Nilesh Shah’s Budget: Levy wealth tax, estate duty on HNIs; acquire undeclared real estate

(At ETMarkets.com, we have invited five biggies from the financial world to present their own budgets before the Union Budget is unveiled on Feb 1. Here is the second one, from the MD of Kotak Mutual Fund.)

If I was the Finance Minister for the Union Budget of FY18, I would cut income-tax rates, leaving more money in the hands of taxpayers, expand tax net to include non-taxpayers, provide adequate money for infrastructure and maintain the path of fiscal prudence.

This seemingly impossible task will be achieved by raising revenue through innovative ways and spending money.

Go after tax evaders

The current tax system is focused on collecting more tax from the existing taxpayers. It is necessary to expand the tax base, as the tax burden is unequally distributed between the salaried class and others. Some 39 lakh people bought an automobile in FY2013. Only 4 lakh people paid income-tax above Rs 5 lakh in the same year. Data analytics can be used to catch tax evaders for expanding the taxpayer base and improving compliance.

Check bonus stripping, tax frauds

I would bring in laws to plug loopholes like bonus stripping, converting interest income to exempt capital gains through listed debentures, tax planning through capital gains from illiquid shares, unlimited exemption on capital gains to rich promoters in order to increase tax revenues on a fair basis.

Levy wealth tax on HNIs

Multiple exemptions, which create a complex tax system, will be streamlined to simplify tax structure and increase revenue. Estate duty and wealth tax will be levied on HNIs to ensure equitable tax collection. AOPs, LLPs, trusts, and HUFs categories will be streamlined to ensure better tax compliance. Filing of detailed balance sheets will be made compulsory with income-tax returns to keep a check on undisclosed assets. Cash transaction tax will be levied above a certain level to encourage banking/digital transactions.

Tax evasion is rampant due to poor drafting of laws and lack of commercial understanding. Current laws will be redrafted to plug loopholes on interpretations. While the focus will be on collecting taxes like bee collecting nectar from flowers, the fear of law among non-taxpayers will be established through data analytics and punitive penalties.

Acquire under-declared assets

Real estate, especially land, transactions involve a lot of black money. A law will be passed to acquire under-declared assets, including real estate. Care will be taken to ensure that mistakes of the past are not repeated when such a law was in existence for high value real estate. Tax rates will be cut at the lower slab to ensure retention of people in the tax net. Filing of returns will be simplified to ensure ease of compliance.

Monetise land pool, natural wealth

The government has many assets like huge tracts of land, spectrum, FSI, natural resources like coal, iron ore and equity investment in companies. Such assets will be monetised in a transparent manner to raise non-tax revenues. The assets will be monetised through all means such as strategic divestment, public-private partnership and lease, among others.

Sell off hotels and airline

Focus will be on strategic divestment in businesses like airline and hotels where government’s ownership is not adding any value. Railways and defence, which have large real estate, will be encouraged to monetise the same for self-funding requirements. In India, we are still keeping the tradition left behind by the Englishmen of providing palatial houses to public servants though the UK divested large residences of public servants and palaces in the 70s. Monetisation of surplus assets will be undertaken to generate revenue.

Plug loopholes to check leakages

The government has committed expenses in the form of salaries, pension, interest, subsidies and defence expenditure. Through Aadhar-linked direct transfer to bank accounts, ghost recipients of subsidies pension etc. will be removed to plug leakages. All government purchases will be routed through open online bidding process for minimising cost and corruption. Establishment cost of the government will be reduced through zero-based budgeting.

The Union Budget for FY18 should expand tax base, enhance revenue though plugging of loopholes and spend money appropriately to boost investment and support growth.

( Nilesh Shah is the Managing Director of Kotak Mutual Fund. Views are his own.)