An open letter to Hon’ble Prime Minister on ‘Make In India’ Campaign
Dear Sir,
On September 25, 2014 you have launched the most important program of your Government, which forms the keystone of the future development strategy of our great nation – “MAKE IN INDIA”. We are extremely enthused by the announcements made by you at the launch of this program, promising “Maximum Governance and Minimum Government”. Two of the key points highlighted by you as the goal of this program are ‘job creation’ & ‘export promotion’. You announced that you wanted domestic Indian manufacturers to grow and shine as MNCs. You emphasised that industrialists should not be forced to leave India on account of wrong policies of government of India.
Prime Minister Sir, I submit that the program must go beyond the rhetoric to make it meaningful. Otherwise it will not be different from garibi hatao slogan of Congress government led by Mrs Indira Gandhi. Today when we visit courts or govt offices, there is absolutely no change in approach compared to previous regime.
Though every law is legislated in public interest and government servant has to work as a facilitator, when it comes to drafting of the law it is drafted in such a fashion that it creates highly disproportionate civil and criminal liabilities and gives all abusive powers to officers of law enforcing agencies. As a result of this, whenever some inquiries are made by any government department, government servant thinks he is a tiger and person from trade is goat, who must be afraid of him. Absolutely there is no facilitation or support by government servant at all. There is no cooperation from government officers; rather government officers seek cooperation from private parties AND from government servant perspective cooperation has only one meaning that whatever is said by government officer that must be agreed by private party without any argument and without any resistance. Anybody who shows disagreement with government officer is termed as a non cooperating party who has to face wrath of government servant. Prime minister sir, it is high time that this attitude must be changed.
For example tax laws are called civil laws because they fasten civil liabilities, but the way criminal liability portion in these statutes are drafted, even for a five paisa tax evasion, it creates a criminal liability. It does not give a threshold of tax evasion below which liabilities will be purely civil. This criminal part of tax statute is major source of corruption and is abused left and right. In every tax investigation, the threat of arrest and criminal prosecution is used. Tax payers are being treated as criminals. This situation is creating mistrust between government and tax payer and is not good for healthy growth of economy.
Today government must realise what it can do and what it cannot do. Let me first tell what government cannot do for pushing Indian products in domestic market as well as overseas markets.
Government cannot bring purchase orders for Indian products.
Government cannot per se reduce the cost of production.
Government cannot forgo all taxes on Indian products.
Government itself cannot start manufacturing products and selling at lower prices.
Today Government role is basically regulatory. Indian business community shares the concern of country and are committed for compliance of Indian laws, at the same time business community of India aspires for a growth oriented Indian law which is supportive of genuine business. Therefore the law and its procedures should be strict with clear laid down boundaries, but its implementation should be simpler and quicker so that it does not inhibit growth.
For example in a business conducive regulatory framework, a product supply with a 5% margin gets completed in two months, then with six rotations in a year will give 30% annual return on investment in a year making it a highly viable business. However on account of delays in regulatory clearance, if it requires six months to complete the order, then two rotations in a year will give 10% annual return on investment in a year, which is less than commercial borrowing rates, making the business unviable.
Today when everything else is at par, yet Indian products are not competitive on account of regressive regulatory framework. Today government needs to make following positive changes in its regulatory framework, which will bring cost of Indian products down and make them competitive not only in Indian market but in overseas market as well. This approach alone can push MAKE IN INDIA products in domestic market as well as overseas markets.
Make the legislation conducive for growth of economy
Reward the officers taking judicious decisions and not the officers simply passing orders in favour of government.
Reduce unnecessary tax and other business related litigations.
Make system of permissions transparent
Statutorily by assigning specific duties, make government servants facilitator.
I am attempting to explain as to how it can be done with the help of some illustrative examples.
Business conducive legislation for growth of economy
Prime minister sir with clear majority in the parliament, you can seek rationalisation of each and every law. For every business related legislation or for that matter all the legislations, a committee needs to be constituted which will invite public opinion on the problems faced and suggestions for making it better, online as well as offline. The committee should not comprise only of bureaucrats or people from judiciary because they are on the other side of fence and tend to think in a particular direction. Committee should have members drawn from bureaucracy, legal fraternity as well as from those who need to comply with that law. This committee will suggest changes to be made in the law after proper deliberation.
Reward the officers taking judicious decisions
Government must reward the officers taking judicious decisions and not the one who takes all decisions in favour of government and against the trade irrespective of the merits of the case. There is no dis-incentive or penalty for being Anti trade and non judicious, rather there is penalty for being judicious and trade friendly and there is incentive in promotion avenues for being Anti trade and non judicious. Today a government servant/judge taking all decisions in favour of government irrespective of merit of the case and doing what he is not supposed to do as a judge, gets promoted and becomes a judge at higher level doing more injustice. This person gets promoted even if his all decisions are bad and even if they are all set aside by higher courts, because quality of decision is not a parameter in promotion at all. This happens because on account of his all decisions being in favour of government, there shall be no corruption case against him and thus his vigilance clearance shall be ok making him most eligible candidate for promotion. There are officers in tax departments with excellent career graphs, who have never dropped any demand irrespective of merit, pushing assessee to a litigation which he does not deserve, burdening already burdened Indian courts, wasting govt money and court time, helping no body. Just because they confirm the demand that does not mean that govt gets revenue. Their orders are ultimately set aside.
On the other hands very few judicious officers, may not get promoted because their vigilance clearance may be stuck on account of some sponsored complaint by their colleagues in cases where they passed judicious orders in favour of trade. There are another set of officers who pass judicious orders only when they get bribe from trade, they also get promoted because whenever there is a complain, with money power they are able to influence the vigilance dept and able to sail through.
Reduce unnecessary tax and other business related litigations.
Business is run in an atmosphere of certainty. When there are too many litigations with contingent liabilities, business entity has to factor in those costs as well and as a result cost goes up making the business unviable. Therefore there is a need to
Eliminate unnecessary litigation, and
Close the litigation in a time bound manner
The judiciary is designed in such a way that every forum should act as a filter. Litigants should be satisfied by the decisions given by lower authority in general. Further the cases in which appeals are filed, in most cases the orders of lower authority should be upheld. This will happen if and only if the decisions of lower authority are based on true appreciation of evidence and law, fair and free from biases reflecting the position taken by higher courts. If this is practiced by lower authority very few litigants will go to higher forums because nobody is interested in spending money when decision of lower authority is most likely going to be upheld by the higher forum.
In this way say out of 1000 disputes for which show cause notice is issued in tax cases, only a handful of cases will reach tribunal and out of those cases which are decided by tribunal a further reduced number will reach to HC and SC. With reduced number of cases at tribunal and higher courts the pendency will go down and disposal time will get reduced significantly.
However today tribunal and higher courts are choking because every dispute handled by departmental bureaucratic authority in the tax department is being taken to higher forums either by government or the private party and thus increasing the pendency and consequently disposal time. The reason for the current state of affair is that departmental authorities are biased and not judicious at all. Majority of them have decided in advance to confirm every demand irrespective of merits of the case and irrespective of submissions. They are party to dispute as well as judge.
CBEC and CBDT should have checked the statistics as to what percentage of orders passes by Commissioner (Appeal) and Commissioner are finally kept intact by tribunal and high courts to know the quality of orders passed by these Authorities. If majority of orders passed by them are getting changed then there is no justification for departmental adjudication of tax disputes. The departmental adjudication under CBEC and CBDT needs to be abolished because it is not serving any purpose.
In the United States, the tax department and the taxpayer try to resolve the dispute administratively. Before issuing any notice of deficiency (ND, Similar to our SCN), a non-statutory letter known as the 30-day letter or preliminary notice of deficiency is issued. This 30-day letter does not stop the running of the statute of limitations. It gives a fair idea of the grounds on which extra tax is being demanded. The 30 day letter gives the following options to taxpayers:
If they agree to the proposed changes in their assessment, they should pay the tax along with interest and intimate to the officer who will close the issue without issuance of ND. The agreed liability can be paid at once or alternative payment options can be worked out.
In case they do not agree to the contents of 30-day letter, they can schedule an appointment and discuss their case with a pre-assigned officer of the examination department who has scrutinized their case.
If a taxpayer does not come to a conclusion even after discussing the case with an officer of the examination department, then he can schedule an appeal with the appeal office of the IRS, which functions independently of the examination department. This is not an appeal in India sense rather this is examination of case by independent set of officers of tax department. In appeal, an officer who was not involved with the raising of objection considers the case. This ensures an impartial discussion and fairness in the proceedings. The result of this independent appeal process leads to closure of more than 75% of tax disputes.
If the taxpayer and department do not reach a conclusion or the taxpayer is not interested in an administrative procedure, a statutory notice of deficiency (equivalent to our SCN) will be issued. This notice of deficiency will be adjudicated by Tax Court, which is similar to CESAT/ITAT in functioning.
The US Tax Court primarily has a deficiency jurisdiction and incidental refund jurisdiction. Therefore, in order to go to Tax Court, a taxpayer need not pay the deficiency amount. A taxpayer may go to Tax Court soon after the receipt of a notice of deficiency within a period of ninety days. However, once the matter is decided by tax court, access to circuit court of appeal is conditioned upon full payment of the deficiency assessed, because courts other than the Tax Court have refund jurisdiction. However this is done because the first adjudication of dispute by tax court is really fair.
Make system of permissions transparent
Reduce the unnecessary permissions and clearances and bring transparency. Introduce system of intimations and put clearances on auto pilot mode. Wherever permissions are required put a time limit within which it should be either granted or rejected. Empower applicants to control the start of time meter. This will happen when applications are accepted online, where government servant will have no control. If it is submitted physically, the clerk will not accept or will not give acknowledgement and thus time meter will never start.
A Kanpur based manufacturer of protective items (Bullet Proof Jackets and Helmets - purely non lethal items) and exporting to more than 100 countries around the world including developed countries like USA, UK, EU with Made in India label for last 25 years is able to supply only 1/3rd of its potential because of following permission related issues.
The exports require NOC from Ministry of defence for each consignment. MOD takes 2-3 months time for giving NOC and on an average in 1/3rd cases either NOC is declined or is delayed as a result of which orders get cancelled. Many times consignment has to be rushed by air at exporters cost escalating the cost.
MOD wants a confirmed order among other things accompanied by an end user certificate countersigned by government official before they accept application for NOC.
When company participates in any tender, they do not know in advance whether they will get NOC or not. After incurring significant cost in the tender process and executing bank guarantee for committed supply and then getting confirmed order, many times the NOC is denied. This unwanted cost (cost of participation in tender including forfeiture of BG) has to be recovered from those orders which materialise. As a result company does not participate in those tenders where margins are thin and participates only in those tenders where margins are high. Therefore company does not supply in many cases on account of regressive economic framework, where from its own economics actually it is in a position to supply. This is loss of business for MAKE IN INDIA product, where NDA government can look into.
When company fails in supplying a confirmed order, it gets blacklisted for that entity for next 3 to 5 years.
The current practice for a consignment to consignment basis NOC for protective items consumes significant valuable time of govt authorities as well as exporter apart from causing delay in execution of orders. MAKE IN INDIA can be pushed by adopting following approach without compromising on our international obligations or compromising with our security.
Auto NOC: For a select published list of buyer, such as notified countries armies and police forces, there should be auto NOC based on a one 15 days advance intimation.
In principle NOC: For other categories, when a request for NOC is made by giving details of items to be exported and probable buyer and its country, with these details within two working days MOD should give either (i) in principle NOC by saying that NOC can be given for this type of buyer/country subject to fulfillment of conditions stipulated therein Or (ii) MOD should say that for this type of buyer no NOC will be given. This in principle NOC will save energy of exporter from unnecessarily collecting the papers and participating in tenders or chasing buyers for a futile exercise. The in principle NOC will help the exporter on focusing on Doable business. Once the in principle NOC is given, final NOC should be issued within another two working days from the date on which exporter submits all the documents which are listed in in-principle NOC. The FINAL NOC should be used for the actual export of consignment. In case of non issuance of NOC within the stipulated time, there should be provision for Deemed NOC.
Debitable NOC: Instead of issuing NOC on consignment to consignment basis, it should be issued for a bulk quantity for a particular buyer valid for say 24 months. On export of a particular consignment, the quantity exported can be debited from the NOC. This will take care of repeat supplies to same buyer spread over a period and will save valuable time of govt authorities as well as exporter and expedite the execution of orders.
NOC should be insisted only for commercial Supplies and Export of samples for testing, Demo/Exhibition & tender etc should be kept out of NOC in case of non lethal protection items.
Make government servants real facilitator
In a recent case of an Indian exporter who exported rice to a Bangladesh Party against an LC, where LC was not honoured on some technical grounds, the exporter is running post to pillar getting absolutely no support either from Indian embassy in Dhaka or from Indian Customs at Petrapole. Whenever the exporter visits Indian customs at Petrapole, he is treated as if he is accused and is made to sit for hours. Instead of helping, he is frightened by Indian agencies that a case under FEMA can be booked against him for non realisation of export proceeds. This mindset must go.
On September 25, 2014 you have launched the most important program of your Government, which forms the keystone of the future development strategy of our great nation – “MAKE IN INDIA”. We are extremely enthused by the announcements made by you at the launch of this program, promising “Maximum Governance and Minimum Government”. Two of the key points highlighted by you as the goal of this program are ‘job creation’ & ‘export promotion’. You announced that you wanted domestic Indian manufacturers to grow and shine as MNCs. You emphasised that industrialists should not be forced to leave India on account of wrong policies of government of India.