Problems & Possible Measures For Revival Of Economy From Covid 19 Lockdown (A Tax Perspective)
We have contacted persons from different sectors and we have compiled the following problems and possible solutions in view of Covid 19 lockdown.
I. PROBLEMS FACED BY DIFFERENT SECTORS
1.1. Traders who are self employed persons (semi-literate) are doing retail / semi wholesale cloth trade and readymade garments and other small business like stationery, grocery items, tailors, etc. Majority of them have taken shops / storage places on rent. They have borrowed funds on interest from banks or close friends or relatives; or through finance brokers. They generally don’t have a staff of more than 5 people. Now since the marriage and vacation seasons have gone in lock down, they have lost opportunities of earning money. There is no collection from debtors (old sales) and at the same time they have to pay salary, interest and rent. They find it difficult to live upto their commitments. Also, if lockdown is prolonged they might get frustrated and depressed and have to shut their business. Consequently, the staff will be unemployed. It is also possible that people feel extremely depressed and start committing suicides. In such circumstances, special steps are required.
1.2. Many of these people will not approach government / charitable trust for financial help for education of their children or for special occasions like marriage of their children etc. They will be compelled to sell their gold ornaments and streedhan (woman’s wealth) to meet their financial needs. These persons will borrow money from close friends and relatives and hence Income Tax Dept should not go for strict compliance of requirements of Section 68, 69, etc. Penal tax rate of Section 115BBE should be reduced.
1.3. MSMEs are facing a huge problem of non-payment by customers. Big corporate purchasing goods / services from MSMEs are even today dealing with payment conditions of 120 to 180 days. MSMEs are unable to insist on 45 days payment because they are small in comparison to the big corporates. MSMEs are compelled to borrow from banks which can be avoided if such big customers make timely payment to them. It is also safer for banks to lend to corporates instead of lending to MSMEs. Therefore rule must be made that MSMEs must be paid 25% in advance and balance 75% at the time of supply, so MSMEs don’t have to borrow from banks/ money lenders/ NBFCs.
1.4. In case of electricity bill, minimum charges are about 50% of normal even though there is no consumption.
1.5. If units or staff cannot pay EMI in relation to loans taken from the bank or financial institutions then moratorium should be given for dues of April, May & June 2020 and payments in respect of these months without extra interest be allowed upto Jan, Feb & March 2021.
1.6. Mathadi imposition (which is actually a private tax) started on demands of trade union by Dock workers was extended as mathadi in Maharashtra to all units should be abolished immediately. All companies have their own arrangements including cranes for unloading material. All such avoidable cost should be abolished or not made mandatory for all units.
2. Gold & Jewellery traders
Retailers in gold and diamond ornaments have best sales in the month of March and April due to Marriage season and this time the whole season has failed. They keep the new designs and extra stock ready because their business is at peak during this period. So their major working capital is blocked and at the same time they have heavy operating costs like salary, interest, etc. Due to severe spread of Covid 19, it is quite likely that prohibition on public gatherings may continue till May end. Hence, marriage functions will directly shift to October 2020 and hence demand will not pick up till then i.e. Diwali season. Also people may not spend lavishly on these occasions even after the lockdown ends because now purchasing power will reduce in the hands of people because of economic slowdown. The rupee is becoming weak and there is urgent need to restrict import of gold to reduce the outflow of foreign exchange. Indian families have unlimited stock of gold in each and everybody’s residence. This gold must be brought into market so that there is cash rotation and for this purpose, cash purchase of jewellery should not be prohibited. Hence, rupees will become strong and trade deficit will come under control which will reduce inflation and price rise.
3. Construction Industry
Strict provisions like Section 50C, Section 43CA, Section 56(2)(x), Section 269ST, 269S (specified advance) have put a complete full stop on cash economy. The very survival of construction industry is in question because right now people do not have enough money to sustain their livelihood so it’s difficult to see how people will invest in real estate. So, if demand for immovable properties will reduce, it will lead unemployment in various industries like Iron and Steel, colours and chemicals, cement, timber, etc. and other ancillary industries. Also, huge amounts will be locked up in ongoing projects the completion of which will require more funds. Since there would be hardly any sale of flats and funds available would be very less, so this industry will come to a standstill.
Industries in Maharashtra generate 40% of the revenue for the country. The Industry is completely closed and hence salary/ wages to workers, temporary workers, payment to the suppliers for goods and services, interest payment to the banks and financial institutions, etc are stuck. So, important steps need to be taken for the purpose of economic revival.
II. SUGGESTIONS / IDEAS FOR REVIVAL OF SECTOR OR INDUSTRIES
1. Fixed Overheads Weighted Deduction
Expenses incurred on the salary and wages, rent, interest and other fixed overhead expenses which are required to be incurred whether establishment is working or not. These expenses should be given weighted deduction say at the rate of 200% subject to some check i.e. payment must be actually made. (epayment and or digital payments)
2. Electricity bill & Salary
Whatever salary or wages the businesses pay now should be treated as advance bonus (either 100% or 70%) and payment of other bonus should be exempted in 2020. Electricity Bills for March, April & May 2020 should be either waived or kept in abeyance to be paid in Jan and Feb, 2021.
3. CSR Expenditure to be allowed u/s 37
All CSR expenses including expenses incurred to fight Covid 19 be considered as expenses u/s 135 of the Companies Act, 2013 and those should be allowed as business expenses u/s 37 of IT Act, 1961. Even the proposal for weighted deduction of say 150% for such expenses can be considered.
4. Increase in carry forward of losses period and Interhead set off of losses
Businesses will be incurring heavy losses due to extraordinary situation prevailing all over the world. There has been huge wealth erosion on stock exchange and hence it is important that losses be allowed to be carried forward and set off for a longer period since revival will take time. In this situation, we suggest that losses of next 3 AY i.e. AY 2021-22 to 2023-24 be allowed to be carried forwarded and set off be allowed for 12 years / indefinitely instead of 8 years. Also, interhead set off of losses for all different heads of income be allowed atleast for next 3 years till the economy revives.
5. Extra benefits for new investments in business for corporate and non corporate assessees and carry backward of losses
i) In order to generate business and investment, Government should bring back S.80IA provision for exemption of 30% profits from new units or it shall allow 25% of cost of new machinery as extra deduction from Profit for Income tax purposes.
ii) This is the most critical time for the Indian Economy and the global economy. If the government wants to encourage industry they should allow carry forward of 5 losses and the carry backward of losses. Now suppose assessee incurs loss of say Rs 50 lakhs then, such losses should be should be set off against the income of previous years and accordingly a refund should be granted. This provision may be introduced in the Income Tax for corporate as well as non- corporate assessees.
6. Relaxation of 43B and 36(1)
Some expenses like Interest or PF, ESI or statutory payments are not allowed as expense if not paid before year filing return of income. These payments may not be made due to scarcity of funds owing to Lockdown. As an exception, such expenses should be allowed for the year ended 31.03.2020 even if payment is made in after filing return of income.
7. Relaxation of provisions for cash borrowings
Many small and medium sized private companies and non corporate assessee are able to raise funds from household savings, friends, relatives, woman in the house, etc. Savings is Indian culture and should be encouraged so that we do not to rely on foreign borrowings which increases interest burden and reduces value of rupees. SMEs can easily raise such funds and start business and can provide employment to millions of people if they are allowed to borrow funds in cash apart from regular banking channels. Once business or industry starts Income Tax, GST and all other types of revenue will be possible for the Government. Hence, such incoming funds need not be questioned u/s 68, 69, 269SS, 269T,etc and special tax rate payable u/s 115BBE be reduced to 30% + 4% education cess which will encourage availability of fund/ capital in the market. Penal consequences for cash borrowings be dropped so that funds are infused in the economy because we all know cash has always been a major channel of dealings since ages in India.
8. Section 50C, 43CA, 56(2)(x)
To encourage real estate and infrastructure, Section 50C and 43CA and 56(2)(x) be suitably amended and price difference between the stamp duty value and sale consideration be enhanced from existing 5% to 25% as the valuation of real estate has drastically reduced. Also, stamp duty prices are not nowhere around reality because the demand and supply gap is too huge. Real estate and infrastructure is very important for progress of any economy. So, stamp duty and GST payable on such transactions also be reduced.
9.1 Purchases in cash (eg - gold)
Now due to lockdown, the value of Indian rupees has drastically fallen. Indian families especially the middle class generally sell gold for education or occasional needs. To encourage rotation of gold lying with Indian families (particularly middle class families), purchase of gold be allowed till Rs 5 lakhs by cheque and no further questions be asked if the purchaser is providing Name, PAN and Address of sellers.
9.2 Sales in cash – Section 269ST
Section 269ST prohibits receipt of cash exceeding Rs 2,00,000. In order to conduct business smoothly and allow free flow of cash this limit be enhanced to Rs 5,00,000 because right now the priority is to start with free flow of money in the economy.
10 Payments of expenses in cash- Section 40A(3)
In order to allow ease of business and free flow of money in the economy limit for cash payment for expenses u/s 40A(3) be enhanced to Rs 50,000.
At least for the next 3 years, no scrutiny and no survey actions be taken so that businesses can prosper. The concentration of department should be on finding new assessees by various methods like data mining, etc which will give a message of peace to the business class and service sector. Choice in respect of assessments must be given to the assessee i.e. the assessee must be given a choice whether he wants to opt for faceless assessments or wants to appear physically before the Assessing Officer. There is too much of confusion and fear in faceless assessments because not everything can be explained in letters. Discussions and meetings are necessary.
12 Businessman small industry: Presumptive Taxation u/s 44AD
i) Presumptive taxation system should be flexible for the tax payer. At present once section 44AD is selected, one cannot leave it for 5 years and if one wishes to leave it then the person gets the option of coming back only after 5 years.
ii) Assessee should be given choice of entry and exit in each AY. Presumptive taxation limit be raised from current limit of Rs 2 crores and income from such presumptive taxation be kept at 6%. Also, interest and salary paid to partners be allowed as deduction from such presumptive profits computed.
13 Tax rates and Surcharge relaxation
i) Today’s tax rates on individual and HUF are in progression-
Upto Rs 5 lakhs – 5%,
5 lakhs to 10 lakhs – 20% and
above Rs 10 lakhs 30% (plus cess plus surcharge)
Surcharge is as under:
Total income exceeding Rs 50 lakhs to Rs 1 crore- 10%,
Income exceeding Rs 1 crore to Rs 2 crores- 15%,
Above Rs 2 crores to 5 crores- 25% and
Above Rs 5 crore at the rate of 30%
ii) The surcharge should be abolished upto Rs 5 crores. If the income exceeds Rs 5 crores then income tax rates should be 25% and If the income exceeds above Rs 10 crores then income tax rates should be 20% This will encourage people to work hard.
iii) All industrial activities i.e. old and new should be given incentive by way of deduction of net income by same percentage. Option of switching from old and new
14. Reduce MAT / AMT liability (for old regime)
As per current provision, Minimum Alternate Tax (MAT) / AMT (Alternate Minimum Tax) payable u/s 115JB & 115JC for AY 2020-21 is 15%+ Ed Cess @ 4%. MAT / AMT provisions should be waived for next 3 years for all assesses. Also, the MAT / AMT should be reduced to 10%+ Ed Cess @ 4%. Carried forward depreciation or book loss should be allowed to be set off.
i) For AY 2020-21, waiver of penalties for delayed return filings.
ii) Penalty provisions u/s 270A / 270AA & 271AAB be waived for this 1 year or penalties must be restricted to 50% and not exceed 100% of tax.
iii) In short special rate of tax and penalty provisions be reduced which will create goodwill, peace and ease of doing business in India. Why should the honest tax payers suffer because of few dishonest people? Huge penalties ultimately lead to long-drawn litigation, waste of time and energy. People will be discouraged to start new trade and industry, because of which economy will not prosper and government will lose out on import duties, service tax and income tax and stamp duty etc.
iv) If laws are made simple and harsh provisions like less penalty and prosecution are reduced, then the high networth persons will not migrate to other country or tax heaven and India’s money will remain in India.
16. Charitable Trusts / Religious Trusts
Charitable and religious trusts are doing an amazing work by providing food, medical relief and economic relief to daily workers financially. At present, there are strict time limits for filing returns and various forms for charitable trusts. Charitable Trust or Religious Trusts be allowed to file Income Tax return and Form no. 10, 10B, upto time available u/s 139(4) of IT Act, 1961.
All refunds eligible should be remitted forthwith to individuals and units.
18. Extension of due dates for AY 2020-21
Due dates for all returns i.e. Income Tax & TDS for AY 2020-21 be extended by at least 3 months with waiver of penalty for late filing. These extensions to be announced as soon as possible inorder to avoid undue pressure and mess.
19. Relief in Interest
Interest payable on late deposit of Taxes (Income tax / TDS) be reduced by 50%.
20. All contracts that could not be implemented or supplies that could not be made due to Lockdown should be automatically (mandatorily) covered under Force Majeure clause because MSME don’t have the ability to fight big companies if they impose late supply or non-supply penalties
21. Principal Commissioner be given more power u/s 273A – 264 for speedy disposal of dispute.
Now due to Corona / Covid 19 the whole world sees India as the most safe place to invest. Many industries may shift from China, and countries like USA, European & other countries of world will start production in India due to cheap labour and other advantages. Now India with the leadership of PM and FM will sit with all the chief ministers and decide which zone / district they want to develop after verifying availability of infrastructure facilities, concentration of industry in metro cities, land availability, environmental factors, etc. Also such new industries should be given special treatment in Income Tax, GST, etc. because it is indeed said that Growth happens in the times of Adversity!