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Mar 02, 2013, 02.46 PM IST | Source: CNBC-TV18

Budget Analysis: FM's Budget 2013 speech far from ground reality, says KPMG

Finance Minister spoke of many administrative and economy reforms in his Budget 2013-14 speech, but they seems to be far from ground reality, believes Bhavna Doshi of KPMG.

Finance Minister P Chidambaram spoke of many administrative and economy reforms in his Budget 2013-14 speech, but they seem to be far from ground reality, believes Bhavna Doshi of KPMG. She also stresses that some provisions like on service tax were very harsh and will hurt the industry.

"He has spoken about the administrative reforms commission where they would look at the difficulties which are being faced but one finds that there is one thing in the statements and another at the ground level. FM ought to understand the ground realities when we have such harsh provisions. That is where the concerns are," Doshi says in an interview to CNBC-TV18.

Below is the verbatim transcript of the interview.

Q: The Finance Minister (FM) has said that he will be issuing clarifications with respect to this amended Section 90. What are you expecting to hear from the FM with respect to clarifications and what impact will that have on the sentiment of foreign institutional investors (FIIs)?

A: Yesterday's announcement has created a little doubt in the minds of people. Earlier we all believed that a tax residency certificate (TRC) is adequate based on the circular issued by the board. Now, the FM has stated in the Finance Bill that it would be required and of course necessary, but not sufficient. So, therefore people will have to state, explain and justify as to why they have used a particular jurisdiction. So, certainly there are concerns and particularly because this has come in from retrospective effect, so it applies to current financial year i.e. assessment year 2013-2014. One is awaiting the rules for general Anti Avoidance Rule (GAAR). That is where the concern is greater.

Q: You must have heard the FMs press conference as well. What did you take away from that? The market at least seems to have put a bottom to its huge fall yesterday, but could you get any kind of consolation from what the FM said?

A: When one hears FM whether in that press meeting or even in his speech and looks at the provisions of the Finance Bill, one finds a gap. First he spoke about restoration of the trust and the confidence of the tax payers, but when we look at the Finance Bill,  we find  that the provisions are far more harsher than one would have expected. Take a simple case of service tax, if you have a demand and if you cannot get a stay within a period of 365 days, irrespective of whether you were at fault or not, you will now be required to pay up the amount. Now, this is very harsh. If we look at the other provisions also, if you can't pay up the amounts there is provision for arrest so not only penalties but arrest. Even the voluntary compliance scheme, when we initially heard, we thought that this would be helpful for the people, but when we look at the details, we find that hardly anybody will be able to make use of that scheme. So, there are several things and he has spoken about the administrative reforms commission where they would look at the difficulties, which are being faced but one finds that there is one thing in the statements and another at the ground level. FM ought to understand the ground realities when we have such harsh provisions. That is where the concerns are.

Q: But the fact that he spoke about intent in the press conference, it did not mollify you? You are still hoping that he will withdraw the entire provision in the Budget?

A: What happens is when there is a provision in the act then irrespective of what FM states what is in the act will be applied. Today, the provision is that TRC is just necessary condition, not sufficient. So therefore at the ground level when the officers look at it, they will insist on something more, establish why you are coming from a particular jurisdiction, what is the substance there, what are your activities there and why have you used that jurisdiction as against another jurisdiction? So, unless a law is amended the concerns will remain.

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Q: What is it that the investors are looking in terms of that clarification?

A: Perhaps when the rules come, in the rules it might be clearly set out the circumstances in which one would ask for something more. So, the tax officers will not accept mere TRC and they will ask for some more details. So, what are the circumstances in which that information would be sought for is what one looks at provisioning in the rule.

Q: But you are not quite expecting that he is going to remove the law itself?

A: No, I don't think so because even though the Shome committee had recommended grandfathering, that is also not come. So, it is clear indication that he does not want to give any relief for the past period.

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