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BW Businessworld

Budget 2017 Reveals Government 'Lacks Tax Experts'

'The trend of surcharge is up. And it has affected the so-called higher income brackets of the corporate sector'

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At BW Businessworld's post-budget analysis on Friday, former chief economic advisor Dr Arvind Virmani and director of economics at Indicus Centre Dr Laveesh Bhandari felt the tax reforms were ill-thought and will only increase the power of the bureaucrat.

Virmani said: "There seems to be a deficit of good, analytical skills in the government. They don’t seem to be focusing in a comprehensive way. This was one thing government should not have missed. My concern is the government’s moralistic obsession with black money is going to ignore the real economic issues that need to change."

He said there don’t seem to be enough tax policy experts in the government.

"Outsiders may think it’s very easy to do tax reforms, but income tax is very complicated and you have to think of a multitude macro and micro socio economic relationships. It takes real expertise. Everybody suddenly is an expert when they are paying taxes, but to do reforms is harder."

One of the disappointing things of the government, meaning their three budgets have been the promise of eliminating tax terrorism, has really not fructified enough.

Where the corporate sector is concerned, Virmani said he has not so far come across anybody who says that this whole issue of tax terrorism and related ease of doing business have been substantially affected.

On the repeated surcharges, he said this may support that view that this is a left of centre budget.

"The trend of surcharge is up. And it has affected the so-called higher income brackets of the corporate sector. As far as I know effect of corporate tax has gone up. Not down. We are not getting any response from people directly affected that there has been any substantial changes," he said.

The government seems to systematically use surcharge, which is disturbing. It seems almost every new budget there is a surcharge.

Virmani said contractual laborers didn’t want to be part of the formal system not because of taxation but because of labor laws. That seems to have escaped the government’s attention.

Income Tax Officer Raj

Bhandari said expectations on the macro front have been met, but in the nitty-gritties like income tax and other direct taxes, he expected far more.

"All governments of India, in a sense are left of centre. What is centre in India these days is also actually left. So the questions is, are the actions this government is taking increase the power of the government or of the state or are they going to increase the power of the people. I would say all the actions they have taken, even some of the changes that have been welcomed like some tax deductions all increase the power of the bureaucrat," he said.

He wondered whether the new budget reduces the income tax officer raj that has always existed.

"Does this budget reduce it? It largely does not. There may be one or two things I will concede may, but largely it does not," Bhandari said.

With all the uncertainty of GST, it seems the government is putting in "areas" from where it can get revenue for itself. That's not the right way to do it, he said.

"You don’t get job growth by proposals like the one for SME – if turnover is below 50 crores, then it can pay 25%, instead of 30%. At that level, most SMEs do tend to keep a proprietorship or partnership. This will only increase the power of the bureaucracy. This kind taxation is not something you should do. If you’re going to use tax reduction then do it fully or don’t do it at all. This is not the way to move forward," Bhandari said.