Union Budget 2020 – The Paradigm Shift

As the new decade rolls in, India and its economy are facing a questions, not in terms of the so-called slowdown per se, it is a worldwide phenomenon. We are seeing a paradigm shift in spending patterns.

Let me tell you for sure that people are buying, but they are only buying what they need, not in terms of spending because they have the money unlike before.

I have knowledge of the taxation and corporate governance of this country and will base my post on only those two aspects.

There are many debates running on what the Union Budget 2020 should offer and among other things, dramatic changes in the Direct, Indirect Taxation and fiscal prudence are being discussed in this post here.

DIRECT TAXATION

The argumentative Indian says that we have a tax structure that focuses on a very small subset of taxpayers and are therefore perpetually disadvantaged because those who are wealthy are paying a lot of taxes and get no benefits per se.

My first point of focus shall be that all subsidies that are non-essential be done away with. The total subsidy bill of the government runs upto ₹3,00,000 crores which is almost 1/6th of the collection of taxes in the Government of ₹20,00,000 crores.

The argument that rationalization of slabs won’t make a difference needs to be done away with. If the government lets people keep more money then they will spend. The same can be recovered in spending.

Increase the minimum slab to ₹10,00,000 without taxes and rationalize the rest accordingly to 20% above ₹10,00,000/-,25% above ₹20,00,000/- and 30% above ₹30,00,000/-. Let the surcharges kick in post the ₹50,00,000/- barrier.

In turn, just make it mandatory for everyone holding PAN cards to file returns irrespective of their income slabs. This gives the government data on their incomes and data analysis can help ensure the growth of the number of taxpayers. This helps government check their spending patterns and collate data to double check the correctness of disclosure in returns and avoid evasion.

Introduction of a new dispute resolution scheme is necessary as the number of pending cases in the direct taxes are high and ensure they are resolved at the earliest.

INDIRECT TAXATION

The Indirect Taxation System needs only 2 changes.

1. The slabs are to be kept at 5% and 20%.

All essential items and services to the government at 5% and rest non-essential items, luxury items and all services that are not to the government at 20%.

Increased spending potential due to the savings in rationalization of direct tax will spur growth in collection of indirect taxes. Let the idea be to have a high volume of sales than higher rates of taxes.

2. Our issue lies in compliance. Measures such as compulsory filing of returns if registered will ensure proper collections and compliance.

CORPORATE GOVERNANCE

1. Companies to file only 1 annual return inclusive of KYC norms, deposits and all declarations as required by the Companies Act, 2013. MCA has to place the onus of audits on ICAI and ICSI members for Secretarial Audits and Statutory Audits. Tighten norms of reporting for CAs in case of fraud and ensure compliance.

2. Get rid of examinations and all other ideas for Directors as well as Independent Directors. Companies with public money to ensure audit is reported to SEBI in one form with details and compliance is maintained.

We need to get rid of the bureaucratic/judicial rigmarole that the companies are put through to start or run their businesses. We have to let them earn money and run on the principle of their money, their wish.

Concluding, the National Infrastructure Plan of spending ₹1,00,000 cr into infrastructure is a good step of start but this budget needs to change the way to look at money. Keep the fiscal deficit at 6% instead of the current 3.3%, in the long run, we’re a young economy and can move forward well and fast once we get a grip of the millennial spending patterns.