the PF account along with an equivalent 12 per cent contribution by the employer each month. Absolute lucidity is required from legislature regarding debatable components of salary. Similar is the case for Employees State Insurance. Excessive and complex provisions lead to higher evasions  and compel financial experts to resort to adjustments in areas such as employees’ CTC/salary. This reduces the take-home salary to a fraction of the total compensation.    Another example of  ambivalence is that of cess levied under the Building and Other Construction Workers Act, 1996.

Current provisions entail deposition of cess on complete cost of construction, excluding only the land cost and compensation under the Employee’s Compensation Act.  There is vagueness in provisions for components such as consultancy, engineer, architectural, approval and supervision, insurance and finance, interest, profits, contingencies, etc. Lawmakers need to clarify the same to create uniform provisions throughout the country rather than state authorities and courts giving varied interpretations. For virtual benefit to the masses, we need compliance-friendly provisions  so that subterfuges and camouflages are avoided.  

Furthermore, colossal amounts stand collected in the accounts of statutory authorities, while millions in the country are still fighting for basic survival. It needs to be ensured that depositions stand utilised for the purpose they are made rather than lying in cold storage. For India to become competitive worldwide, streamlining and simplifying compliance is indispensable. Such  modifications will boost the country’s manufacturing and other sectors, enhance job creation as well as improve the  ease of doing business.  raavibirbal@gmail.com