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Thursday, Jul 15, 2004

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Kudos unlimited suffers from the law of diminishing marginal utility

D. Murali

AFTER congratulating the Finance Minister for his Budget, the Institute of Chartered Accountants of India spares no phrase to heap praises, such as: that the Budget would give impetus to the growth of the economy; is in tune with NCMP objectives; is a bold initiative; gives a thrust to agriculture; is a welcome step in the right direction; is one more welcome, and another step in the right direction; will give adequate boost to the economy; is a policy based on sound logic; will have a beneficial effect on the growth of the economy; will ultimately benefit the consumers; will bring transparency to the system; and so on. In an otherwise adulatory press note, the only minus point is the ICAI's discomfort with transaction tax - that it "may affect the capital market".

There's nothing wrong in praising the government in power, even if it involves singing the same lines; it is predictable too that tributes are duly paid because what one sees in the ICAI is a professional body that for long stood autonomously but now stands reduced to the status of an errand boy at the Department of Company Affair's doors. After all, there is a Bill in the backburner, let's not forget. While it looks good that the accounting body does not restrict its comments to tax, as most people think it is capable of, but ventures into other areas too, it would have been better had the ICAI had dwelt upon how far its pre-Budget suggestions had borne fruit. In contrast, a few months ago, when in the UK, the Budget was presented, the Institute of Chartered Accountants in England & Wales (ICAEW) responded thus: "Superficially the budget appeared to hit most of the right spots, but as usual the real impact will not be known until the detailed proposals have been examined.

"The commitment to encourage enterprise and invest in education is laudable. But it remains to be seen whether the cuts in departmental budgets and staffing will translate into better front-line services. In the past, attempts to reduce bureaucracy have not always lived up to their promise."

On the British government's aim of curbing highly artificial tax avoidance schemes, the ICAEW said: "But any rules introduced must be fair, properly targeted, proportionate and provide certainty for taxpayers. They should also comply with EU law. The anti-VAT fraud rules introduced by the government last year have now been referred to the European Court of Justice as potentially illegal."

Again, on the government's plans to require the promoters of potential tax schemes to submit their plans to the Revenue: "Any rules would need to be carefully drafted so that they don't put a brake on enterprise. It is also important that the Inland Revenue does not seek to extend its new powers by applying retrospective legislation." The ICAEW called `ironic' the move to introduce a 19 per cent tax charge on dividends paid out by owner-managed companies, effectively reversing tax breaks introduced not so long ago: "This type of `stop-start' tax tinkering is creating a climate of uncertainty for businesses."

On `merger between Inland Revenue and Customs and Excise', the ICAEW observed cautiously: "Merger is a nice idea in theory, but in practice may turn out to be a lot more messy. Past experience of the Revenue taking over the National Insurance Contributions Office does not inspire confidence."

Tamil poet-philosopher Thiruvalluvar gives sage advice on the need for independent and critical counsel: "The king with none to censure him, bereft of safeguards all, though none his ruin work, shall surely ruined fall." (Couplet 448). Looks like the ICAI can well do with one more essential `i': independence, because its role is to offer not unlimited kudos but studied criticism.

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