Budget 2012 takes the 'p#*s' out of industry

Anybody that says the Budget was a non-event hasn't read it all. Nor have I. But I've read enough to know it is a significant event! A very significant event!!

Significant for those affected by a hike in excise and service tax rates to 12%.

Very significant in the life of those services that were yet untaxed (that includes 80% of a sector that contributes 60% to GDP). The imposition of a 12% service tax on all services save 17 categories on the negative list ushers in a sea-change for service companies. The tax will have an insidious effect on all companies as 'service' is loosely defined. Rohan Shah, ELP says the definition may absurdly include transaction elements like non-compete agreements! He didn't use the word absurd, I have.

That the negative list concept was to be introduced alongwith GST but gotten fast-tracked (without the accompanying reliefs) is another matter.

GAAR suffered the same fate. Meant to be introduced in the new Direct Tax Code, it has been advanced, again without the accompanying safeguards (mentioned in the DTC Bill and those suggested by the Parliamentary Standing Committee). The Finance Bill version of General Anti-Avoidance Rules also ignores the Supreme Court's commentary in the Vodafone judgment regarding parameters to determine a bonafide or substance-based transaction.

But that should hardly offend the Supreme Court as graver trespasses have been committed. The Government it seems went through the charade of looking for a judicial and judicious decision in its case against Vodafone to tax an offshore transaction. I say charade because the moment it lost it decided to amend the law to bolster its case and bring the Hutch-Vodafone transaction to tax. Pranab Mukherjee and team claim it is only a clarificatory amendment. But when the country's highest court has said that the Income Tax Act Section 9 does not in its current form support the tax claim, can any amendment to that form be just a clarification? No, when you change something to mean more than it did earlier it is a substantive change. Ironic that now the new form of Section 9 is attempting to trump its earlier substance. Oh and yes the amendment is retroactive...it is applicable from April 1st, 1962. 50 years of Section 9 interpretation have been rendered redundant. And yes, the message to the courts is if you don't rule in our favour then we'll simply 'fix' the law. So much for an independent judiciary.

The Finance Minister has done the same to the sale of software by tagging it taxable as royalty payments. After several different court judgments and appeals, the Government, probably tired of waiting for a judgment in its favour, decided to  'serve itself' from another dish in the buffet of retrospective amendments.

When the Government can change the rules of the game after it has played and lost, with what moral authority does it prosecute those companies that attempt to change the rules while the game is being played?

A tweeter says "The word retrospective appears 30 times in income tax memorandum; 12 times in indirect tax memorandum."

I have touched upon only 2 of those alleged 42 occurrences. Neither of these were mentioned by the Finance Minister in his 2 hour long ramble today. But he did find time to mention a tax cut on 'adult diapers'. Maybe he knew that his tax proposals would make many a grown up wet their pants!!!

Menaka Doshi
Corporate Editor
CNBC-TV18

Disclaimer
This is by no means a comprehensive view of the tax proposals in Budget 2012. You see I got tired of reading the Finance Bill and turned to cricket instead . Today while the FM 'bowled' industry, Sachin hit his 100th 100 in international cricket. Sachin won but the team lost. The same can be said about the India's Finance Minister and his country today.

For all those who voted Congress in the last Lok Sabha elections do you think you can retrospectively amend your votes?

Let's give it a try. Our courts will soon have little work. The government is the biggest litigant and since here onwards it may settle all disputes through legislative amendments, pendency will soon be a thing of the past. Yipee!

See if you search hard enough there is always a silver lining. Got to go now, diaper change awaits!