The entire family capital of a hard working and prosperous grape farmer of Maharashtra was wiped out, some years ago, when a well known wine company, refused to pay him his large dues, as per their trade agreement. Yet another car hire company, with over 200 vehicles collapsed, when a large conglomerate setting up an oil refinery in Gujarat did not pay its dues. The company has only 2 cars now, one of which is driven by its hapless owner himself. Such cases of small entrepreneurs bankrupted by the big ones, abound. With India amidst a gigantic bank loan default, all the attention is on the ‘poor’ banks who have been cheated, but there is not a whisper of concern, for the small businessman, who has burnt his fingers in dealing with these large defaulting corporates. Like in the case of banks, these small suppliers to the big companies too have lost big time, but unlike banks which are still functioning, these small entities are likely to collapse. No one cares for the crisis that they face. While a bank is able to withstand such losses, these small vendors cannot. They often close down, leading to a huge household crisis for the small entrepreneur, who went bankrupt due to his inability to recover his legitimate dues from the big defaulters/fraudsters. If India has bank NPAs of over Rs.10 lac crores, there will also be lacs of crores of default to the small scale sector, which has been bankrupted and does not even have the resources to engage in expensive/unending litigation to recover its dues. The incipient Indian law of insolvency too provides them with little respite, as they stand last in the unending queue of claimants. In plain and simple language these helpless entrepreneurs will perish because they have been cheated by the big corporates, now protected by expensive lawyers. It is an enormous crisis that has yet not surfaced and may finally not, since the huge losses of the small businessman will ultimately get absorbed by wiping out their entire household life savings. This household capital lost, will not be replenished, unlike in the case of banks, who have lost lacs of crores of public deposits and now expect the government to recapitalise them. These unsung victims who represent the entrepreneurial dynamism of the Indian society will perish, only because the system is indifferent to the ‘small’.
Every tax haven, situated in any part of the world, offers a low or zero tax regime, with no questions asked about the source/legitimacy of the funds. They attract funds from all those who wish to evade tax or have earned proceeds of crime, which they seek to whitewash. These funds are funnelled into tax havens, which give them a garb of legitimacy for onward investment. The more opaque the tax haven, the more sought after it is, assuring their crime customers, that their illicit story will be buried forever, and their illgotten booties will gain a legitimate status. These tax havens encourage money laundering and tax evasion and to that extent undermine the economy of law-abiding nations like India. It is a mode of unjust sovereign enrichment, where the tax haven enriches itself and thus impoverishes the country to which the funds belonged. The billions of dollars of Indians secretly stashed in rich countries like Switzerland, Bahamas, BVI etc. is witness to this stark reality. Thus tax havens are wealthy and prosperous and render the countries who have been deprived of taxes (due to these dubious tax havens), poor to that extent. In recent times, due to the aggressive muscular diplomacy of countries like India, tax havens are being forced to share information and are thus losing their lucrative business of abetting crime and tax evasion. They are also being exposed by hackers, who have been hacking into databases of banks, attorney firms etc. and have been sharing information about such secret accounts/companies, with the respective nations. The Panama papers and the Paradise leaks are precursors to many more such exposes, which will render the shady business of tax havens, wholly unviable. While there has been an international outcry and campaign against tax havens, yet, due to an easy and brisk havala route, tax havens like the UAE and Bahrain have been flourishing. It is a common practice for tax evaders and criminals to shift their resources and residence to countries like Dubai and evade the law of India. It is surprising that in their zeal and greed to evade taxes, these evaders are willing to trust jurisdictions like the UAE etc. which have potentially unstable monarchies, that can endanger the entire booties of these criminals parked there. In a much-belated move, the EU has blacklisted the UAE and Bahrain, thus prohibiting any EU financial institution from dealing with any financial entity in these tax havens. This is a significant move, which will put a brake on the illegal activities of these countries, which have abetted and encouraged crime/tax evasion in India.
REFORMING THE GST
The GST has been a monumental pan India economic reform initiated by the government and the biggest one in indirect taxes since independence. It was a landmark event (though perhaps not justifying the Parliament theatrics on its launch) and is set to transform India’s tax structure and administration. It will take India’s economic federalism to the next level. So extensive is the ambit of the GST, that it will impact the business of enterprises across the board, ranging from the corner Kirana shop to the mighty corporate behemoths comprar cialis online. This watershed economic reform was possible, only because of the consensus forged by political parties of all hues, in national interest. At the time of its much-debated launch, there was a popular demand to iron out its glitches and to get all the diverse interests on board. The government in its wisdom rejected this demand for a wider consultation and launched the GST, which many thought was a bit premature and could have been better planned.
While it was known that the GST milestone would inflict transition pains, the hurried implementation only made the pain excruciating. Businesses suffered due to the multiple/irrational GST rates and the numerous monthly returns to be filed. Compliance with GST was cumbersome, difficult and expensive. In its initial original form, GST has been anti-business and its reforms were not just a popular demand, but also became a political compulsion, with the crucial Gujarat elections as the horizon. In the first round of GST reforms, the government reduced/balanced out rates on some items, announced that small entities will file quarterly returns (instead of monthly) and said that it will further rectify the GST rate structure. A ministerial panel has recommended further GST reforms for the small businesses, which are expected to be approved by the GST Council in its next meeting. It has recommended that the composition scheme for small traders etc. be made eligible for turnover up to Rs.150 lacs and that the GST rate under this for restaurants and SMEs be reduced to 1%. If these recommendations are accepted by the GST Council, it will benefit millions of small traders, entrepreneurs, and eateries, by reducing their tax burden and improving compliance. Despite about a crore of GST registrations, the filing of returns by this sector has been disappointing, defeating the government’s objectives to bring them into the mainstream of tax. GST reforms will need to be an ongoing process, more so because the launch was hurried and was not so well executed.
The huge losses incurred by banks due to bad loans has eroded their capital and has impaired their ability to conduct their core business ie. lending. Since the government is the owner of public sector banks in India, the onus was on the government to infuse additional capital in banks, to restore their lending ability. One of the contributors to the economic slowdown in India has been the fact that there have been no givers or takers of fresh bank loans in the last two years. Thus when the FM announced that the government would infuse an additional capital of Rs.2.11 lac crores in banks, there was ecstasy in bank shares in the stock markets yesterday. It was a euphoria rally in bank stocks, which were on fire, sending their prices shooting through the roof, merely on news of recapitalisation by the government. While the average gain recorded in prices of PSB shares was 30%, in the case of the NPA ridden PNB, the share price increased by a stunning 46%. In a most unusual move, the Reserve Bank issued a statement hailing the move to recap banks and termed it as a monumental step forward in securing the country’s economic future. The additional Rs.2.11 lacs crores that the government proposes to infuse into banks as capital, will help them to resume lending, which is reckoned to have come to a standstill for sheer want of capital. Such proposed infusion of capital does not involve any tax payer’s money and its impact is not expected to be inflationary.
This news has been a Diwali rocket boost for the languishing PSB shares, whose prices shot up through the roof, unmindful of the pathetic state of affairs, of public sector banks. Justifying the move, analysts at Morgan Stanley say that PSBs were unable to take proper hits on their bad loans. This, in turn, was making them push out recognition and provision, hurting chances of earning a reasonable return on equity. Proper recapitalisation of banks has the ability to break this vicious cycle rxcare.net. A former DG of the RBI however rightly cautions that the government must quickly follow up with professional management, autonomy and more accountability of bankers. If the state of affairs of banks is not overhauled, then this rally in their stocks will be with no substance and will be shortlived. The banks are in a mess and need a drastic turnaround to revive their own fortunes.