Budget 2021

Let money remain in the hands of the people...

Shishir Sinha, Twesh Mishra, Meenakshi Verma Ambwani New Delhi | Updated on February 19, 2020

Ajay Bhushan Pandey, Revenue Secretary, at the BusinessLine Post-Budget CEO Round Table, in New Delhi, on Tuesday   -  Kamal Narang

There has to be a balance between tax rate and requirement for money, both have to be managed. Within this constraint, we have to see what would be tax rate at which investor would find suitable to invest in India, says Revenue Secretary Ajay Bhushan Pandey

It was a discussion that was designed to analyse the Budget proposals, after its effect and the fine print were well understood, a good couple of weeks after its presentation. Why did the Budget not spend heavily to unleash the animal spirits in the economy? How effective will be the dual Income Tax rates (one with exemption and the other without)? Are the proposals good enough to revive economic growth, as the government officials feel and make India a $ 5 trillion economy in the next few years?

Revenue Secretary Ajay Bhushan Pandey agreed to be part of the BusinessLine Post-Budget CEO Roundtable to listen to the industry and have a frank discussion on what the Budget proposals mean to every one -- common man to the industry. “I will use this opportunity to share some thoughts and I will invite very-very frank opinion from you,” he said at the start of the discussion.


“We feel in the government that as a nation there needs to be a lot of debate on many things which concern the whole country,” he added. He said that Finance Minister Nirmala Sithraman, in the last six months, announced some measures almost every Friday. This was after listening to the people and industry leaders.

The Roundtable had CEOs and senior officials from a diverse set of sectors. It included: Raghava Rao, Vice-President, Finance, Amazon Seller Services; Aloke Bajpai, CEO and Co-Founder, ixigo; Avneet Singh Marwah, Director and CEO, Super Plastronics (brand licencee for Thomson and Kodak TV); Vijay Sharma, Director, Jindal Stainless; and Seema Prem, CEO and Co-founder, FIA Technologies, a fintech focussed on financial inclusion. The discussion was moderated by Raghavan Srinivasan, Editor, BusinessLine.

Raghavan Srinivasan: Before the Budget, there was strong demand for expanding the deficit as the economy is in slowdown mode and the Government pump-prime the economy. The Budget expanded the deficit by half a percentage point of GDP for two year.s But was there not an opportunity, considering widespread sentiments, to expand the deficit little bit more to boost up spending?

Ajay Bhushan Pandey: Internally, we debated a lot in terms of how much leeway we can get when it comes to deficit financing. We arrived at a balance that we will go by 0.5 per cent because we need to have a responsible Budget and while doing so, we have not cut down as welfare or infrastructure spend.

Raghavan Srinivasan: On the taxation front, difference between personal income-tax rates and corporate tax rates is not quiet wide and ordinary taxpayers feel that it is unfair?

Ajay Bhushan Pandey: The personal income-tax will be very different from corporate tax. For example in the US, there is a corporate income tax of 23-24 per cent but the personal income tax, including the State income-tax will go up to 55–56 per cent. The same is the case in developed economies. We need to educate our people about the difference between the two forms of taxations.

Raghavan Srinivasan: You have talked about doing away with exemption, how about doing away with cess and surcharge?

Ajay Bhushan Pandey: Regarding the cess and surcharge, we have brought down the tax slabs for those who could not avail the benefits of exemptions. We are estimating a dent of ₹40,000 crore because of this and if they don’t avail it then we will be saving this amount. On the Dividend Distribution Tax abolition, one of the major beneficiaries are the foreign investors and the amount saved will spur the investment there. But it should never be intention of the government to collect more tax than required. My personal view is that we should taking the minimal amount of tax. Let money remain in the hands of the people and the companies.

The Revenue Secretary then went on to give a brief outline of specific Budget proposals.

On reducing tax rates: It has always been the endeavour of the government to bring down the tax rate, but we were caught in a very peculiar situation. the late Finance Minister Arun Jaitley had announced in 2015 that he will bring down the tax rate and remove the tax exemptions. It was a Catch-22 kind of situation. You can’t lower the tax without removing the exemptions. We were also studying that what would be good amount of corporate tax. Of course, there will be some tax heaven country. We can’t base our taxation system or policy based on that.

We have to take care of those people who are not so privileged and we have to build infrastructure. We need lot of money and there has to be a balance between tax rate and requirement for money, both have to be managed. Now within this constraint, we have to see what would be tax rate which investor would find suitable to make investment in India, he said, adding “accordingly, we decided to cut rate to 22 per cent for existing companies and 15 per cent for new manufacturing companies which made India a nation with one of the lowest corporate tax rates. In the GST Council, though not part of the Budget, we tried to rationalise as many things as possible. Too many things are yet to be done and the GST Council will consider them at appropriate time.

On removing exemptions for personal income-tax: There are a lot of people who do not take any exemptions and can enjoy lower tax rate, why not give that option to them. These people could be old, retired or even young ones having the first job. In order to give wider discretion, we brought an option of lower tax without exemption. Let us be very clear we are not withdrawing exemptions.

On Tax Collected at Source (TCS): Our Prime Minister recently said that out of 130 crore plus population, only 1.5 crore pay taxes. As much as 6-7 crore people file returns but only 1.5 crore pay taxes. There are only 47 lakh people with income more than ₹10 lakh, but is this believable? We imposed TCS on remitting money beyond ₹7 lakh for studying abroad. Now counter views are coming. We have clarified that TCS will kick in only if you are sending ₹7 lakh or more.

If you are sending this amount, then your income will be good enough. Even if you have taken loan, no bank will give you loan if you do not have good income. So,, you might be paying some income tax. What we are saying is that if you are sending money beyond a certain limit, pay the tax in advance and this can adjusted in advance tax payment every quarter. If the person does not any taxable income, still remitted money more than ₹7 lakh and paid TCS, then he can claim refund by filing return.

On abolishing the Dividend Distribution Tax (DDT): This Budget abolished DDT at the company’s end and restored the system of collecting tax from the recipients. It was a bold decision. Now, there are criticisms that DDT will be at the applicable rate of the recipients.

For some people, this rate would be 30 or 35 per cent or even 42 per cent. So, some people, whose numbers are not high for example there are just 10,000 people with income more than ₹5 crore, will have to have pay 42 per cent. Naturally it will pinch, but if you see as a matter of policy during the earlier regime, when tax was levied at giver’s level, a person even with an income of ₹2.5 lakh, he was paying tax at 20.56 per cent. It was like poor subsidizing rich. Old regime of DDT was giving kind of arbitrage opportunity.

On not abolishing Long Term Capital Gains (LTCG): There is feeling that LTCG is a kind of demon. But take the example of any modern economy, there is LTCG. Economists comment that India’s tax to GDP ratio rate is low and the Government is not able to expand the tax base. But at the same time, they also say that do not tax this, do not tax that, do not impose LTCG, then who is going to pay tax? Only the salaried?

Revenue Secretary then took questions from the CEOs and senior Industry officials...

Vijay Sharma: There are a few themes in the Budget which we feel are a need of the hour. The National Infrastructure Pipeline, Custom Strengthening including circumvention and safeguard aspects are critical for us. But the global trade flow disruptions that have happened in the past three years cannot be ignored. In the stainless steel sector, there are 25 trade remedial measures which are either implemented or are initiated world wide. Most of these measures target China. But now, they have also started mentioning Indonesia, a country that broke into the global stainless steel market just two years ago.

The issue is competitiveness. In India, if I take the base of 2016-2017, the Free Trade Agreement (FTA) countries had a 26 per cent share in total imports. In the first nine months of the current fiscal, the imports from FTA countries has grown to 73 per cent of total imports. In 2019-20 over 2018-19, the imports from FTA countries have gone up by more than 40 per cent.

There was a request from the industry as a whole about LDR (lesser duty rule) removal, which did not happen. There is also a need of faster decisions. There was an initiation of duty levy proceedings on July 3, importers perhaps knew that the government was going to levy a duty and then imports zoomed four times in one month. These are the areas that need to be looked at so that the industry can survive in light of global trade imbalances.

Ajay Bhushan Pandey: We have signed FTAs with various countries. In this Budget, we have tried to build certain safeguards to plug misuse so that we would be able to intervene. But while we are intervening, we cannot remain completely oblivious of the ultimate consumers’ interest. That is where the balance has to be achieved. Regarding LDR, currently we have anti-dumping. There is an anti-dumping evidence and then we say that the dumping has happened. Then there is a concept of dumping margin. Let us assume that the dumping margin is $100. Some sections of the industry felt that this full amount should be imposed as a duty.

But the government’s view is that the domestic industry should be given a support to grow (this is currently assessed as the injury margin). So if the injury margin is $70 then the government view has been that this should be the duty amount. The government can go up to the full dumping margin, but in most cases we have to balance the demands of producers and consumers. This is why we opt to levy the injury margin as a duty. So the industry should also have a reasonable expectation.

Avneet Singh Marwah: For the last two years, the import of televisions from FTA countries has increased by 400 per cent. One of the top brands moved out of the country and started manufacturing in Vietnam. That has given a huge benefit to the brand because of zero per cent duty on import and only the balance of Goods and Services Tax was paid in India. By this, the competition is not on an equal playing field. Apart from that, the biggest problem that manufacturing is facing is misdeclaration by certain parties. This is impacting budget category brands like us.

Ajay Bhushan Pandey: We have taken certain measures in the Budget and you will see the impact now. In such cases where some misuse is happening, now we will be in a position to take action. This measure covers instances of misuse pertaining to rules of origin and some import surges. Because we can not be helpless, this is a signal in the Budget that all these FTAs are to be followed in the letter and spirit. If any gaming or misuse is happening, we will take action.

Avneet Singh Marwah: The Novel Coronavirus in China will lead to a raw material shortage in April and May. There will be a one-month deficit for most of the electronics companies. To make up for the one-month deficit, there should be preference for timelines of inland haulage, and privilege to the trains for faster movement. The more days we save, I think we will save a lot of revenue.

Ajay Bhushan Pandey: Regarding the Novel Coronavirus, the Finance Minister is taking a meeting and all of us are concerned about impact on raw materials, logistics, and exports. We will take suggestions and definitely respond.

Avneet Singh Marwah: The duty on open cells was reduced to zero per cent till September 2020, we urge the government that they should extend it. This is because there is no other manufacturer of open cell till today and there is no investment in this field.

Ajay Bhushan Pandey: We had declared as a policy that by September 2020, the manufacturing should happen in India. But again this is a chicken and egg problem. Because nothing is happening so that is why no body is manufacturing in India. So we will start imposing duty in a gradual manner. To keep on extending the date is not a good signal.

Raghava Rao: We completely understand that the government’s intention is to expand the tax net by bringing in more sellers and tax payers. Our concern as a marketplace is that by imposing the one percent TDS on sellers above a certain threshold, we are creating an ‘un-level’ playing field between sellers selling offline and those who are selling online. In the last six years, my company has added about 450,000 sellers who have come online which is still about 4 per cent of the total population base of sellers in the country. We want to digitise the economy and bring everyone to sell online so that all their transactions can be captured. But we worry about the un-level playing field being created.

Ajay Bhushan Pandey: It is good that you talked about the level playing field. The question is what is the level? It is that anyone earning a certain income should be paying tax. We cannot be in a situation where somebody else is not paying tax then why am I being asked to pay tax and therefore a non-levy. There are other measures we will take. In the online system, people who are registered say the same about the GST. They cite examples of those who don’t file returns and then claim that those filing returns are being punished. This is not the way we want our country to go forward. We want everyone to pay tax and then different methods will be deployed for different kinds of people. Like those selling online will be paying through a different method and those offline will have a different method. This is not an additional tax, only then the question of non-level playing field would apply.

Raghava Rao: The change you are proposing is fairly significant in terms of changing invoicing systems. The last time we had made a change for TCS (Tax Collected at Source), it took us about 15 months through a dialogue of clarifications to make the change. If the government decides to go down this path, we would require more change in our technical systems to be able to comply with invoicing requirements.

Ajay Bhushan Pandey: About the compliance and clarification part, our team will engage with you and the industry on the time required to implement the decisions. The intention is to move towards a level playing field where everyone pays income tax, online as well as offline. In case of offline, we will have to figure out what is the other method. For example, in the Budget 2020-21, anyone having a turnover of over ₹10 crore and selling to one party more than ₹50 lakh, we have imposed certain Tax Deducted at Source (TDS). So some beginning have been made there.

Aloke Bajpai: Faceless assessment, disputes and appeals etc. are great. But when it comes to tax refunds, there is no defined timeline for processing of refunds. As we know how the online start-up ecosystem is such that start-ups make losses for a decade before turning profitable and during that period there is a lot of accumulated TDS refund and for us its significant working capital stuck in those refunds. In the last two years, the refund process has slowed down considerably and there are concerns being raised on this issue.

Ajay Bhushan Pandey: We are trying to streamline the refund process. In this year, even though revenues are falling on account of lower growth and corporate tax cuts, still the total amount of income tax refund given in this year so far is much higher at about ₹1,70,000 crore compared to last year which was about ₹1,30,000 crore. We are aware that many of these refunds require certain amount of verification. And IGST refunds are also facing similar issue. There are some challenges when it comes to refunds. For instance: an person claims to be an exporter and his refund comes to about ₹10 crore.

But when we try to match the profile of the exporter with the income tax filings and we find that he has no income tax profile or a disproportionately low income tax profile and also there is no data available on past import-export volumes or foreign exchange.

Now there could be a genuine case that he has set up a new business or a start-up and may be eligible for this refund. But in many cases we find that these are fly by night operators who have fraudulently taking refunds.

So we have introduced a risk-based approach, where we focus on collating the information and in the case of GST refunds almost 99 per cent of them are given automatically only 1 per cent of such refunds get interjected.

We are trying to follow the same approach for income tax refunds. So if all the information is ready and if it matches the information that we have received through other sources, in that case it should be possible for us to generate an automatic refund in 99 per cent cases. This is my objective and we are working towards it.

Aloke Bajpai: I do appreciate the intent behind changes made on the ESOP taxation scheme. But in my decade long experience, its evident that most people exercise ESOPs only when they leave the company. And therefore, I think across the growth stage start-ups that I have interacted with, 90 per cent of such exercises would still not solve the actual problem, which is how does the person finds the money to pay up on tax and ends up pay more at the time of exercise.

Ajay Bhushan Pandey: As far as the ESOP issue is concerned, I think we have given a fairly good concession in this budget. Now many are saying that why this benefit cannot be given to all start-ups registered by the DPIIT. The key question here is what is the meaning of a start-up? Over the last two years, 65 lakh new companies have got registered in the GST system. Technically all of them are start-ups. Now, this whole concept of IMB (Inter-Ministerial Board ) is there to validate on innovation and other parameters for eligibility of tax exemptions. So these start-ups need to approach IMB and convince them that they should be considered for tax benefits.

We have studied the system of ESOP, which was introduced in the US in 1956 by economist Louse O Kelso. He devised the instrument of ESOP. It was intensely debated and after that it stabilised in the Silicon Valley. So our understanding is we have given fairly good concession in this budget for ESOPs than what is available in Silicon Valley, which is the hub of start-ups. But still if our understanding is wrong and something more needs to be done then our Finance Minister has already said please give us suggestions, we will try and see if something needs to be done in the next phase.

Seema Prem: I represent the business correspondents industry. Our work revolves around the PM Jan Dhan Yojana. We have bank mitras across the country and most of these agents are unregistered. But I, as a start-up, am required to register in all States but the cost of compliance in setting up branch offices in all the States is too huge. In fact this is a challenge for all online businesses across sectors. So, my suggestion is if we can be allowed to register under IGST and pay our taxes under IGST and in the portal we will require all the states and we can tell you what is the SGST component for each of the states applicable.

The second key issue, the 2 per cent TDS on cash withdrawals of over ₹1 core has impacted the bank mitra network significantly, even though the Income Tax rule had stated that bank mitras are exempted from it. But the challenge is that all banks don’t call them as bank mitras. We had to involve the RDI, DFS and also the Indian Bankers Association before making a representation to the Department of Revenues (DoR) on this issue that was taken up by the Department of Revenue they did give us a clarification. I believe that there should be a portal for us to give such suggestions to Department of Revenue, like we have SACHET for RBI. So that this inter-departmental co-ordination happens at your end instead of us running from pillar to post.

Ajay Bhushan Pandey: It is a very good suggestion we will work on that.

Published on February 19, 2020

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