FICCI Infra Committee stress on further easing doing business in India

Mr K K Kapila Chairman , IRF

Ease of doing business has rightly been the focus of the Prime Minister Narender Modi’s Government right from its early days. The slogan is not only catchy but also conveys the sense of urgency and importance, attached by the Government, to the aspect of encouraging and reviving, business activity in the country. This is all the more important in the back drop of the sluggish economic growth and declining private sector investments.

The Prime Minister’s recent directive to Secretaries of various Ministries / Departments, reiterating the emphasis on Ease of Doing Business in the country, is, therefore, most welcome and timely. However, this must not be pursued only as one of the many catchy slogans to be repeated adnosium. It must translate into actual action in removing the cobwebs shackling the economy. There is no benefit in having this aspect, addressed in generalities. Specific concerns, raised by the Private Sector need to be looked at dispassionately by the concerned Ministries and Administrators and not from the prism of “precedence” and “past practice”.

For example, the Consulting Industry have been representing through FICCI and other channels on the need for shifting the compliance responsibility of Service Tax from service providers to service receivers. Currently, the Consulting Industry which provides the services to a host of clients, including Government Departments / Agencies are required to deposit Service Tax within 30 days of raising their invoice, failing which penal interest at an increasing rate is charged for any delay beyond that period. Such payment is required to be made even where the service provider does not receive the due payments from the Government Department / Agencies. They, in the normal course, are not clearing such dues in the limited time provided, resulting in the need for the service provider to not only help the Government to collect the tax for which they are not liable, but also to make good such payments even before receiving the same from the service procurer, who are, in fact, liable for the tax. Moreover, there is no certainty, particularly when dealing with Government Departments / Agencies that the actual payment would correspondent to the value of invoice raised. Any short payment, viz-a-viz the invoice value, is then to be borne by the service provider with recoveries of the same, possible only through a circuitous and much delayed process.

Repeated requests by the Consulting Industry for a review of this paradigm has been consistently stonewalled by the Department of Revenue only on account of the fact that they have yet to device a methodology for direct payment of Service Tax by those who avail of such services as provided for under the law. Even the suggestion made by the Consulting Industry to make the service provider liable for such collection and deposit of Service Tax on the basis of accruals has not been considered favorably. Neither has the request that a window of 30 days for payment after raising of invoice be raised to at least 90 days been agreed to. Where is the Ease of Doing Business?

A second example of the many small issues faced by the Private Sector relates to introduction of retrospective legislation / rules / clarifications. A recent example relates to amendment in the “payment of Bonus (Amendment) Act”, 2015, published in the Gazette on 1st January, 2016, giving it retrospective effect from 1st April, 2014. With this amendment, Employees earning Rs 21,000/=, per month, are now entitled to bonus against the earlier limit of Rs 10,000/=. Further, the ceiling for bonus calculation has been doubled from Rs 3,500/= to Rs 7,500/=, per month, again retrospectively. The private Sector has repeatedly been requesting that retrospective amendment of the above Act needs to be revisited as mid year amendments are not provisioned for and further it is equally difficult to pass on such retrospective benefit to Employees particularly in sectors which have high Employee’s turnover and where large no. of semi / unskilled word force is the norm along with high mobility rate. Surely, the policy makers while making such amendments can visualize the difficulties in implementation from the perspective of the Private Sector, which is at the heart of Ease of Doing Business in the country as rightly emphasized by the Prime Minister.

It is a fact that several suggestions for Ease of Doing Business have been made by the Private Sector to various line Ministries over the past 24 months. These suggestions are in the normal course either completely ignored or are being responded to in routine without a dispassionate review and keeping in mind the challenges being faced by the Industry. One possible way forward would be to develop a compendium of all such suggestions and have them discussed through an intersectoral body having adequate representation from outside Government and at Industry representative of the Industry Body, which has made such suggestions. This will ensure that there is an intelligent and constructive approach while revisiting each of these suggestions and that the recommendations are not left to be disposed-off by those who are in fact the Architect of the rules and regulations which are impeding the Ease of Doing Business in the country.