THE EXCHANGE. The long arm of the law

Recent months witnessed a debate on, and the fallout of, laws and regulations being drafted and implemented with what can be politely termed over-enthusiasm. An active media feeds a populace fed up with cronyism and graft, whipping up sentiments to unsustainable levels. Then starts the application of our over-abundant laws, piling up allegations.

A slow legal process delays the pronouncement of guilt or innocence, strangely helping the former and being unfair to the latter. Amidst shrill media trials and deafening innuendo, patience and reputations are both shredded.

Does this make our environment credible? Conservatively perhaps, NO. Though wide debate is required, I will focus on limited aspects. This is not a critique but a message for progress.

The design and administration of our tax system has, perhaps, been the most discussed one both at home — by taxpayers and businesses — and abroad — by those who have invested or about to invest. Early 2014 saw the term “tax terrorism” coined and one expected much improvement in this area from the new government; but it continues to occupy more space in debate than in action. No surprise then that international insurers now offer cover against Indian tax shocks.

India, oddly, seems to be one major country where tax dispute and litigation is a huge subject. In countries with larger or more developed economies it is tax policies that are central to the discourse. Rational policies and fair administration usually form the basis of people wanting to work (or not) in a country; yet developed nations grapple with the tax-driven exodus of businesses and individuals, showing how relevant tax matters are to a good business environment.

So where do we lose the plot?

When the Prime Minister advocates that tough policies are necessary to combat black money, any responsible citizen would agree with him. When he hints that some collateral damage may be par for the course, one can appreciate both the political rationale and governance compulsions of pursuing such a course of action.

However, it is of central importance for all sides to analyse what such “collateral damage” could imply for honest citizens and businessmen. To the extent that collateral damage is limited to persons contemplating disclosure or facing exposure, there cannot be an issue. But if the fallout is likely to be a potential trigger for unwarranted harassment/rent-seeking across a much larger canvas (enquiries or threats of punitive action which could take years to resolve in courts), it assumes tragic dimensions.

What if there is a clear and present risk to the innocent? The law as written could obscure the distinction between the illegal and the legal, which raises anxieties given our track record. The overall black money problem being addressed is complex and serious; so prima facie it does need a sledgehammer approach. Still, since my younger days I have been given to believe that an equitable legal system ensures that even one innocent must not be adversely affected, even if a few guilty ones escape its wrath.

Perhaps, a clear statement from the Prime Minister that the system shall be strictly mission-driven, and every innocent will remain protected , could have gone a long way in setting credible benchmarks and ensuring faith in the implementation.

Time and again, we have seen that lack of clarity in the way our laws are interpreted or implemented lie at the core of the resulting problems. Discretion must be reduced; the government must write tax laws with not just with an eye to bolstering revenue but also on ensuring fairness. If, for example, Singapore can write clear laws in English and address a wider range of situations than we face, why can’t we write equally good English? Seeking clarity is not asking for favours.

Next, there has also been a recent and high profile regulatory confrontation in the food sector. I am not getting into core merits or demerits, which are in any case sub judice ; but it is of value to reflect on how our environment reacts to a perceived infraction. Whether the brouhaha was a result of an over-hasty or zealous inspector raj, media debates, usual outrage against a multinational or just an over-cautious approach by the government, only time will tell.

The company concerned is reported to have suffered humongous loss, not just in tangible terms but in reputational terms. I believe no global giant grudges losses due to a business cycle or event, but finds it awkward to digest one caused by possible dilution of due process and natural justice principles. In the extreme, the event could create a reputational damage for India .

It speaks volumes that some central ministers also feel it may be an enthusiastic inspector raj at work. Now, if such a raj is an arm of the very government that distrusts it, can you imagine what a hapless recipient of misplaced enthusiasm goes through?

The reality remains that risks for honest citizens and businesses in working under our commercial laws and regulations are immense and out of sync with India’s growth aspirations. Taxpayers and businesses must believe that their legitimate interests will be safeguarded and quickly protected by the government and legal institutions. Rent-seeking and harassment (including last minute delays and interventions) by elements in the establishment must invite deterrent punishment.

Citizens and businesses do not seek leniency but credibility in equitable formulation and effective implementation of laws. The anomalies are largely legacy legislative and behavioural issues which make it easier to deal with but require unambiguous political will. India does not have the luxury of time; a few ill-conceived administrative actions be very damaging.

This column explores ideas and opinions on Indian enterprise and the economy. The writer is an entrepreneur and former president of Ficci. The views are personal

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