Impact of Direct & Indirect Taxes on Business

Good evening, ladies and gentlemen. We are missing the president today; I think he's not been able to join up, there's some problem at his end. To start with, I'd like to sort of give you a little brief on NISSMAT. Most of you know what NISSMAT is all about. NISSMAT started its work in about the year 1990, and it was primarily to promote education and training in the field of security and safety. As time went on, we are now today graduating on to be a think tank in the field, in this particular field, and we've graduated on to putting NISSMAT into four different parts. The first is the NISSMAT forum, which we are a part of today. NISSMAT forum conducts webinars and seminars; it does training and award functions. The second part of NISSMAT is NISSMAT education, where we have online training. The third part is the enterprise part of it, where when we get projects for a certain research, we do it under the enterprise banner. And we are also in the process of forming a trust to take care of CSR activities, mainly for the disadvantaged people in our profession. So that is a bit about NISSMAT.

The president of NISSMAT is Mr Sipal Singh. Unfortunately, I think he's not been able to join us today, but he's a masters in English literature and he's a senior police officer who served the Government of India in very senior positions in various states. He raised the Rapid Action Force and was appointed as first chief also. He later raised the Internal Security Academy at Mount Abu in Rajasthan. During his service with the police, he was decorated with a lot of distinguished service medals. One of them was the President's Police Medal for Distinguished Service, then an Indian Police Medal for Meritorious Services, the Police Special Duty Medal with bar, a Sena Medal, which is generally a decoration used for the armed forces, which he's also got, and numerous other commendations and rewards. Post retirement, he's worked with TISCO as a consultant and he's helped in the vigilance departments in various divisions. He's been very active in various forums in India, and he continues to be an advisor with the Asian Professional Security Association, and he's a director general, honorary director general, for the centralized session of private security industry. Mr C Paul is fairly well known as a dynamic professional, and he's been frequently called to share his views on the dashboard, television and various media.

The subject of today is the impact of direct and indirect taxes on business. The subject is very important, it is very contemporary, and one thing is very certain is that anyone who is born in this country should pay taxes. We have two eminent speakers today, Mr Raghu Marwah and Mr Vishnu Sultania, who will be speaking to us on the subject today. The program is sponsored by Tax Course and is supported by Premier Consulting and Investigations, Premiership Private Limited and India Skills Private Limited.

A word about our speakers. Firstly, the first speaker would be Mr Raghu Marwah. Raghu is a graduate from Hindu College, University of Delhi. He graduated in the year 1998, and it is BA Economics Honours, and qualified as a chartered accountant in the year 2003. He joined his family business in the chartered accountant field, which is the R.N. Marwah company, and after completing his training with PricewaterhouseCoopers he gained wide experience in both their audit and taxation divisions. He joined the family business. He has also qualified the post qualification course on information system audit conducted by the Institute of Chartered Accountants of India for providing information system assurance services. As managing partner of R.N. Marwah and Company, Chartered Accountants, he has been responsible for, in charge of, consulting services and international taxation in the firm. As a part of the consultancy space, he handles matters relating to the setting up of businesses overseas on behalf of Indian corporate clients, and at the same time advising Indian entry strategy for foreign clients, interacting and liaising with various officials of the Reserve Bank of India under the Foreign Exchange Management Act. Transfer pricing and overseas taxation matters are also a part of his repertoire. He specializes in advising and rendering consulting services to clients in relation to structuring strategies, investments, offshore investments, cross-border holdings, mergers and acquisitions, and valuations.

Under his leadership the team RNM has expanded to Gurgaon and has relaunched its office in Bangalore, and is in the process of creating an office in London at this point of time. He has extensive experience in global markets, having done mergers and acquisitions in London and involved in other transactions in Canada and the United States. He was named by the Consultants Review magazine as one of the top 25 most promising mergers and acquisition consultants, which is a very distinguished honor. He has co-authored a book titled International Tax and Business Guide. He is the past chairman of the Delhi chapter of Young Indians, which is a part of the Confederation of Indian Industry, and he is also a member of the YPO Delhi chapter. He's a trustee of RM Charitable Foundation, which is the corporate social responsibility arm of the group. Ladies and gentlemen, I present to you Mr Raghu Marwah.

Thank you so much, Pawanji, for those kind words, and namaskar to delegates who have kindly joined in today evening. It's a pleasure to be here, pleasure to be invited, and an honor to be invited by NISSMAT as a guest speaker for this. I've known Pawanji and his family for many years, and like I said, I can never say no to him. It's always a pleasure to be part of any initiative that Pawanji has done. It is a privilege, you know; as an elder we look up to him, and all his guidance and initiative, it always brings much value to everybody, I feel.

With that I'd like to commence my deliberation for today on the impact of direct and indirect taxes on business. The topic is tricky, because more often than not, as an accountant, you have people coming to us to help them advise on how taxes can be saved. But I'd like to begin by quoting Mark Twain. Mark Twain had once said, a tax is a fine for doing well, and a fine is a tax for doing wrong. So basically, whether you're doing well or whether you're doing wrong, one has to still pay taxes. Whether it's called fines or taxes or in whatever other words, you have to pay. So this is something of a necessary evil that the common man and the business community looks at, this matter of taxes.

So with that, I'm going to talk a little bit about the tax administration — that, you know, why governments collect taxes, what they can do to help reduce that burden on the common man and on businesses. And I'd like to begin by talking about the famous economist called Mr Arthur Laffer, who had come up a couple of years back with something called the Laffer curve. The Laffer curve is a theory that he came up with which said that as the tax rate kept on increasing, you reach a point post which the overall tax revenue that the government collects starts reducing. So government should be very cognizant to not increase tax rates beyond what they call as a sweet spot. And we have been seeing that in not only India but a lot of jurisdictions around the world — in the US and a lot of places where the tax rates have actually been declining. And the reason behind that is not that the Laffer curve is no longer applicable to the current dispensation, but because governments around the world are focusing on greater compliance and on ease of compliance, better awareness, to increase the overall tax kitty, to increase the overall tax revenue, and not increase the tax rate per se, which actually causes a pushback. It causes heartburn, then it causes what some would say creative accounting. So nobody wants that, because in today's day and age, where there is so much of transparency and compliance has become so easy due to technology and use of greater data mining and artificial intelligence, I think those old days of cat and mouse are over. Some would say those cat and mouse days are far gone.

So with that, I'm going to bring in the flavor of what, you know, the honorable finance minister presented on the floor of the Parliament on 1st of February 2021 as part of the union budget, so that we get an overall idea of what exactly is this tax hawa all about, right? So the union government collected receipts, whether it was on revenue receipts or capital receipts, aggregate of about 465 billion dollars as for the financial year 2020-21-22 which is going on; the budget estimate for financial year 21-22 was 465 billion dollars. Now let's just pause and consider that amount. That is the total receipt that Government of India gets, and to put a sense of, you know, what that number means, we should understand how many lives it touches, to be able to collect that kind of receipt. And to give a reference point, I'd like to give the reference of Alphabet. Alphabet is of course the parent company of Google, and who doesn't know Google today? Alphabet has recently just announced their quarterly numbers for Q2, and based on their Q2 numbers, one can estimate that revenue for 2021 will be about 200 billion dollars plus, and their last year 2020 revenue was about 182 billion. So roughly put, Government of India is approximately two to two and a half times of Alphabet. So if you can imagine the kind of impact that Google has on not only people living in India but all over the world, and then you understand that Government of India has about a two and a half times greater impact than Google has. So I'm just trying to give you an example of the kind of impact that taxes has on each of our lives, right? Whether it's a business owner, whether it's a business employee, or whether it's a founder of a startup, tax has a huge impact on every aspect of our lives.

Now one would say that if tax has such a big impact, why doesn't everybody run away to UAE, where there is a zero tax jurisdiction, or go to other jurisdictions like Hong Kong, Singapore, Malta, where there are, you know, very less or low tax jurisdictions, right? Why do we still have 1.3 billion people and millions of businesses which are still in India? Everybody should just run away to UAE, where there is a zero tax jurisdiction, if, you know, the idea is to have the least impact of tax on business. And that's where we talk about that business decisions are not only dependent upon and taken with tax in mind. Tax is obviously a major part of the decision-making process, but there are other aspects, because tax may be a short-term benefit. You have culture, you have demand supply, you have the entire ecosystem, so those other aspects are also important.

And coming back to what I talked about earlier, we are living in an age of extremely high transparency and cooperation, and multilateral efforts which are being made across jurisdictions are today making offshore havens or even low tax jurisdictions unsustainable. And to strengthen my point as to why these jurisdictions are unsustainable, one only needs to see what has happened in the recent past by G20, and 136 countries under the ambit of the OECD have gotten together and agreed to a minimum tax rate of 15 percent — one-five — as the minimum global tax rate. It is unprecedented. It's never happened before, ever, that all countries together are saying that okay, we are going to agree to two main pillars which have been agreed to. The first pillar, pillar number one, is talking about the fair distribution of the taxing right. Otherwise what was happening, it was a spiral to the bottom, where people were trying to pull businesses into their jurisdictions by luring them with lower tax rates. So all the countries together under the ambit of OECD have gotten together and said that okay, hold on buddy, let's get a fair distribution of taxing rights, and that is the first pillar that has been agreed. So I'll go into a little bit more detail about each of the pillars. The second pillar that has been agreed is the minimum floor tax rate of 15, with effect from 2023.

Now what exactly is a pillar one, and who all does it apply to? Let's ask that question. So pillar one contains an amount A, which applies to companies with more than 20 billion euro in revenue. So first thing is, it's not going to be applicable on all mom and pop shops, and not all mom and pop shops are getting attracted. We're talking about very large businesses. So pillar one, which is talking about the fair distribution of taxing rights, gets attracted on such businesses and such companies which have a revenue exceeding 20 billion euro and profit margins exceeding 10 percent. Now such companies — only 25 of the profits of such companies which have this 10 or higher margin will be taxed in the jurisdiction where they have sales. Where they have sales. If I were to give you the example, suppose Google or Amazon is selling in India, but they are paying no tax in India, right? That is something which they are saying is unfair. Even though they may be American companies, they have to pay tax in the jurisdiction where they are making sales. So what they've agreed is that up to 25 of such profits will be allocated to the countries where they make sale, and 75 continues to remain as per the earlier system, where they have, you know, their permanent establishment, and, you know, so and so forth. However, again what they've said is, extractive sectors like oil and gas, minerals, financial services companies have been excluded from this law.

Next is the pillar 2, which is the minimum floor tax rate that we talked about. Pillar 2 defines the global minimum tax, which shall apply to all such companies with more than 750 million euro in revenue. So the floor rate for the global tax rate has been kept lower, 750 million euro for the pillar number two, and 20 billion dollars for pillar number one. So again, there's no one size fits all; they've bifurcated into two pillars and they've tried to make it more reasonable. And why they're doing this today is because multinational enterprises today — it's very easy to structure yourselves in low tax haven and get away with taxes, and it's no longer the very large companies, like the old school companies should I say, like the Coke and the Unilevers of the world, which are able to achieve this kind of tax efficiency, but it is also the startups and the various founders today, which are rapidly growing in scale and size in no time, which are also able to use this. And therefore they are saying, hold on, let's try and come up with a new paradigm, and that is what I feel is helping this whole story regarding transparency and multilateral cooperation.

With that I'm going to shift gears and talk a little bit about, you know, what is the new fuss about with the Paradise Papers. Everybody must have read in the papers these leaks which have been happening. It started with Panama Papers, then it went to Pandora Papers, and now it's the turn of Paradise Papers. It seems to be following the P trend, like we had the K trend in the movie, in the soap operas; now we have the P trend in all these leaks. And Paradise Papers is by far the biggest. We have 13.4 million confidential electronic documents which have been leaked. ICIJ, which is an international confederation of independent journalists, have gotten together to do this expose, where documents originating from legal firms such as Appleby, corporate service providers such as Estera and Asiaciti Trust, and business registries in 19 tax jurisdictions have been exposed. Big companies, big conglomerates should I say, like Apple, Nike, have been named. In India you've got celebrities such as Amitabh Bachchan who have been named. So clearly you are going to have a lot of media attention and gossip columns being interested in these kind of exposes. But more than mere gossip and TRPs, what is the purpose of such leaks? These exposes lead to a greater awareness of the risk of being part of such aggressive tax structures, and strengthening the adage of look before you leap. So basically, don't come to your next chartered accountant meeting saying I want to save tax at any cost, because you can find yourself in some of the next few leaks if you're too aggressive, is the motto that the tax man around the world is telling you. Be cautious, be extra cautious — that should be the mantra today.

With that, I'm going to make a pause to make a quote by Mr Benjamin Franklin, who had once said, in this world nothing is certain but death and taxes. So be sure that the tax man will come knocking on your door, not today, not tomorrow, but at some point in the future he will be coming for sure. That brings us to a very interesting point. Why is everybody going out there chasing after money, and is saving tax the only option that you have to save money? Is it the real kali that you have, that everybody is saving by running after money? Some would say no. Why? Because I think there is something called the great resignation that is going on right now. Work life balance, low take homes by employees, fear of being sacked, is leading to this great resignation, which in the US and many countries in the Europe is leading to en masse resignations of millions of millions of employees, who are choosing to sit at home and enjoy the better life and are going into the gig economy. There is uncertainty which is surrounding the pandemic, which is leading many to question this daily grind, and greater focus on this gig worker.

So with that I'm going to turn to what exactly is a gig worker, and how is this gig worker taxed, and why has this suddenly become such an in thing to talk about, gig economy and gig workers. So gig worker may be in a shared service role, in accountancy, facility management, transportation, who is taxed as a self-employed taxpayer rather than as a salaried employee. The big difference is that the salaried employee, poor man, does not have many tax options how to structure himself, but as a self-employed you have many more options. And therefore the gig worker is feeling that today I have the flexibility of my own hours, I am the master of my own time, and I'm getting a better take home, so why not? He has more options for tax structuring as compared to employee. Project management, freelance writing, software development, education are some of the fields which are boosting and growing very fast with the gig economy.

With that I'm going to shift gears and talk a little bit about the M&A front, because tax on the business of mergers and acquisition is also a big, big buzzword today. Why? Because mergers and acquisitions themselves have become so important. When you have to grow your business, when you want to increase your business, you're not only increasing your business organically, you're increasing your business through various mergers and acquisition, and taxation of course becomes again a major factor in that decision making. So what does a buyer want? We'll analyze this from the prism of a buyer and from the prism of a seller separately. So a buyer in an M&A wants a tax efficient acquisition structure. He wants to protect himself from the legacy tax risk of the enterprise, and he wants to identify tax optimization potentials which may allow for increased offers in a competitive bidding environment. Whereas the seller wants no adverse impact of tax on the valuations. He wants to minimize his tax cost of the transaction. He wants no tax leakage on the repatriation of the sales in case it's a cross-border transaction; he doesn't want the repatriation should lead to double taxation in multiple jurisdictions. So these are some of the aspects which are critical from a tax point of view when you are entering into any mergers and acquisition.

With that I'm going to talk about my last topic of today, which is the GST, and how important GST is on Indian tax landscape. I'm sure you all are well aware, but I'll talk a little bit about that to you, since Pawanji had mentioned that there are going to be not only business owners but also students and other young professionals on this call, on this webinar today. GST legislation was a landmark change in the taxation system of India, which brought in the benefits of a unified tax system with input credit now being possible to be taken across states. This led to a major impact on the business side, with rationalization of processes and consolidation. For instance, the incentive of hilly states went away; the small CNF agents and the depots became redundant. Cascading effect of indirect taxes, which earlier caused higher inflation, has now been stopped or reduced, since there is no tax on tax. Positive impact has been felt on the logistics sector due to faster deliveries caused by fewer roadblocks. VAT, CST which is the central sales tax, purchase tax, sales tax, excise duties, CAD, SAD, octroi, entry tax, luxury tax — all of them have been replaced. You can just imagine, you're huffing and puffing just to name the number of taxes which have been replaced by GST.

So in summary, from 2017 July when it was implemented to 2021, I think people have had a mixed experience. It came in with lots of band baja barat, should I say, people led to the initial hiccups or the initial problems of dealing with GST, understanding the law, complying with it, because it was, you know, obviously a very compliance driven, and, you know, the portal and the electronic filing, you know, took some time for everybody to figure out. But I think things have stabilized, God willing. You know, there have been some relaxations which have also been given, so I think by and large most people are satisfied with the way GST has panned out. With that, I'm going to end my deliberation with a quotation from the Bhagavad Gita, where it said that the wise man lets go of all results, whether good or bad, and is focused on the actions alone. So with that, I would implore all of you to not think only about the taxes, but think about your actions and move ahead with confidence, because this is an India of action and this is an India of being positive. With that, I'm going to thank everybody and hand over back to Pawanji. Thank you so much.

Thank you so much. It's been very enlightening to listen to you. Now the second speaker of the day is Mr Vishnu Sultania. Mr Vishnu Sultania is a chartered accountant and a company secretary, and has almost three decades of experience working with reputed multinationals having sizeable operations. He started his career in Eastern Europe as a financial controller and grown as board member overseeing multi-country operations. He is a pioneer in building companies and has acquired a number of companies in India and overseas. He has raised funds from international market and has led the strategic and financial functions of listed companies. He has been associated with the NGO of Singapore, Rostel of UK, Telstra of Australia, Variant of USA, and the Osseous Group of the United Kingdom, BCL and Tenor groups, at strategic leadership positions. Most recently he has been awarded to be amongst the best 100 CFOs of India for his exceptional caliber and contribution in the field of finance. He has founded AKMV Consultants Private Limited, helping emerging companies to build strategic and create joint ventures in the field of mergers and acquisitions and fundraise. AKMV, in its existence of about two years, has created joint ventures with the likes of Morgan Standard and SIS, and many multinational clients such as ISS, Brinks, Quest, Into Space, Logos in its list of clients. Most recently Mr Sultania has been appointed advisor to the United Nations, that is UNDP, and will be working closely with governments today's high value fund to and for building critical infrastructure projects. Mr Sultania is a research professional. He writes articles and blogs on contemporary issues. He's a contributor to the security industry by way of raising appropriate issues to the regulator and captains of the industry. He takes keen interest in academics and provides guidance to UPSC candidates and contributes at policy levels on security matters. Over to Mr Vishnu Sultania.

Good evening, sir. Good evening to NISSMAT and Pawanji, to you, for giving me this opportunity to contribute my views to this august gathering. It will be my second session on the platform of NISSMAT, so I am more than obliged for giving me this repeated opportunity to interact with the people who matter to the society. After listening to Mr Raghu Marwah and chartered accountants, I think I have very less to speak about, but still, since I have to speak, I will speak. I will be speaking through, by way of, a small presentation, just to keep the thinking crisp, because I love my voice and sometimes I go beyond the time that has been allotted to me. Just to maintain the discipline, I will be using this presentation. Is it visible, sir? Yes, yes it is.

So basically, as Mr Marwah says, tax is a fine either way. Everywhere you pay the tax, or you're not to pay the tax, you will have to pay the fine. So my idea is, can we balance this fine in such a way where industry prospered and the government is also able to meet their obligations? If the industry does not support the government, or individual citizen does not support the government, in raising the appropriate finance, it is not good for the industry, for the citizen of India, or any country for that matter, in the long run. Somebody is saying, is it a burden on business? My sense is saying that no, if you are a smart tax planner it is not a burden on you. It is not a burden on country; it is a need of the country, and collectively, collectively it is the obligation of every citizen, corporate or otherwise, to contribute towards taxation.

I will use an ancient philosopher, probably the greatest philosopher we have seen in the last 2000 years, called Kautilya, and he has, in the Devanagari lipi, he has said that the kosha muludanda — it means revenue is the basic teenage of administration. If there is no revenue, administration cannot function. And then he quotes the other thing: all the government gets the administrative power to collect and monitor the taxation, but then he's saying the government should collect taxes like a honey bee, which sucks just the right amount of honey from the flower without causing any harm. So so long we are a part of the honeybee, and the government is creating the environment where it is allowing us to plant many flowers, and from those flowers the government wants to collect the money, it is justified under any realm.

There are two taxes normally which everybody knows: one is the direct taxes and one is the indirect taxes. Our topic covers the impact on business of the direct and indirect taxes, so I will discuss little bit about direct and indirect taxes. If we say the direct taxes, normally income tax is referred to as a direct taxes, where we have a slab rate, and every time when the honorable finance minister presents the budget on the floor of the house, the first question that everybody looks into the budget is, is there any change into the tax slab? Probably every taxpayer in our country is looking for a slab rate when the Government of India presents its budget. Then Government of India monitors certain tax for a specific purpose, we call it cess, and then they make the surcharge, to tax the people who are more affluent or ability to make more money. So they put the surcharge to balance the average taxation on marginal taxation. In 2017, when the GST regime came — Mr Marwah has already covered, I will not spend too much time on that — there are many taxes which were replaced, and now the taxes which are not replaced, and we can consider our indirect taxation: our basic custom duty, export duties and other ancillary, property tax and stamp duty and so on.

I will just discuss the concept of direct and indirect taxes, and why we are saying that it is the direct taxes, the indirect taxes, why we are classifying that. Direct taxes is something where the impact is on the payer. So if I am making a hundred rupees, then 30 rupees I am paying to the government, so I become the owner of only 70 rupees. So it's a direct impact on us. So when the government is trying to collect the taxes through direct means, through the direct tax staging, it has a different connotation on the business, on the government collection, and the individual regime of the country. While in indirect taxes, the incidence of taxes ultimately is not on the company or individual who is paying it, but it will go ultimately to who is using the services and the product. Like if I'm buying a sub, I will have to pay five rupees as an indirect tax in terms of the GST or any other form. That company will be paying to the government, but the company will be collecting it from me, so incidence of tax will shift on me. The incidence, the indirect tax, are same for every revenue earner. So even if Ambani is buying, so if he paid 10 rupees taxes, if I'm buying this, I also pay the 10 rupees taxes. So government uses this methodology to monitor different parts of the economy.

We call it the progressive in nature, because as you make more money, you pay more taxes. So somebody argues, and even the Laffer argues, that if you increase the taxation, the labor supply — quality of labor supply and the labor supply — will go down into the market, because people will feel that I have better not to work and enjoy the time into the leisure and spend time with the family and friends. So if you increase the taxes too many, people will be discouraged to work. But there is no scientific theory that confirms that. And the regressive in the nature, which say there is a tax imperfection, but people are still struggling, including OECD, how to remove those tax imperfections. That is, you know, a part of the tax society.

Direct taxes government is using as more of an income distribution tool, and like they want to put a lower tax on the poor people, or people who are making lesser money, but in terms of the indirect tax system they don't have that much of tool. Whether you buy the petrol, if you buy the petrol, the price will be the same. Direct taxes runs with the incentives and exemptions, which part it become the part of the fiscal policy also. So suppose if I want to develop a backward area, I will give a tax incentive, tax concession. If I want to focus on a particular industry, government gives the tax incentives and tax exemptions, to persuade or discourage. Like in terms of the ITC, you must have seen the newspaper, government is trying to increase the taxation on tobacco product many fold. So a company like ITC will come under the scanner, or they might feel the burden of continuing with those kind of business, when the cigarette prices goes, you know, double overnight and so on. And here also we get incentives and exemptions, but this uniformly applies, and mainly the indirect taxation incentives and exemptions are, you know, sometimes used as countervailing duties or anti-dumping duties, and those forms, to protect or not to protect the domestic industry, and have the good bilateral trade between the two countries.

Tax collection wise, we roughly collect about ten lakh crore by way of indirect taxation, and roughly 12 to 15 lakhs by way of indirect taxation. This little chart I have prepared just to show you how the business and the taxations are related. If I engage your attentions to the bar chart on the right hand side, in April and May, when the COVID impact on the business was very high, the tax collections in the terms of the GST has gone down. Similarly, in 1920, the direct taxes collections from the government has gone down. So it's a direct implication, the impact that gets established between the business and the tax collection. So government would not like to create a situation where they have to close down the business by raising the higher money or higher taxation, but definitely they like to create the balance, so they can maintain their fiscal deficit to the lower extent, because they have to spend a lot of money for nation building and infrastructure and capacity building into the country.

There are certain tax structure that we do as a tax planner, as a business guy or as a business advisor, and when we do, when the big mega multinationals comes into the picture — like my co-panelist Mr Marwah says that Google is about 40 percent of the India's holistic budget — so they try to bring the capital structure in such a way that they try to push more money by way of giving loan to their subsidiaries or associated companies in India or high tax jurisdiction. So we have come with a thin capitalization rule, where even OECD is involved into that, where they say up to a certain threshold limit your income will get adjusted if you're paying a lot of money by way of interest, not by way of dividend. So the tax plays a very big role in defining, whether if I do the tax structure, what will be my gearing — it will be funded by loan heavily, or it will be funded by equity. That is a pure taxation related decision that we do when we do the tax planning, where we try to maximize the equity return and we try to maximize the input of capital by way of borrowed capital, so that we can pay more interest and save a higher amount for equity holder.

We also decide and discuss the legal entity, based on corporate, LLP, society, trust, etc. Like under the current regime, the corporate rate is lower than if you go with the partnership or if you go with the individual, so individual way of working. So in a way the government is encouraging that you should come under the corporate structure, we will tax you less. Tax jurisdiction versus economic activity become very, very relevant into the recent judgments, where the governments and the judiciary has come eye to eye. Like some of the pronouncement that have made that the taxation should be based on the economic activity, not on the tax jurisdiction. We also say the point of control become very, very important, and as Mr Marwah was telling, that the governments are eyeing on consolidating the tax regime, where the minimum tax will be controlled up to a level of 15. So tax jurisdiction versus economic activity play a very, very important role. For example, if a company is situated in India and the holding company is situated outside India, and somebody wants to sell those shares outside India, to country A to country B, without touching the Indian tax jurisdiction, Indian tax collectors are saying no, no, since the underlying assets are located in India, you have a tax rejection in India, even if you are not a legal entity India, because that is economic activity.

Tax on legal entity versus tax on economic entity activity: a lot of countries, especially developed countries, where they say that if you have a multiple legal entity, we will allow you to consolidate those legal entities and you pay the taxes as one legal entity. So, you know, India we have a system of creating a chain of subsidiaries, which in any way has been eliminated. So the taxation people are trying to eliminate the chain of subsidiaries, and they say that I will tax you as a one legal entity under the common ownership or jurisdiction. High tax versus low tax is always a debatable subject, and the law first to a certain extent has tried to correct it, that even if you make the high taxes the compliances will be very low, and if you make low taxes, it doesn't mean that you can get a very high amount. That is why, you know, the economic activity for taxation in Saudi Arabia, another part of the world, is not that high as we anticipate.

A multinational entity versus domestic entity, then it's a very complex subject. We don't have that much of time — how to tax the permanent establishment or not — but it plays a very important role when we structure our international or multi-country jurisdiction, whether we should create a permanent establishment in that country or not. If we are creating a permanent establishment, what could be the jurisdiction? So a lot of debate goes on the permanent establishment and the transfer pricing, and it plays a very important role when we structure the business indeed. As I said, the thin capitalization, you know, impact the business. Associated enterprise mainly affect me to large companies, who try to push the borrowed capital. Transfer pricing at deemed income as per the arm's length — every business association should know, should be clear about it. In the era of transparency, when the data is available of the similar and comparable enterprises, and if you try to pass on the money into a lower tax jurisdiction, tax people comes and tell you, hey, stop, this is my money, and you give it back to me.

Tax planning and tax avoidance: tax planning is a matter of right, you must exercise that, while tax avoidance can lead to the negative fine, where if you are trying to be smart, tax collectors are smarter than you. Because in today's arena — I was listening to one of the tax experts in one of the budget sessions, they are saying, if you are going to, you know, roam around Europe and London and other part of the world, and you are putting your photograph on the Facebook that you had been to London with your family, then tax collector can tap you that you have made an international travel and you have not declared. So that kind of, you know, encroachment to the privacy the tax people are doing. So you should be careful next time when you put your photograph on the Facebook and don't want to declare.

Cost of compliance are going higher. The moment, you know, we have entered into a regime of many experimentation, almost every week, every month, we get a new notification, either from GST or from income tax department, or from RBI for that matter, or SEBI for that matter. So the cost of compliance has become very high. If you slip any of the notification and you don't comply with that, the amnesty scheme is there, but the cost of compliances of those scheme is very, very high. So as a tax business advisor we always say, keep an eye on your compliances; your compliances should not go out of the control. Compliance is being outsourced to taxpayer, as we know. The tax sold in another thing — it's nothing but we are computing the taxes by ourselves, which is basically the job of the tax collector. Whenever we get the opportunity, we know that the compliance burden in industry is going up, and that is why sometimes the tax collector comes and say that the percentage of cost to the tax collection in India is probably lowest in the country which are comparable with India. But that may not be true, because most of the work are being outsourced by government to the Indian taxpayer.

Cash flow and point of taxation, basically with the GST point of view — here I will engage the attention of the MSME people. In terms of, when we used to have the service tax, you used to pay the service tax when money was actually credited to your bank account by your clients. But today, even if you're not billed your service, the revenue is accrued, you are expected to pay the taxes to the government, and even if the client doesn't pay after six months, you take a credit or whatever you have to do, you do, but you have to pay the taxes. That is creating a very, very abnormal pressure on the cash flow. This is some of the point, Mr Raghu, you can use your good office to communicate with the government; we are also doing that.

Salaried versus self-employed: Mr Raghu has already covered this point, that as a salary people were always at tax disadvantaged, and if you become self-employed there are a lot of venues to save the money, and the gig economy is going on. I was also participating in one of the very credible HR conferences, and there they were saying that the behavior of the workforce is going to change; a lot of people will opt for the flexi hour, and the gig economy is going to do great in the future as we come. And there are three, four companies which have floated themselves to cater the need of the gig economy by creating the aggregation model. They are doing very, very well in the NASDAQ, probably one of the highest value spinner in the country, in the world.

High tax versus low tax, tax imperfection in terms of the taxpayers, quality of taxation system, regressive versus progressive, average rate versus marginal rate is a matter of debate which is going on from the last 200 year, or from the Kautilya's days. What is the right mix, what to do, and that is why we get a lot of experiment in every new budget. So we get new sections, we get new notifications. The tax system is still evolving. Whether the direct tax should be more or indirect tax should be more, that is always a debatable subject. Then there is a developed economy — this tax would be more, that tax more. So we are under the experimentation stage; every day we are evolving, ideas being built. Government wants to protect the business, but the government wants to collect the revenue aggressively also.

Good governance versus tax evasion: we always advocate that the good governance will pay the business into the long run. We have to be smart — we have to be smart positively, not negatively. Even the Facebook can be tapped; what more it can be done. There was one of my clients who had got some accrued interest in the savings bank account, more than about five, six lakh rupees. TDS was not getting deducted in that, so he said it is better I can evade it, because 26AS it is not there. But they got a data bank from the government's website, and the income tax department that please explain this high value traffics, and what is that which is not offered for the taxation. So government's machinery has gone so.

One thing which is very important at the broad level, that our tax GDP ratio continue to be low compared to US or other Nordic countries. The higher the tax GDP ratio is considered to be better. It is low because in India the tax compliance is very poor. Very few people are paying the taxes; most of the people are not paying taxes, and that is why, you know, tax interpretation in India is fairly low. That needs to be improved upon, not by coercive means, but creating a flavor in such a way where people respect and comes forward to pay the taxes.

Some of the taxes that we consider will be, do the M&A structure — although my friend, my co-panelist, has covered it. We say, what is the capital gain tax structure, how do we structure — should be a pure equity, it will be convertible, it will be debenture. There are many tax efficient papers are available where you can create a gearing to minimize your capital gain tax while doing the transaction, or while you re-do that same transaction three years, four years later. The ground tax jurisdiction is still very valid. Some of the countries offers a very low taxation. Like if I have to pay the capital gain, I would like to pay the capital gain in Singapore, because that's tax exempt, not in India. There are certain situations where we don't want to buy the companies; we create a company within a company, we call it is a slump sale, and we try to push the company into slump sales, so certain legacy issue doesn't get on our picture, on our way. This is more of a business structuring, and tax system plays a very important role.

ESOP versus actual payment: if I want to defer or protect my cash flows, I'm not to pay the taxes, I try to follow the ESOP route, and the individual gets, you know, money at a different consideration. It's a very complex issue, how do we manage the taxation via ESOP, or increase the paychecks via ESOP by deferring the payments. In the case of the startup it has gone up to 49, but there are restrictions, and it's a well-governed product from the Companies Act as well as from the income tax point of view. Management fee versus dividend: as I said, that we have to be smart. Dividend is the most inefficient tax way of paying or rewarding the equity holder, because you pay the taxes twice. First, when you make the money, the companies pay taxes on that, and when the dividend is declared, dividend is received in the hands of recipient, then again it get taxed. So there is always a fight going on between mega multinationals and some of the superior tax mind of the country, over the wall, over what is the best way of rewarding the equity holder or parent company or subsidiary company. Personal tax is a matter of priority for everybody, and it affects our decision. Domestic and international taxation, again a very, very complex subject, where private equities, tax avoidance, treaty, tax residency, tax credit plays a very, very important role, and it affects our business decision.

There are two things that I would like to mention here, not to scare but to apprise everybody. Under GST regime there have been multiple case laws, and it has been a well principled position at the GST Act that the commissioner has the power to issue the arrest warrant under section 132 of the GST Act, and they can follow the procedure as defined in the Criminal Procedure Code. But here the something is most important to understand, that they can do it by following the due procedure of law. It cannot happen that my dues are more than five crore, and the commissioner will wake up tomorrow morning and he can call me, and he will do this, he will arrest me — like that. The court has come to the rescue of the citizen and the taxpayer, that they have to follow the process of law. You should have a reason to believe that some wrongdoing has happened and the tax liability has not been admitted; then only they can do that. Under income tax act also, but under income tax act we rarely feel that this section is being applied, where it has been clarified by some of the court pronouncement that it should be a willful attempt to evade taxes. So if it's not a willful attempt to evade taxes, this section should not be invoked. I am not a tax expert to that level of authority, but yes, that is what my understanding of section 276 says. This is my last slide, and thank you very much for your attentions and patience for listening to this complex subject. Thank you very much.

Thank you, Vishnuji. What does the last slide mean, actually, with so many notes there? Actually, it means that if you are a smart taxpayer, you bring the money to your side; if you are not able to do that, the money will go to the government. All right, I think that's a very sporty way of putting it. Thank you very much.

You know, I have a question to start with. I was doing some research, and I came across an article which said that the government has made four mistakes on GST, and it said that the first mistake was the political leadership did not realize until quite late in the day that GST is essentially a flat tax with variations. The second mistake was to promise the states a guaranteed 14 increase in GST revenue from the first year to the next. The third mistake was to keep key goods outside the scope of GST, like petroleum, tobacco and liquor. And the fourth mistake was a drive by the government to lower the cost of goods in the run-up to the general elections. Okay, can I have your comments, first Raghu?

Pawanji, I think you've raised some very pertinent observations on this, and I totally, firstly, concede your point, and then secondly, I'd like to share something that happened, and without naming names, it was a very senior cabinet minister. This is about two years back — recently, after — this is 2018, more than two years back; with corona one forgets that we've been in, yeah, limbo. So I had raised this question to a senior cabinet minister in an open forum, that why does India need four rates of GST? We have today four different rates of GST, right? Why can't we simplify it and make a single rate, right? Why can't we — I mean, ease of doing business is such a huge pillar, you know, we all are talking about India jumping up on the ranking — why can't we simplify lines? Instead of, you know, zero percent, 18, 28, 5, there are so many rates. And plus, what you've just talked about — I'm combining the answer, because I feel it's a lot to do with politics, fortunately, unfortunately. The answer that cabinet minister gave, to me, did not make any sense. He said that the rate for a school child's backpack or a school bag cannot be the same for your luxury car. Well, the answer is that it is a value-added tax, which is a percentage, right? If the backpack is worth 100 rupees, you're only going to raise X amount of revenue, whereas if the vehicle is worth, you know, say 100x of that, you're going to raise much more, you know, revenue. So it's not that that poor father who's paying for his child's backpack is going to be burdened excessively, and the rich are not going to be burdened by it, you know. But I think there's a lot of politics and messaging that goes on in this.

And to answer your question, I think there was a lot of tussle that took place on the GST council to be able to convince some of the states to come on board, and I think one of the key factors was to keep liquor and petrol out of it, because liquor becomes a very emotive subject, where there are vested interests in most states which have, you know, close connections with the liquor lobby and the liquor barons. And I think it comes down to not pure economics and not pure accounting, but more to do with politics, and which kind of defies logic at times. So I think that would be my succinct answer to this question. Over to you, Vishnuji, for your thoughts.

I totally agree with you, and not only in India, this is happening almost in every part of the world, where some of the decision that politicians take, or our government takes, are not based on the economic merit, but based on either on the political merit or something beyond our comprehension. But this system of, you know, political value or political awareness to any taxes, services, will continue. Like in some of the state also, where you get the incentive, there is a political connotation. They don't go purely on the merit of this state or economy; there is a political consideration, with ruling or is not ruling, and I think we will have to live with that, and that is going to be our life.

John Cenata, can you please ask your question? So my question is very simple. There was a lot of debate a number of years back that we should tax expenditure rather than income or profits. What is the implication of this? Is it a better equalizer than the concepts we are following now?

I'll take that question, Mr John. Thank you so much. It's a very interesting question, and sort of an out of the box question, because, you know, we have been ingrained in the philosophy of income tax, and now we are talking about an expenditure tax, which is a totally different paradigm. But I would give the example of UAE again, right, where you don't have income tax in United Arab Emirates, either on a personal level nor on a corporate level, but it continues to be one of the most expensive jurisdictions in the world, and that is what I am referring to as a sort of inherent expenditure tax which is there, right? So that system, I don't think, is much better or provides many more benefits, because over here, you know, one of the issues of course is the redistribution of wealth as an objective — that in a socialist state like India, we continue to have that: tax the rich more; the richer you are, you get taxed more. It's sort of a Robin Hood philosophy, and tax the middle class lesser, right? Those kind of objectives may not be fully fulfilled by an expenditure tax, because you have very down to earth wealthy people, like Infosys chairman, who may not be doing that much of expenditure, and, you know, the government may not be able to collect that kind of tax versus what he is currently paying on his income, right? So it may not be meeting the larger social goals of a forward-looking, you know, state, by, I think, taxing only expenditure. But yes, I would say it makes things simple — that is the pro of it; the con, like I have said. But the pro of it is it becomes very simple, right? You don't have to go through 100 tax forms, you don't have to go through multiple deductions and multiple reliefs, and okay, this is 80C deduction, this is, you know, I have got a donation receipt so I will get 80G. Things become very simple and straightforward for everybody. So that is an advantage, but I personally, you know, don't feel that in a country like India it may be possible to push through such an agenda.

I'll take you back to the example which you gave about the school bag and the BMW. If you take the expenditure tax, it becomes so very clear, so it becomes a very great equalizer. I agree with you, Dr Chinetra, that, you know, in terms of the amount of tax collected on a luxury vehicle will definitely be higher, right? But very often then we'll have what has happened in France, right, where everybody, just the wealthy of France, are running away to Monaco and saying that okay, I am not going to file my taxes in France, because as a wealthy person I am being made to pay excessive tax. And it comes back to the Laffer curve — that if you are going to be asking somebody to pay excessive tax, he's going to run away or find ways to not pay that, right? So if suppose the cost of a BMW vehicle becomes so, so much higher, he'll say, I'll buy my BMW, keep it in Dubai, and when I go to Dubai I enjoy my BMW; in India I'll drive a Maruti vehicle. So, you know, people will maybe find ways to smuggle the car in, or whatever, you know, the way it happened in the earlier tax regime, when, you know, custom duties were so prohibitive and taxes were so high. Over a period of time I think those smuggling and those things have reduced. So I'm not so sure whether it would, you know, find the necessary support to go through Parliament. Thank you.

Angela Turkey, please ask your question. Angela, can you speak up? Okay. May I ask you a question? For one, almost certainly — you're back? I'm back; the net was very bad, so I was hearing now and then, interrupted, you know, sort of, deliberation, I'm sorry. But I want to refer to one point which Raghu raised, and the one that I read in the Times of India recently, as you also referred to — Economic Cooperation and Development organization. Under the aegis of this organization, recently, about a few days back, the taxation for the corporate was introduced as 15 percent for most of the countries, and it is understood that 136 countries signed it, except for four countries who did not sign — probably Pakistan, Kenya, one or two other countries, four countries. Now, this 15 percent corporate tax, when it is implemented by all the finance ministers of these under 36 countries, how is it going to affect the taxation structure of India? Because you introduce 15 percent corporate tax for the purpose that the people who are running away without paying tax, big corporate, so they should be paid uniformly 15. My question is, this 15 corporate tax, how will it affect the taxation structure in India, the present taxation structure in India?

Very good question, and I think the first, the simple answer would be that something called equalization levy, which was brought on to our statute, I think maybe three years back, if I'm not mistaken, maybe four years back — that would be the first victim, and equalization levy would be removed. So equalization levy, in common parlance, is called Google tax. That would go away, where basically equalization levy was basically for all these online companies who are collecting marketing revenue from India. They were told that a certain minimum amount on all marketing revenue that you collect from India, we will charge as an equalization levy. So that equalization levy would go away, because now, as per this multilateral agreement under the aegis of OECD, there is going to be a 15 amount, right? So that is why the governments have been given time till 2023 to readjust their domestic laws and bring it in line with what is this multilateral agreement. And this, like we had talked about, would apply for companies which have very large revenues, higher than 750 million euro. So these are the super big companies that we are talking about that would be attracted, not the smaller or even the mid-size companies, I would say, right? So there would be not much impact, you know, from a legislative point of view, other than this, and then we would expect a new section to be inserted to bring this into force. Just the way equalization levy will go away, there will be a new section to bring this on to the statute book to carry it further.

Yeah, okay, two zero two three — by two zero two three they'll implement, all the countries. I was always telling you, asking you as a right speaker, that equalizer will be between countries and all that, all countries have equalizer and 15. My point is that, as a taxation expert, will it net in more taxes to India, or will it get less, or how? Because supposing we get more, netting more, I mean, and we say that how many companies fall in this particular group, your Indian companies, and then you put that — out of that, some people might be paying, some companies might be paying 25, other companies may be paying nothing, as you said, paying or evading tax, or five percent or something. Now when equalizer comes, you have to deduct something from the company who are paying 25 — they'll pay 10 less — and those who are not paying will pay 15. The taxation structure as such for the country — will it ultimately get into loss, Indian taxation structure, or will it net in more? And if it nets in more by two zero two three, what do you envision as a taxation expert, that how is it going to affect the welfare activity? Whether, if we net in more, then we put more in the welfare activities. I mean, what is your assessment? It's two zero two three, but what is going to happen with this, and that is what I'm saying, for India. And because Economic Times, Times of India, gave a lot of coverage to this — there's a very good thing, after ages we have been able to come to this, and now 136 countries have been roped in, there are only four countries which are left, all this blah blah blah — which a person who is not expert in taxation will say, a lot of 15 percent is coming, more. This is myself, and what is your — just how do you envisage this for our Indian taxation?

So sir, I think it may be relevant — the equalization levy rate today is six percent. So the first thing is that the rate of six percent versus the rate of fifteen percent — you are anyways much better off. Yeah. The second thing, why Economic Times and all these journalists are so excited, is because India is a land of young people, 1.3 billion people, so it is one of the largest markets in the world for e-commerce going forward. Yeah, yeah, yeah. And therefore the numbers are likely to go up going forward, and therefore this is going to be a very important tax collection tool that the world has agreed to, and therefore there is a little bit of a positivity and bonhomie and celebration mode, that okay, India has managed something very good for us. Correct. So it is possibility, as you say, that it is a little rosy picture — I mean, we may get more taxes, one does feel that — but like you are correctly saying, devil is always in the details. One needs to see the actual fine print, as in, you know, it comes out into more public domain. You know, it's a picture of a bucky hair type.

One, I have a question that's coming up, and they said, Vishnuji, I think this is something that should be directed to you. It's the demerits of direct taxation: pinching, it is inconvenient, it is evasion and it assists evasion and corruption, it is uneconomical, it is narrow based and arbitrary. What are your comments on it?

We have learned that expenditure tax is probably not a very efficient way of tax administration. GST has its own inherent limitations, as you have rightly quoted the four mistakes that have been done. And if I take you back to the Chanakya regime, he said that one-sixth of the income of any individual or society should be taxed and goes to the government — that is the strategy that has been there. So whenever the government is trying to collect the taxes under the social, fiscal, economic regime, the direct taxes cannot go away. It is not that any system or any tax structure is not suffering from imperfections. They are suffering from imperfections because they are trying to touch almost every citizen of the world. But because of the tax inefficiency, or the inability of the government, or the capability of the individual to escape out of the tax net, we get this kind of distorted result. If we see our tax to GDP ratio is only 8 to 10, while in USA it is more than 25 and touching up to 30. So even in a very advanced economy the tax compliance is very high. When we talk about any compliances or regulation for that matter — not even for income tax, where you have to pay the tax — any regulation where one has to comply with the regulation, we do not like to do that as a civilized race. So I personally feel that government should collect the taxes; they should collect the taxes not through draconian or coercive means. They should not do the policing that they're trying to do — they're going to the Facebook type of things. But my personal opinion, if you eliminate the imperfection — which is, there is a lot of subjectivity — I think what government is trying to evolve, like faceless assessment in income tax, in India we are going in advanced way. So the tax collector does not come and hound us by using the foreign language or creating a fearful environment; everything that he does gets documented. So these things are changing, changing at a fast pace. So whatever the annoyance or imperfection that we are having should go away. The only thing that the government in India is not able to do is to increase their tax base. Although they are trying to increase their tax base through various means, but those tax base where the people — they have created the net of more than 40 million people, but actually they are not paying any taxes per se. So the cost of compliances for the government is increasing, if I am going and talking to the tax collector without paying any taxes. So this is my view, sir. Thank you.

Something — hello, Mr — you want to say something? I want to ask Mr Sultania this question — this is from his effort. No, on that issue, no, I am saying, on the other — he has asked you for direct taxes impact; I am asking you for the indirect taxes. We know very well the impact is there; that is why it is considered regressive. Is the impact of inflation — a lot of inflation takes place when indirect tax is imposed. Yet indirect taxes are considered to be better, because it is collected easily, and then it is on the product, and it doesn't go from the pocket. But the consumer ultimately pays it from pocket. So there is a sort of, you know, anomaly. One side you say it's regressive — regressive in the sense that it causes inflation. Other side we say it's progressive, because it is easy to collect, it doesn't affect directly the pocket of the person, but ultimately market is affected, because there's a consumer who is going to purchase it, and consumer is affected because the product — rate is being charged on that. So there's a sort of, you know, anomaly in the two. One side you say it's a very, very progressive, other side, no, no, no, indirect taxes are regressive in terms of inflation. How do you think there can be a balance between the two?

It's a very, very thoughtful question, sir, and I think even Parliament is struggling to answer your question, if you ask my view. But let me try to answer this as a conscious tax citizen of our country. If you say government is trying very, very hard by removing the imperfections or abnormalities, by classifying the goods — some of the goods as goods for conspicuous consumption — so anything which has a tag mark of conspicuous consumption, or comes under the luxury strata, the taxation rate is very high. Unfortunately, sir, due to the political reason or otherwise, even the some of the goods that is a very basic character, like petroleum — it's a daily necessity — their government is also increasing the taxations almost on a daily basis, as we have seen. So it's about more of a political decision, under a very unprecedented circumstances, where government cannot increase the direct taxes to meet the deficit. Indirect taxes — they cannot, you know, go to the poor and they say that, on your right time I was charging five percent, now I will charge 18 percent. Big debate going on into the floor of the North Block, sir — can we reduce the taxation bracket, can we make it two tier, three tier, instead of four tier. So a lot of debates are going on. Parliament is applying its mind how to answer these questions, but I think we will have to live with this imperfection. As we move upon, certain other imperfection will come into that, so we'll have to live with a little bit of imperfection. But Parliament is trying to give you the answer to the question that you are asking; probably every conscious citizen is asking, so the debates are going on.

Tax in any case, direct or indirect tax, is considered by most of us who are not well educated as a sort of pecuniary burden. We always think, and we're saying, this is not a sort of a voluntary payment; it's always considered as a pecuniary burden and a sort of enforced contribution — an enforced contribution, I'll ask, unfortunately, to the revenue. So it may be this type or that type, and a tax which is enforced, which impinges on the pocket of the consumer or the person who is paying it directly — only difference between direct taxes, you have to fill a lot of form, this thing, that thing, for income tax; you may not feel that for indirect, and that goes to the government in any case. With all the debates, how do you say the mindset of the public at large in India, or for that matter in other countries, is that this is out of pocket, yet this is important because it should be used for various welfare activities? In respect of the debates, what is your opinion — whether we should go in for lesser indirect and more direct, or there has to be some balance somewhere? Because with the GST, although a lot of it was an indirect tax, they said, oh, a lot of hulla arose. My submission is that, as a learned speaker and a scholar of the taxation, what do you recommend?

Sir, my view is — and it has been rightly quoted by Mr Marwah, the Laffer curve, which is a very important curve, that gives you your answer actually. They say if you increase the direct tax burden, the efficiency of the economy will go down, and that is why, if you go — I talk to the developed economy, they are very rich — taxation rate in America is actually going down. So they are trying to reduce the taxation, the direct taxes, rather than increasing, although because of the high tax compliances that tax to GDP ratio is very, very high. Let me give you a very interesting fact. In the Nordic country, if you go to Denmark or Finland, their taxation rate is about 45 to 50 percent, and their tax GDP ratio is about 45, although their per capita income is similar than that of the USA, but the tax to GDP ratio is 45, compared to 30 of the USA. The data that I'm trying to give you is not to hide behind the data, but under Indian circumstances, where we feel that the tax is a pecuniary penalty that we'll have to pay, and we are working for the government and they become one third partner — tax rate rationalization is happening, but I do not think we can say that you increase the taxes and taxation will go up. When you increase the taxation, the non-compliance will increase, then the tax collection per se will go down, and that is why the Laffer curve also tried to prove it scientifically. So government is trying to strike a balance, that what is that balance where my tax is optimum, and I am working as honey bee without disturbing the flower. But what is happening, we are saying that the honey bees are disturbing the flower. So that is a perception that has been created in the mind of citizens of India that only needs to be changed, and the government should also change their behavior. So when they spend the money, the citizens should feel that they're actually spending the money for building the nation. So that is a kind of conflict — what we see we are not able to believe, what we believe we are not able to see. That is the conflict which I think will perpetuate and continue.

I'd like to just add to what Vishnuji has very correctly said, by bringing to this august forum the concept of sin tax. Sin tax has been around, you know, in tax administration for very long, because it captures the imagination of the public, where things which are not good for public, like alcohol or cigarettes or gambling or other areas — you put a very heavy indirect tax on such items. And that is what we are seeing today on, say, petroleum. If you look at the cost in India of your diesel or your petrol fuel, I think by some estimates almost two-third is constituting only of the tax element. So indirectly they are funding your roads by the amount of tax that they are collecting on the fuel, and they are saying that okay, you know, pay your taxes and get your better roads. That money is not coming — the tax that is being collected from the salaried employees and the large corporates are not going into the roads; it is the indirect tax collection which is going into the roads. Oh, I see, good. So there is a big, you know, benefit, if you look at the sin tax side of it, of indirect tax also there. Thank you. That means products which are — these products, you know, alcohol and all, they can be, and petrol, they can be heavily taxed, and indirectly, and the balance somewhere else can come. Like — thank you, that's good.

You know, you mentioned the Nordic countries. I know a lot of people in Sweden, and they happily pay the taxes, and in fact when I speak to them, they say we are happy to pay the taxes because we get more in return than what we give. Whereas in India, I have been receiving WhatsApp messages that all taxpayers should form a union and force the government not to spend money where the taxpayer does not want the money to be spent. So what is your opinion on this, Raghu and Vishnu, both? You know, because it is our money — the government is spending our money, but we have no right and no say in where the money goes.

It is so true, and why I was laughing is that there was such a big hullabaloo when the new Parliament was being built, and the new Central Vista, and the brand new aircrafts of Mr Modi were, you know, being showcased on most television — how the taxpayer money is being mismanaged. And I was remembering what you're saying, that maybe the taxpayers should create a union, or at least a website or a portal, to raise their objections against such areas where you feel that the government is at fault and misutilizing the taxpayers' hard-earned money. So I do think it is a great idea, and I think, you know, a portal — maybe NISSMAT can be the torchbearer, and a portal can be made to take these kind of feedback and, you know, take it to the powers that be, to hear the voice of the people. I don't know whether the president would want NISSMAT to be shut down, but you see, it's a point of concern that we have, is that your money is being spent and you have no say or no accountability of the money that is being collected on your behalf, which is being spent.

The one last question — I'd like Gurinder to ask this question, because he's experienced certain difficulties, and Gurinder, would you like to ask your question? Sir, the question is regarding — because we pay tax, and the infrastructure and other things are not equivalent, and the money is getting utilized — so is there any way out where the tax reduction can be done, so that we expend less, so that it doesn't pinch our pocket also, and because it is not getting utilized towards our benefits? So what are the basic benefits, rather than doing savings or other things? As you are — you know better on this — so what are other way outs that a common man can do to reduce the tax, or the people who have small businesses? Because it is their bread and butter, and the margins and profits in small businesses are very wafer thin, so the maximum amount of money that we bring in, the taxes goes out. So we are in security industry — the GST that we are paying is almost 18 percent. The fooding industry or the catering industry, they pay only five percent; they've got that leverage. We are providing services, we are essential services, so why so much heavy tax is taken from us? Means, no doubt we charge that tax from our customers and then we pay, but then the liability and the onus is on us. Then the income that the company is getting — the taxes there on that particular income as well, that we pay. So is there any way out that the taxation can be reduced, or some way out can be done, or, as sir said, we have to form a union and stand against them?

Vishnuji, you are an expert on this. I prefer that you answer this question. For me, sir, raising this is foreign on a public platform, but anyway, I will try to address this, as much as we can, considering the dignity of this forum. You know, Gurinder, there are many ways, where we have covered in our slides, that the most powerful tools that the Parliament has given us is the tax planning and the tax management and tax compliances. By careful planning and the tax administration, my experience says that we can find out ways — I'm not there talking about the tax avoidance; I'm being creative here — we can find out ways to, you know, manage our cash flows, we can find ways to defer our taxation. For example, I'm giving you: suppose you are spending some money on some of the items which are not tax deductible — the income tax say no, if you put it into your profit loss account, I'll charge it back, I'll increase your profit — then normally we see, can we capitalize it? By capitalizing, it can be charged the depreciation on that, so I will take the tax benefit — not now, but I can take the tax benefit over three to four years of period of time. Similarly on the GST regime — similarly on the GST regime, when all the MSME, not only security company, all the MSMEs are suffering — who does not have the client which can pay them in advance? So if 20th is the day of my paying the GST, and if I do not get the money from the client before 28, then I have a serious cash flow mismanagement, or mismatch I can say. For this, I am consciously aware of the security industry — security industries almost on a daily basis knocking the door of the honorable finance minister, that either you give me a reverse charge mechanism, or you allow me that I will pay the taxes when I collect it. So all those sort of things are going on. Even on personal taxation matter, you still continue to enjoy, you know, a lot of exemptions, which are likely to go away as we progress, and that is why, you know, different tax structure are coming to the picture. The high grade employees are saying that you appoint me as a consultant rather than an employee, and then you, take you know, find the ways to deal with your personal taxes and other things. So there are people are very creative, without being wrong or going into the wrong side of the law, but yes, you have to be very conscious whatever you are doing. But there are ways — where you cannot eliminate it, but you can minimize it.

Now, is anything you would like to add? So I think Vishnuji has said it very well. Fortunately, unfortunately, you know, the small taxpayer always gets in a bind in any transition, and we are definitely in a transition phase, from maybe a non-compliant — from a tax point of view — non-compliant society to a better compliant tax society, and that, according to me, the credit for that goes entirely to technology and the ease of filing. So I think in this transition it is the small business owner who is, you know, facing challenges, and it is the duty of the government to come to the rescue of these small business owners.

I have a question, sir — John — make it small, because — very small, very small. The average gross operating margin of all industries are very well known. Is there any rationale in having, I mean, different tax rates for separate industries, based on the average gross operating margin of that industry? Does it make sense? For example, the guarding industry works on wafer-thin margins. You are taxing a poor industry and getting him deeper into a hole. Isn't it a bad idea? Actually, Gurinder should have asked this question.

So I think, let me take a jab at that, Mr Chinetra. I think if there is a certain industry which has a low margin business, right, and say the margin is say five percent or two percent even, right, then what would happen is that you would be paying tax only on that two rupees, right, or five rupees, if that's the margin, right? You would potentially be paying a lesser tax than say a high — say a service industry, or some other service industry, say a tech service industry, which has a 30 margin, right? A 30 margin business, he's paying tax on 30 rupees; you're paying tax on two rupees. So to that extent, you are already getting a benefit, right? Your tax rate on two rupees, the effective amount of outgoing, that much lower. So I'm not sure, but I think what we were talking about earlier, from a cash flow point of view, there I definitely feel that there is a burden and there is a hardship which industry is facing, or a particular sector is facing, where the government should come up with a solution.

No, it is not the magnitude I'm talking about; it is the impact on the business that I am talking about. It may be two rupees, but you are making him go deeper into the red, which will kill the industry. I think you are absolutely right, and that is why we need to be a little innovative and use technology to enhance our way of doing work. Maybe, just the way you've got bots and other things who are doing accounting and bank reconciliations these days, rather than humans doing banking and bank reconciliation, bookkeeping, maybe in the foreseeable future you will get robots and bots which are going to do guarding work rather than humans, and that is the way in which the margins of those businesses can increase. So I'm just thinking out of the box, but I think humans have a tendency, when they are under pressure, to come up with innovation, and there is some innovation definitely which is, you know, bound to come up with this kind of challenges that are being faced.

Thank you very much. Thank you very much, Vishnuji. Now I would like the meeting to be handed over back to the president to conclude this session. We run out of time, actually. Thank you so much, all the best. Thank you so much. I'm handing over back — you're handing over to me because the back portion has got to happen now. Yes. Thinking the first part, and the internet problem was there. In any case, I could listen to the speakers quite a bit, and the speakers have discussed at least the benefits as well as the disadvantages of taxes. They have also touched the point of inflation, equitable distribution, and also the progression or regression, and the inequality — that equality is all can be brought out at length. And in any case, any taxes are normally considered as a burden, and everyone says only the wearer knows where the shoe pinches, and everyone has a shoe, and everyone is getting pinched, they feel. So under these circumstances, it must be realized by all of us that payment of taxes is our responsibility. As a responsible citizen of country, it is our duty to pay taxes, so that the income generated from the taxes can be used, invested, in various places where welfare activities of the citizens are involved. The taxes paid actually result in the investment in infrastructure, sometimes our investment in welfare activities, our investment in health care centers, health care activities, etc. The citizens contribute a lot from their side, contribution to fulfill the dream of making any country a superior power or a good country. Only question is that every time the tax structure is changed, we complain, and ultimately we come down to, all right, it's all right. But still I feel, with all reservation, that the tax structure is a very difficult problem for any government to bring about in a very equitable manner, and there should be no pinch to anyone. So as rightly pointed out by Dr Marwah, that it could be levied in such a manner that the items which are meant only for the high five people, letters, alcohol or petrol, they are taxed heavily, while the items which are used by an ordinary, every citizen, are not taxed heavily. So there should be some equitable method of taxation. With these words, I once again thank both the speakers, as they have touched all the issues, like curbing inflation, reducing inequalities, and now the recent one, my question of 15 percent corporate tax coming in.

With these words, I thank all of you for being with us. Our next webinar is very, very important and sensitive, on the point of growth of terrorism globally. Every day there are incidents happening here and there, this country or that country. There are terrorist attacks, there are racial attacks, there are clannish attacks, there are attacks on the base of caste, religion, and all these activities ultimately sound up to higher level — that is, some terrorist activities are committed. Though there are attacks, those attacks are general attacks, all right, but law and order problems are there. But the terrorism, when it grows, it grows in any country, is a very difficult problem. So we are like a growth of terrorism globally; of course, the Indian context will always also be. We are holding this webinar on the 11th of November, and the speakers are really, really very, very right. One speaker is Dr Ajay Sahni, who has done a lot on terrorism, did a lot all over; his articles have impression. Second is Major Radharov; he is also one of the well-known counter-terrorist experts. With these words, I request all of you to be with us on the 11th of November, Thursday, and the subject to be discussed is growth of terrorism globally. With this, I thank everyone, and particularly the speakers, for being with us this evening. Thank you very much. Thank you very much. Thank you so much. Thank you, sir. Thank you, speakers. Thank you. Thank you. Thank you very much.