Tax complexity will encourage evasive culture
N. R. Gajendran
The 85 percent input claim restriction enforced on business
organisations to deduct the input VAT expenditure from the output VAT
tax has a negative impact on prices of consumer items which results in
staggering inflation, said Partner Gajma and Co. Chartered Accountants
He said when products are sold at a low profit margin companies will
pass on the ill-effects of the claim restriction on the consumer who
will have to pay more on each item.
"When the restriction is applied the company's tax will increase. If
the company wants to maintain the same level of profits an upward price
revision will have to be effected which will have an adverse impact on
the cost of living and inflation", he said.
The claim restriction will not only influence prices of consumer
goods but also encourage an evasive culture with the number of those
evading paying tax increasing annually.
He said while the composite tax on 10 essential items will have a
less impact on prices the new mobile subscriber levy will have an
adverse effect on mobile phone users now hitting the three million mark.
A mobile phone is not a luxury item and today it is an essential item
used even by people from low income families. Imposing such taxes would
be a burden on phone users and a threat to the industry", Gajendran
Tax on consumer items has a regressive effect on the consumer. Direct
tax has a progressive effect on the individual.
Major variations to policy have to be made through the budget and not
in a manner that will affect people who are already saddled with the
cost of living.
Even if money is printed or borrowed it should be done as an
investment for infrastructure development and not for government
expenditure. If money is properly channelled for development the
government going for a sovereign bond of US$ 500 million would not be an
He said the issue is why is the Government trying to raise funds at
high premium from commercial banks.
Lending Institutions have pre-conditions to which borrowers have to
comply. The borrower should ensure that the money is used for productive
purposes and there are tangible returns.
Gajendran said the country's productivity needs to be increased by
moving away from a welfare state to a 'workfare' state.