December 5, 2019
Sukehndu Sekhar Ray speaks on The Taxation Laws (Amendment) Bill, 2019
FULL TRANSCRIPT
Thank you, Sir.
On September 20, 2019, an Ordinance was promulgated announcing a reduction of the country’s effective corporate tax rate from around 35 per cent to around 25 per cent. For companies that do not avail of any other incentive or commission, the effective tax rate would be just 22 per cent. The move which involves the foregoing of Rs 145 lakh crore in annual revenue will widen the government’s fiscal deficit.
The difference between revenue and expenditure from the current target of 3.3 per cent to four per cent of the GDP this financial year. The rationale behind giving deficit targets a miss is that it will incentivise the private sector to invest more as companies can now expect higher copies. This will eventually lead to, and it is hopeful of, an economic revival. Whether that will happen or not, the revival, that is to be seen in the coming months.
But when the Ordinance was promulgated, it occured to me that this was a panic reaction on the part of the government. Why? It is so because there had been multiple indicators in recent months, be it the 4.3 per cent contraction of factory output for September, the shrinkage of merchandise exports in the successive months of August, that is minus six per cent, and September minus 6.6 per cent.
The RBI (Reserve Bank of India) survey suggests that consumer confidence dropped to a six-year low in September. No doubt the government tried to avert the crisis. First it withdrew the super surcharge levied on foreign portfolio investors and then rolled out a series of measures, including tax rate as I have said in the proposal to set up a Rs 25,000 crore fund to revive the realty sector.
Even though several measures have been taken, there has been no impact on the overall economy of our country that is an ‘out of this planet’ reaction, the Ordinance was promulgated. Now, Sir, as I have said that not all corporates can stimulate growth. Yes, it depends. No doubt lower corporate rates stimulate growth but depending on what the companies do with their taxes they have saved, that is a moot question.
What will the companies do? Given the nature of the current slowdown which is mainly due to weak consumer demand, everybody has said that there is no reason to imagine that private companies will invest more if their tax outgo decreases. If consumers are not spending in the first place, due to high unemployment and diminishing wages, then additional investment spent becomes risky. There may not be many avenues for companies to invest anyway.
For instance, I’m giving you one example, how would lower corporate tax rates encourage the auto companies? There is a serious crisis in the auto companies; it is there in other sectors also, but in the automobile sector it is very much visible. Thousands of workers have already been retrenched. Whether they will invest more in the automobile industry, that is the question.
Sir, the current corporate tax rate cuts are more likely to impact the distribution of income than growth or employment. Companies will now get a larger share of profits from existing investments, while the economy remains in the slow lane and there is a very real danger that this would exaggerate inequality. Our economy always advances the inequality in the society – financial inequality – and for decades together several steps have been taken by successive governments at the centre but things did not improve to the extent it was targeted.
Sir, now all of us know that the centre has scrapped the All India Survey on Household Consumption Expenditure conducted by the Ministry of Statistics and Programme Implementation. A few months ago the government refused to publish the official survey conducted on employment in India and after 108 reputed academics signed a petition to get the document officially, it was released, that too, after the elections only. This time also more than 200 economists and statisticians have signed a petition requesting the government to release the survey report.
The information about the results of the survey, that were leaked to the press, showed that for the first time in more than four decades, consumption expenditure has actually fallen with an increase in poverty and a dip in food consumption by the poor. All of us know that two-thirds of our population live in the rural areas. Spending on housing, food, cereals is declining in the rural sector each and every day if not every month.
Sir, there has been no external factors that could be the cause of this worsening state of affairs. There was no war or aggression, no economy barrier, no sanction by any country against us. Therefore, there are no external factors for this. Whatever has been caused is due to internal factors which must be taken care of by the government. My humble request to the Finance Minister is to look into that.
The government must understand that the kind of arbitrary refusal to publish the statistics will give rise to authoritarianism. In a democratic society like ours, this is not at all admissible. Our Constitution does not prescribe that. We have enacted the Right to Information; citizens should not be denied of information concerning their daily life. That is my humble request to the Government. Kindly take note of this.
Sir, I have already said that the two-thirds of the Indians live in rural areas where spending on food, clothing, education and cereals has declined. Farmers are struggling with debt and farmer suicides are reported almost daily in different parts of the country, everywhere. And so many measures have been taken but the things have not been improved. Now, how far this taxation amendment will help to boost our economy, as a whole, is a serious question that should be debated again and again, so that corrective measures are taken at the right time by the government.
Sir, now I would like to quote a few lines with your kind permission, regarding what the experts say. Forget about what we say, the Opposition says, listen to what the experts say. The former Chief Economic Advisor to the government is one of them. I am not naming him; he has said, “Besides monetary easing by the Reserve Bank of India, the government needs to simplify the Goods and Service Tax and introduce a new direct tax code to clear the tax jungle created by our ancient Income Tax Law and Rules.”
So, this is an opinion of an expert. Another is from a former Industry Secretary. He says that the government must release two instalments of PM Kisan scheme, that is Rs 4000, at one go, as well as increase the MGNREGA allocation as par rural demand, so that people have enough money to purchase, to consume. That it will boost the economy.
Finally Sir, I would request the Hon’ble Finance Minister to consider. I have talked about GST. Four/five states, including my state West Bengal, appealed to the government to clear the pending compensation on account of GST, which have not been cleared.
Lastly, the Cyclone Bulbul has recently caused serious destruction in my state. The Hon’ble Prime Minister announced that adequate compensation will be provided for. Nothing has been provided so far. So, my humble request to the Hon’ble Finance Minister to consider this.
Thank you, Sir.
