'How will Centre compensate the states on taxes?'

Last Updated: Sun, Apr 01, 2012 08:23 hrs

The finance minister in his Budget speech... has spoken in terms of providing tax certainty. He says this in the context of advance pricing agreements. Now, tax certainty is essential for any taxation planning. When investors come in, they must know how much tax they are going to pay if they earn money.

When a domestic investor takes up a project, he must know for what period he has a rebate and for what period he has to pay. Finance minister after finance minister have resorted to this concept of retrospective planning. You are not the first one, and you will not be the last one. But I think at some stage, we must consider it. In this modern age of tax planning, is it fair to impose taxes retrospectively or change legislation retrospectively? Assessments have been closed. People have planned their business and their personal income accordingly. Therefore, from the point of view of an investment environment, both domestically and internationally, this is an issue which is not sending the correct signal.

I come to the issue of service tax. The finance minister has formulated a principle that all services are going to be taxed this time, except those on the negative list. I have three points to make in this regard. Please don't look at the Budget only as a revenue-raising exercise. It's an economic policy document, which has to further the Indian economy and, therefore, if you impose excessive tax burdens, and as I said, you are taxing every activity 365 days 24X7 - from what I earn to what I spend to what I eat to what I wear to where I live and to where I drive - twelve per cent is excessive. You have brought in all services. Therefore, the finance minister should seriously reconsider it. This will have an inflationary burden.

Second, there is no provision in the Constitution with regard to service tax. Therefore, it obviously comes in the residuary entry, which is your power - the power of the Central government. The services which are otherwise within the domain of the states are now being taxed by the Centre for service tax. The states have no power to levy service tax, but the Centre has because of List I Entry 97 - your residuary entry. Now, when you are taxing the services of the states, are you going to compensate the states accordingly?

Third, a lesser point but something which defies my intellect. I have gone through this negative list. As a student of law in taxation, I have learnt that even illegal activities can be taxed. If somebody earns money through smuggling, he will still have to pay income tax. But illegal activities are normally not to be granted exemptions. So, in your list of 17, you have curiously exempted from service tax betting, gambling and lottery. Lottery is lawful but the other two, I think, really need to be discouraged. They need not be incentivised by providing them on the negative list and say betting and gambling will also be exempted as far as taxes are concerned.

With regard to the rights of the states, you enacted a Constitutional amendment - giving Right to Education. The states are asking: Who's going to fund it? Your initial proposal was that 75 per cent will come from the Centre and 25 per cent will be given by the state. The states were finding it difficult. In your expenditure Budge... I find that earlier it was 75:25. Then, it came down and now, it is going to become 50:50. The states are already starved of funds and the moment it becomes 50:50, they are going to find it extremely difficult as to how to fund this.

So, we will have a Constitutional amendment that gives the fundamental right to education, at least, primary education. A fundamental right is one which can always be enforced. But, when somebody asks for enforcement, we will say we don't have the funds. Therefore, when we think in terms of popular slogans, we must chew as much as we can swallow. Therefore, when you thought in terms of granting this as a fundamental right, which was an enforceable right, you should have ways and means and the funds in order to implement and enforce that right.

So, if the share of the states is going to go down, you will now have a serious difficulty. Sir, it is the last point among the key points I have to make. You have amended the Customs Act. In the Customs Act, you have amended Section 104. There was a time when this country faced with great smuggling and violation of customs duty and, therefore, there was a need to conserve foreign exchange. We had laws. We had preventive detention. We used to put people in jail. Suddenly today the business environment has changed. But still we need to be vigilant. I do not know who has suggested and the reason for it is that Section 104 is being amended. Custom offences beyond three years made non-bailable. All right, even in non-bailable offences, a person will go and ask for bail. We were earlier told as young students of law about bail, not jail.

We have to seriously consider as to what kind of a society we want to make, even with regard to offenders. Now you have brought in a provision in the Finance Bill with regard to Section 104. It says when a person applies for bail, no judge will give him bail. The judge will issue a notice to the public prosecutor. Either the public prosecutor has to give his consent or he has to say he is convinced that the man is innocent, not guilty. Otherwise, there will be no bail. Sir, this provision existed in the Prevention of Terrorist Activities Act (POTA) and the Terrorist and Disruptive Activities Act (TADA) and that is why they said there was no bail. When your government repealed POTA and TADA, Mr Chidambaram brought back amendments to the Unlawful Activities Act. One of the areas where we said, at least, for terrorists keep this provision. You said, "No. We are a very liberal government. We want easy bail provision for terrorists. We will only have a normal bail for terrorists." Now, suddenly you have slipped into the Budget, in the Customs Act, the bail provisions of POTA and TADA.

Excerpts from leader of Opposition in the Rajya Sabha Arun Jaitley's speech on March 27 in the Rajya Sabha on the Union Budget

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