The Union Finance Minister has presented the budget for 2011-12 in the backdrop of growth of GDP @ 8.6% in 2010-11, contributed by a growth of 5.4% in agriculture, 8.1% in industry and 9.6% in services. The Minister shared that the economy has shown remarkable resilience to both external and domestic shocks.
Food inflation continues to be a cause for concern even though it has declined. The monetary policies of the RBI have succeeded in checking the inflation. The proposal to set up an independent Debt Management Office in the Finance Ministry is a welcome step.
The Government’s initiative to check black money through a five-fold strategy and the strengthening of the international tax administration is the need of the hour and should expectedly bring the unaccounted money stored abroad into the tax stream. CA.G.Ramaswamy, President, ICAI remarked that ICAI would like to play a proactive role in helping the Government to formulate the strategies and policies in this regard.
The Micro Finance Institutions are an important means of financial inclusion. The proposal to create an “India Microfinance Equity Fund” of Rs. 100 crore with SIDBI is a step in the right direction. Also, the proposal to create a “Women’s Self Help Group” with a corpus of Rs. 500 crores would definitely help in empowerment of women.
The Budget has given a boost to the infrastructure by making an allocation of over Rs.2, 14,000 crore to this sector, which amounts to 48.5% of Gross Budgetary Support to plan expenditure. Creation of Special Vehicles in the form of notified infrastructure debt funds (whose income would be exempt from tax) and reduction of withholding tax in respect of interest payments on the borrowings of these funds would provide further impetus to infrastructure development.
Time delays are plaguing infrastructure development and therefore, the proposal to allow the FIIs to invest in this sector will not only give the necessary finance but also improve project execution in this sector.
Due attention has also been given to strengthen the capital base of the banks by infusion of capital to the extent of Rs. 20,157 crores. The Budget also tries to address a crucial problem in the distribution of subsidies by introducing a scheme to credit the subsidies directly to the bank accounts of the concerned beneficiaries.
On the direct taxes front, no major conceptual changes have been proposed in view of the implementation of Direct Taxes Code with effect from 1.4.2012. However, levy of alternate minimum tax on LLPs in line with the Corporate MAT may serve as a cross purpose to the Government’s intention of facilitating the growth of LLPs.
Reduction in corporate surcharge by 2.5% would be partially offset by increase in MAT by 0.5%. Reduction to 15% offered to Indian companies receiving dividend from foreign subsidiaries is expected to increase the flow of dividends invested abroad into India.
The Finance Minister has taken the opportunity of rationalizing and reforming the indirect tax laws through this Budget. The movement to favour the tax compliant assessees as well as changes needed to implement GST by 2012 has been taken forward. The specific welcome measures in this direction are the rationalization of the rate of CED from 4% to 5%, which has already found favour among many States. The intention of broad basing taxation has been taken forward by levying 1% excise duty on 130 exempted items, which are mainly in the nature of consumer goods. Self-assessment in customs will pave way for reduction in transaction costs. In order to address the difficult problem of refunds, the service tax exporters would now be eligible for drawback rates.
The budget focuses on removal of procedural difficulties especially in the areas of CENVAT credit, valuation, penal provisions, relaxation of the provisions of audit to small service providers, removal of interface with tax authorities by giving impetus to e-filing, e-payment and refund and speeding up of refunds to SEZs.
However, the proposal to implement accrual accounting for services may require to be revisited, inspite of the fact that it is a movement in line with GST, due to the fact that services cannot be taken back whether payment is made or not and also the fact that many professionals recognize revenue only on cash basis, in view of the practical difficulties of realizing fees.
1. Withdrawal of imposition of Service Tax on ‘Legal Consultancy Services’ by substituting Sub-Clause (zzzzm) in Clause (105) of Section 65 as introduced in Chapter V of the Finance Act 1994 by introducing Clause 71(A)(v)(d) in the Finance Bill 2011.
1.1 The substitution of this Clause has unreasonably enlarged the scope of ‘Legal Consultancy Services’ being undertaken by the Citizens of this great country. The Legal advice or representation is an established requirement of the civilized society and thus practice of Law is an accepted noble profession which not only provide the correct interpretation of Law, but also guide for leading straightforward life in-accordance to the Law of the country.
1.2 The legal guidance to the citizens should not be subjected to Service Tax and should not be made a means of earning revenue. It is the fundamental right of the Citizen of this great country to get the correct legal advice. If the Government cannot provide such services through its own system, then it has also no right to levy Service Tax on the legal feternity including Chartered Accountants and other persons who provide legal advise, consultancy or assistance in any branch of Law or provides their services for representing the cases including arbitration. If this leavy of Service Tax is implemented, then it would be a direct burden on the already repressed (due to unfair adjudication of cases for erroneous practices and corruption) business of this country which will adversely affect the faith of the citizens in the judicial system of our country.
1.3 With highest regards, we would like to submit that if Provisions of Service Tax Law are truly followed in general and implemented by the officials of the Service Tax Department, then the coffers of the Central Government would be much higher and there would be no need for bringing ‘legal services’ or ‘health services’ into the ambit of Service Tax.
1.4 The officials of the Service Tax Department may mis-use this tool for levy of Service Tax on the ‘legal consultancy services’ especially on representational services involving service tax matters. A new avenue of corruption will be opened, so it is the need of hour to first clean-up the system of collection of Service Tax from malice of the corruption and then to impose any further tax on any service.
1.5 The U Turn taken by the Finance Ministry in bringing the ‘legal consultancy services especially representational services’ into the ambit of Service Tax is against the accepted and established policy of this Government which have been disclosed by the earlier Finance Minister in the Parliament during their earlier Budget Speeches. The legal feternity is unable to understand that why this year the team of the Finance Ministry had to deviate from the accepted policy of this very Government for keeping the legal feternity out of bonds of Service Tax.
1.6 It may be prerogative of the Government to impose Service Tax on the legal consultancy, but it is not wise and reasonable to levy Service Tax at this difficult juncture.
1.7 In the larger interest, this levy of Service Tax should be withdrawn without any condition or reservation. The legal representation made by the Advocate or others is a part of his ‘duty as an official of the court’ and such remuneration for this duty cannot be subjected to Service Tax.