Jan 31, 2017 09:46 AM IST | Source:

Budget 2017: Expand tax base and increase on-ground enforcement of tax laws

Simultaneously, government should continue its focus on infra spending, rural housing and agri-based sectors like micro-irrigation because of the high multiplier effect of these sectors on economic growth.

Nilesh Shah

There are several expectations that we would want the government to consider implementing in Budget 2017. By introducing innovative ways to raise revenue through efficient expenditure management, government gets fiscal space to lower tax rates, widen tax slabs and increase the tax net. This will also enable more allocation towards target sectors while maintaining the path of fiscal prudence. Government should focus on job creation through targeted tax sops for MSMEs and other employment-generating sectors. Simultaneously, government should continue its focus on infra spending, rural housing and agri-based sectors like micro-irrigation because of the high multiplier effect of these sectors on economic growth.

Improving Tax Compliance: Our current tax system focusses on collecting more tax from the existing tax payers. It is necessary to expand the tax base as there is an unequal distribution of tax burden between salaried class and others. 39 lakh people purchased an automobile in FY13. Only 4 lakh people paid income tax above Rs. 5 lakh in the same year. Therefore, it is essential to use data analytics to trap tax evaders for expanding tax payer base and improving tax compliance. We are expecting the government to levy estate duty and wealth tax for HNIs to ensure equitable tax collection. Rationalization AOPs, LLPs, Trusts, and HUFs categories will ensure better tax compliance. Tax returns filing should be simplified to ensure ease of compliance.

Plugging loopholes and rationalizing exemptions: Tax planning through capital gains from illiquid shares, bonus stripping, converting interest income to exempt capital gains through listed debentures, unlimited exemption on capital gains to rich promoters’ etc. need be plugged. This will help increase tax revenues on a fair basis. Government needs to consider streamlining multiple exemptions, which in turn will help simplification of tax structure. This will help increase revenues. Threshold for filing of detailed balance sheet with income tax returns should be lowered to keep a check on undisclosed assets. Cash transaction tax should be levied above a certain level to encourage banking/digital transactions.

Redrafting current tax laws: Tax evasion is prevalent due to poor drafting of laws & lack of commercial understanding. There is a dire need to redraft current laws to plug ambiguities in interpretation. The focus should be on collecting taxes while instilling the fear of law among non-tax payers. This can be made possible through data analytics and punitive penalties.

Under declared assets: Real Estate, especially land transactions involve a lot of black money, which needs to be targeted for greater tax enforcement. While Government has made a start by amending Benami Transactions Act, 1988, this needs to be followed up by on-ground enforcement.

Asset monetization to raise non-tax revenues: The government has many assets like huge tracts of land, spectrum, FSI, natural resources like coal, iron ore and equity investment in companies. Such assets should be monetized in all possible forms and in a transparent way to raise non-tax revenues. Strategic divestment in businesses like airline, hotels where government’s ownership is not adding value should be focused on. Railways and Defense real estate / properties, should be monetized to aid self-funding of their requirements. Monetization of surplus assets should be undertaken to generate revenue.

Plug leakages: Government has committed expenses in the form of salaries, pension, interest, subsidies and defense. Through Aadhar-linked direct transfer to bank accounts, ghost recipients of subsidies pension etc. need to be eradicated to plug money leakage. All government purchases need to be routed through open online bidding process for minimizing cost and corruption. This will help establishment cost of the government to be reduced through zero based budgeting.

Sin Tax: There is currently a high differential taxation regime for bidis and cigarettes. Both should be brought at par by increasing taxes on bidis.

We expect the Budget for FY18 to expand tax base, enhance revenue though plugging of loopholes and spend money appropriately to boost investment and support growth.

The author is MD of Kotak Mutual Fund
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