The budget speech in India frequently serves as the most significant occasion of the year to signal the course of reforms. The interim budget was keenly watched as it was a key lever in the hands of the government to trigger a positive mood among the electoral constituency. Many in India Inc were betting on a pre-electoral splurge led by a flurry of populist measures. There was an expectation that the government might pause its financial prudence in an election year, offer tax cuts to the middle class and liberally fund a surge in its social spending.
Contrary to such expectations, the finance minister signalled continuity and consistency in fiscal prudence. She presented a good interim budget with focus on a disciplined approach in spending without compromising capital investment in core sectors. A highlight of the budget speech was that the Government’s revenue exceeded expectations and costs stayed in control. Clearly, continued focus on deepening and widening the tax net is starting to pay rich dividends.
Interface With Government
The country’s indirect tax collections are at an all-time high. Rationalising the indirect tax regime by subsuming 17 different fragmented tax regimes into a single digitised GST has improved ease of compliance for employers. The cascading effect of this rationalisation has brought significant efficiencies in logistics, supply chain and tax arbitrage. Similarly, technology has been leveraged to process tax returns and refunds faster than ever before. Average time to process has come down from 93 days in 2013-14 to 10 days in 2024.
The announcement to withdraw petty, non-verified, non-reconciled tax demands is a great gesture to reduce litigation and improve the confidence of taxpayers. Rationalisation in direct and indirect tax should be treated as a blueprint for other departments in union and state governments to make compliance a breeze.
India’s 69,233 compliances in 1,536 Acts and rules need to be rationalised. Labour laws contribute 47 percent of the compliances and 68 percent of the criminality. The reform in these laws is long overdue. While the plumbing is in place, India Inc is yet to benefit from the codification. It is time to bite the bullet and implement the four codes.
The DPI Effect
The finance minister acknowledged DPI (Digital Public Infrastructure) as a new factor of production. In India, DPI has unleashed an unprecedented wave of innovation and enabled exponential change. Over a billion lives are improved by technologies like Aadhaar, UPI, eSign, DigiLocker, Account Aggregator, and ONDC. Such shared infrastructure created by unique partnerships between governments, regulators, private sector and think tanks has helped create equitable access and layered innovation.
The country has already experienced a significant improvement in ease of living with its digital payment infrastructure. It is time to take the DPI to enable ease of compliance. India’s employer compliance ecosystem has thousands of filings, many of which are still stuck in manual and paper-based processes. An employer continues to have at least 23 unique identities like PAN, TAN, CIN, ESIC to name a few. It is almost impossible to aggregate compliance data and generate a risk profile. Detection of non-compliance, defaults, delays and frauds is still largely based on random sampling. Inspections are still at the whims and fancies of the inspector instead of being triggered by historical data and past behaviours.
Additionally, employers deal with significant information asymmetry, due to approximately 20 regulatory changes published daily on any of the 2,233 different websites.
A greater fund allocation for developing DPI infrastructure for a paper-less, presence-less and cash-less compliance is the key. Three key updates, powered by DPI, will change the game:
* Open up APIs for key public compliances, filings, services and processes. In phase 1, the government should target API based digital filings for ESIC, EPFO, MCA, SEBI and Exchanges
* Enable a wider range of public credentials on Digilocker, including authenticated and seamless data-sharing of various licenses, registrations, permissions and documents. Digilocker provides a standard issuance infrastructure that reduces the time and cost involved in multiple departments having to individually create verifiable credentials.
* Create a single source of all regulatory updates at Union, states and local levels
Spotlight On Entrepreneurs
For over seven decades, Indian entrepreneurs have been victims of overregulation. One indicator is that 2 among every 5 compliances in India can send an entrepreneur to jail. The data clearly points to the inherent hostility in our business laws, slowing down entrepreneurs and raising barriers to job creation. The 21st-century Indian entrepreneurs do not need microscopic oversight on the provision of spittoons, gender-segregated washrooms, places for storage of clothing and painting the inner walls of canteens.
The finance minister’s budget speech put the spotlight on entrepreneurs, start-ups and MSMEs. She announced several items including extension of tax breaks, timely and adequate funding among others. However, MSMEs bear a disproportionate burden of compliance and embedded criminality. Year 2023 saw the historic passage of Jan Vishwas Bill through the parliament. Despite being a modest beginning, it unmistakably established the groundwork for further decriminalisation initiatives. Phase 2 of the bill should take center stage in 2024 further decriminalising Union laws and encouraging states to initiate similar initiatives.
In a few months, the world's largest democracy will go to elections. The interim budget could have taken shortcuts and bled the exchequer to woo the voters. Today’s budget stayed true to the promise of investments in infrastructure and growth. These are good indicators that the fifth largest and the most vibrant economy of the world is on course to become Viksit by 2047.
Rishi Agrawal is the Chief Executive Officer (CEO) of TeamLease Regtech Pvt. Ltd, a company that offers software solutions for compliance, litigation and contract management. Views are personal, and do not represent the stand of this publication.
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