Quest for a simplified regime

Our country is emerging as an attractive destination for international investments. It can benefit far more if it liberalizes its stringent social security, fringe benefits, and tax laws. Most importantly, accountability needs to be fixed on authorities interpreting provisions, and there should be no grey area in such laws. There is generally a departmental bias when it comes to interpretation by authorities, leading companies and individuals to spend hard-earned money on such proceedings.

India needs a lower tax regime, which will, in itself, bring higher compliance and fewer subterfuges. Exorbitant and globally incompetent tax rates and liabilities, ambiguous provisions, and cumbersome compliance systems weaken the system. There's an urgent need for reforms, clarity in provisions, and well-organized transparent procedures with adequate checks on statutory authorities.

For instance, under the Indian Provident Fund (PF) laws, 12 per cent of an employee's basic salary and other defined components get deposited in the PF account, along with an equivalent 12 per cent contribution by the employer each month. According to this law, once an employee enrolls as a member of the PF, they mandatorily remain a member throughout their service period with the company, even if their salary is running into several lakhs. One ceases to be a member only upon quitting the organization and withdrawing PF. Such provisions, which warrant employees with higher pay packages also to part with 12 per cent of their salary each month, as well as force employers to contribute, are alien to the whole idea for which social security schemes were drafted, and need to be amended. It should be modified to state that an employee as well as an employer may opt out as and when they so feel in cases where the salary is beyond the statutory limit.

Absolute clarity is also required from the legislature regarding salary components on which PF and Employees State Insurance benefits are to be computed. Unclear provisions create latitude for authorities to misinterpret, leading to extortionist demands. One solution is to lay down an amount on which the statutory benefits will be computed, rather than having it components-based. This will curtail the scope for Inspector Raj and subterfuge salary structures. The PF scheme does mention that contributions beyond Rs 15,000 are a choice, but owing to a lack of clarity on other provisions, this is often bypassed.

Excessive and complex liabilities lead to higher evasions and compel financial experts to resort to adjustments in areas like an employee's CTC. This reduces the take-home salary to a fraction of the total compensation.

Another area that needs review is the cess levied under the Building and Other Construction Workers Act. Current provisions entail the deposition of cess on the complete cost of construction, excluding the land cost and compensation under the Employees Compensation Act. There is no justification for costs of components such as consultancy, engineering, architectural, approval and supervision, insurance, finance, interest, profits, contingencies, etc. Lawmakers need to clarify this to create uniform provisions throughout the country, rather than having different states with different notifications and ultimately leading to lengthy litigation to decide the same.

In fact, India also needs to consider a lower tax regime for expats. Singapore benefited from the introduction of a liberal tax policy regime for expats, which increased FDI inflow. Besides bringing in capital, FDI promotes the economy, generates employment, and opens more doors to international markets, etc.

Furthermore, there should be fixed timelines for every statute beyond which liabilities should not be allowed to be imposed. While the Income Tax Act, etc., have it, many of the labour laws lack it. This invites statutory authorities to impose liabilities that may be even decades old. The new labour codes, which are yet to be implemented, have applied limits; however, the codes are yet to see the light of the day.

Procedures also need to be simplified. For the convenience of senior citizens, the differently-abled, etc., doorstep service should be provided. Coordinating too many portals is not practical for everyone.

Chanakya argued for reasonable taxes that do not put too much of a burden. It has been described that the money flow in the economy should be analogous to the flow of blood in the body. Some of our compliances are a boon only for the coffers of statutory authorities. It's high time for this to change. With many positive changes now coming, these changes too should be inculcated.

The writer is a practising Advocate in Supreme Court and High Court of Delhi. Views expressed are personal