“Tax terrorism” is anathema, but the authorities won’t remain mute spectators of brazen misuse of tax provisions, finance minister Nirmala Sitharaman said on Friday, amid a recent spurt in tax notices to sections of the industry and businesses.
She also said reversing the phasing out of the fiscally unsustainable Old Pension System (OPS) would be “extremely impossible,” and dismissed the demands for such a policy change as the ploy of “some political parties,” rather than a reflection of people’s voice.
Speaking at The Economic Times Awards for Corporate Excellence in Mumbai, the minister indicated her preference for the Reserve Bank of India (RBI) to remain well-disposed to growth in the June monetary policy review, after the unexpected pause in April.
Citing instances of use of shell companies to escape tax, she said not clamping down on them would not only breed administrative inefficiency but cause genuine taxpayers to lose faith in the system. “Shell companies, about 300 of them, (are found to be) operating in about a 50 square-metre area, with just one table and a few chairs and getting tax refunds to the extent of `400 crore. Would you expect the department to sit wait and watch?” Sitharaman asked.
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Commenting on the debate over pension policies, she said reintroduction of the defined benefit system would mean “every state would be much more (burdened) than what they could take,” even within 5 to 10 years, after which the (pension expenditure) would balloon.
The remark comes when a government panel headed by finance secretary TV Somanathan is reviewing NPS and exploring ways to make it more attractive in terms of risk-free pension payouts.
The minister added the debate on the issue has already been fizzling out in the last few months as the implications for reversing to the unsustainable model are dawning on parties. It is no longer an issue in the run-up to the current set of assembly elections, (Karnataka is going to polls shortly), she said.
On whether the interest rate hike cycle has peaked as inflation moderated considerably, Sitharaman said: “It’s only fair to give the RBI its terrain. If all of you (industry) are happy with the latest monetary policy decision to pause, I can’t speak differently. I think the RBI is getting the sense from the ground and (of) the urge to move forward on growth (given) the indication that recession elsewhere and US Fed rate cut could hit us. So, I think we should be confident that RBI will take the right decision for the next round as well.”
On April 6, the RBI announced a pause in interest rate hikes, breaking the spree of 10 continuous rate hikes totalling 250 bps in the past year. The central bank has conveyed that it will observe the impact of existing rate hikes and then take a call on future rate decisions.
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Asked whether the (2016 flexibile inflation targeting) law bound the RBI’s hands in addressing the pressing concern of growth, the minister said meddling with the law wasn’t warranted at this stage. “Even with the law existing, the administration, industry and the public at large have not been obsessed with it.. Also, there have not been many instances where the RBI had to write to the government, (for its failure) to meet the inflation target (for three consecutive quarters),” she said. She also underlined that the extraneous factors had principally been behind the consumer price inflation exceeding the upper end of the 4+/-2 target band for three straight quarters to July-September, 2022.
According to a recent RBI working paper, the upside risks to CPI headline inflation have declined under the flexible inflation targeting framework. “In the FIT period, upside risks to CPI headline inflation have declined to a level of 6.5% from a double-digit level preceding it and have remained stable,” the paper said. In 2021, an RBI paper made a case for maintaining the 4% target, saying “if it ain’t broke, don’t fix it”.
On the contagion risk for India due to recession in the advanced economies, the minister said it is not really a problem for India even though risks to exports are there. “In the sense when markets to which you largely exporting are coming under recession, then the demand is going to fall, exports are going to suffer, she said, adding that in the past one-and-half years the RBI has been decoupling itself from the US Fed.
