Saturday, January 21, 2012

Bad facts make bad law-case of retrospective tax law and anti tax evasionary measures

During his elective on Securities Regulation at IIM Ahmedabad, Prof Sandeep Parekh made an interesting point that bad facts make for bad law. In other terms, where the conduct of the parties to the case warrants a decision which is just yet contrary to the express provisions of law. In securities law, he gave examples of this from India and abroad. In criminal law also, the Nanavati case(where Captain Nanavati shot dead his wife's lover in a 'fit of anger' yet walked free due to jury sympathy and eventual Presidential pardon) was a classic case of this in my view, which lead to abolition of jury trial.

But what relevance to this post? Read the prebudget memorandums of industry associations/professional associations, and one thing often stands out-the plaint against retrospective tax amendments nullifying hard won court rulings, and also measures against tax evasion, that impose procedural burden and excessive withholding taxes. While one can sympathize with the affected parties, the fact remains that it is precisely the egregious conduct of the taxpayers/professionals, that leads to stringent law. The Statement of revenue foregone(presented annually in the Union Budget) proves conclusively that larger firms(as measured by pretax income) pay lower rates of tax. Whether this is the base effect or just effective tax planning is not clear, but one inference that can be drawn is that larger tax payers have the resources to engage the best hired guns to 'optimize' their tax liability, take aggressive tax positions, benefit from every loophole etc. And with the Supreme Court sanctioned tax planning(a position sought to to reversed in the proposed Direct Tax Code 2011), corporates can go about this with aplomb, and can even escape penalties as their issue is inevitably admitted by tribunals(which itself implies that IS debatable, thus no penalty under 271(1)(c)).  

So what does the revenue do? While they DO expose the draft tax law to comments at times, professionals do not have an incentive to report loopholes for plugging at that stage, rather they would want to benefit from the new business importunity therein of helping their clients. So when unintended tax benefits are taken, retrospective amendments are the only way out, especially for artful structuring and all. And while tax evasion measures may punish law abiding tax payers, the fact remains that left to their own devices, tax payers will have the incentive to bend the law just a tiny bit(especially given the new limits for tax effect below which appeal will  NOT be filed by Revenue in administrative/civil forums). Expecting taxpayers to be law abiding by choice AND having a self assessment regime, implies that penalties must be stringent to ensure compliance.

While this may not be the most optimal economic outcome in terms of compliance costs, such measures are necessary in an environment where taxbase is already very low. Else, we may end up in Greece like scenario where the number of luxury car owners far exceeds the relevant tax base!

Thursday, January 19, 2012

Hippocratic oath or Hypocratic oath-where has medical ethics died

Though I'm not a medical professional(that's why I could write this bold title), I've quite a few relatives, friends and others in the medical profession. To them, I say that this is a general article not targeted towards any class, but that what I noticed reflects a non-significant proportion of doctors. The Hippocratic oath( is not free from controversy, with even doctors questioning some aspects of it. But it is still largely accepted. Below, I reproduce a modern version of the oath in Italics, with my comments in normal print.Given the modern issues of high cost healthcare/medical insurance overcharging/reluctance to admit mistakes/cosy nexus with pharma companies marketing staff/low continuing education etc, it would seem at times that the hippocratic oath is practiced by hypocrites. Civil comments welcome below.

I swear to fulfill, to the best of my ability and judgment, this covenant:
  1. I will respect the hard-won scientific gains of those physicians in whose steps I walk, and gladly share such knowledge as is mine with those who are to follow.  Doctors do teach and avoid plagiarism(atleast not much more than other professionals). So there, they escape censure.But seeing the very small number of multi doctor practices in India(as compared to USA), it is doubtful whether doctors care about sharing knowledge with non relatives. Also, while continuing professional education is implicit in this, it is an open question about how many doctors rely on industry funded seminars/sales representatives to educate them, rather than take the pain to subscribe to and read authoritative journals/attend study circles etc.
  2.  I will apply, for the benefit of the sick, all measures [that] are required, avoiding those twin traps of overtreatment and therapeutic nihilism. Afraid of being sued and mindful of the revenue generation obligation, doctors tend to prescribe unnecessary tests. Also, simple remedies like those of homeopathy are not advised-either the doctor does not know them, or prefer allopathy. While the doctor has the right to his professional judgement to reject alternative medicine, the patient should have an informed choice to that extent. And that is what is often missing today.
  3.  I will remember that there is art to medicine as well as science, and that warmth, sympathy, and understanding may outweigh the surgeon's knife or the chemist's drug. In the corporate approach of quick turnaround times, cold clinical approach and preferring standardized jargon/self education, this is easy to forget. And for those not so literate/tech savvy/assertive, the chance of being misdiagnosed/not receiving optimal treatment is there. Not all hospitals are as sensitive like say Sankara Netralaya, which despite being in the South, set up a Bengali speaking reception counter catering to its patients from that region. Doctors IMO prefer jargon to explaining in Plain English to the patient/those accompanying him.
  4.  I will not be ashamed to say "I know not," nor will I fail to call in my colleagues when the skills of another are needed for a patient's recovery. While second opinions and referrals are taken, I doubt whether this is done on a old-friends basis, or purely on the basis of competence. 
  5.  I will respect the privacy of my patients, for their problems are not disclosed to me that the world may know. Most especially must I tread with care in matters of life and death. If it is given me to save a life, all thanks. But it may also be within my power to take a life; this awesome responsibility must be faced with great humbleness and awareness of my own frailty. Above all, I must not play at God.  Abroad, the topic of doctor assisted enthusania is still being debated, but undoubtedly it is against the classical version of the oath.
  6. I will remember that I do not treat a fever chart, a cancerous growth, but a sick human being, whose illness may affect the person's family and economic stability. My responsibility includes these related problems, if I am to care adequately for the sick.  This is the closest that the oath gets to advising the holistic approach embedded in Eastern medicine approaches like homeopathy. However, I'm yet to see allopathic doctors follow that approach in practice..
  7.  I will prevent disease whenever I can, for prevention is preferable to cure. The family doctors(conversant with their patients and their family history) are likelier to do this. But for corporate hospitals/others, while they do have the data, they are likelier to use it for cross selling insurance/other services like checkup than use it for diagnostic purposes.
  8.  I will remember that I remain a member of society, with special obligations to all my fellow human beings, those sound of mind and body as well as the infirm. This is violated to the greatest extent in my opinion. Hospitals are reluctant to admit accident victims, render probono services etc. While this behaviour is rationally understandable in a supply constrained situation like India, shirking one's obligation of public service, undermines the right to be called a professional. And for practices like not reserving the agreed proportion of hospital beds/services for the poor, there is no excuse.  
If I do not violate this oath, may I enjoy life and art, respected while I live and remembered with affection thereafter. May I always act so as to preserve the finest traditions of my calling and may I long experience the joy of healing those who seek my help.

Monday, January 16, 2012

Prebudget memorandums sometimes blatantly demand the moon-the case of ICSI Budget 2012

Come Dec-Jan, and industry associations/professionals etc are all busy giving their 2 bits on what the finance minister should dole out as sops during the ensuing Budget. While some like the ICAI now also focus on measures to plug tax loopholes/help the Government, many of these memorandums read like lobbyist's propoganda. Quite a few don't even make a pretense of being objective/reasoning out the demand properly, but just demand the moon. My critique below is not politically correct because this approach is such a widespread practice today!

While reading the ICSI's prebudget memorandum(,  I did see some novel points like giving weighted deduction to CSR expenditure(naturally certified by a company secretary!), but otherwise many points bordered on the absurd, or had very narrow outlook/ill reasoned. Some examples are given below
  1. Abolishing MAT on LLPs;-The logic is that The Finance Act, 2011 introduced Alternate Minimum Tax on Limited Liability Partnerships which challenges  the main advantage of formation of LLP over the companies. But, LLPs have sound business reasons like that of limited liability and large size, for which MAT seems a fair bargain. 
  2. Deducting of STT under Capital Gains head:-  Suggestion is that The STT paid may be allowed as deduction by including it in the cost of acquisition and selling expenses under the Capital Gains. It will help in strengthen the capital market. However, it overlooks the fact that concessional capital gains treatment was possibly partly due to the additional revenue given from STT. Giving away some of this tax benefit without commensurate revenue benefits, does not make sense at all from revenue perspective. 
Other general cases are the usual demanding of additional professional certifications/recognitions like compliance certificate, authorized representative etc. While some points are revenue positive like hiking TDS(when no PAN supplied) rate to 30% in some cases, CESTAT benches etc, the overall tone/intent still does not change. I pointed out the ICSI one specifically as it had the maximum breaches but even other associations are guilty in this regard.