Friday, November 20, 2009

The Sharjah Quagmire

KHALEEJ TIMES

The Sharjah Quagmire
21 November 2009

I appreciate the Sharjah government for continuously working to control the traffic congestions in the emirate.

The main reason for the formation of congestion is lack of easy excess to the road leading to Dubai and entry to Sharjah. For example, to get entry to the south ring road, vehicles coming from the city have to take a zig-zag turn near Safeer Mall. Then the road narrows to one track leading to the first flyover.

Even though the ring road is wide, there is only one track to enter all the four roads leading to Dubai. The situation is the same for the traffic leading to Sharjah from Dubai. Though the roads are wide, it becomes single track near the flyover, and this leads to the piling up of vehicles.

The solutions are:
a) Route the Al Khan road directly to the ring road
b) Increase the number of tracks in the exit to Dubai from ring road and vice versa towards Sharjah.

I hope the authorities will consider these suggestions to ensure the smooth flow of traffic into and out of the beautiful city of Shrajah.

K V Shamsudheen,
Sharjah

Saturday, November 7, 2009

REPRESENTATION FOR DIRECT TAX CODE

To

Shri: Dr. Pranab Mukharjee
Hon. Finance Minister
Ministry of Finance
North Block Ist floor, Parliament Street
NEW DELHI 1100001

Dear Sir:

Sub: REPRESENTATION FOR DIRECT TAX CODE:

Sir, first let me congratulate you for bringing Direct Tax Code draft in such a shortest time. But we NRI’s staying UAE feels that this Direct Tax Code Punishes NRI’s by laying higher taxes than the Resident Indians. Sir, as you are aware that in 1992 the then Hon. Finance Minister Dr. Manmohan Singh brought a scheme known as FOREIGN REMITTANCE SCHEME 1992 in this scheme App. 9mn US $ foreign currency came to India out of this App. US $ 6 mn came from middle east \ Gulf countries alone.

Sir, in UAE majority of expatriates from Kerala & other south Indians states and 95% of these expatriates are employed and staying mostly as bachelors, leaving their family & loved ones in India working here on odd whether conditions the only motto of these people is to earn money & send to their families in India. You will surprise that large number of Middle east NRI’s are holding lot of Bank Fixed deposits in Indian Nationalised banks like SBI’s etc.

Sir, since last 50 years (i.e. from inceptions of income Tax Act 1961) always NRI’s Treated special status and given lot of tax benefits because they are contributing foreign exchange reserves to Indian government. But this is the first time in last 50 years NRI’s are placed in maximum disadvantageous position by way of higher taxation as compare to the Resident Indians , therefore on behalf of these NRI’s I am drawing your kind attention to the following clauses of the Direct Tax Code Provisions:

1 Section 4 of IT Act amended & Resident but ordinarily (R& OR) status has been proposed to be removed. By which NRI’s foreign income for subsequent 2 years is will be taxable, sir as we are aware that generally NRI’s also keep some portions of their savings abroad to future contingencies like education of children’s or to meet medical expenses etc. by this amendment NRI’s are required to pay taxes on these foreign deposit from very second year of their returning to India. similarly now professional like visiting doctors , professors etc who are visiting to foreign country for their profession are also hit by this provision.

2 Capital Gain: Majority of NRI’s holding Indian company equity shares for long time, now this attracts 30%capital gain tax which is the biggest hardship to the NRI’s investors. Therefore we urge that as per old system long term capital gain on sale of shares may be continued.

3 It is more heartening to note that direct tax code proposes that there is no difference of tax between long term & short term capital gain & section 112 to 115 dealing specially NRI’s capital gain tax on investment is going to be deleted in the tax code.

4 Interest income on investment: under new code it will be taxed @ 20% for NRI’s where as resident Indian will pay tax only 10% up to income of Rs 10 lakhs , hence we pray that NRI’s interest income may be placed at par with Resident income i.e. upto Rs 10 lakhs the tax rates may be brought down to 10% for NRI’s also.

It is also said that other income like bank interest etc of NRI’s charged @30% if this is true kindly look this following example :

Mr. Shaji Non resident Indian staying in UAE and assume that he receives Rs 3 lakhs PA from SBI Cochin as interest on his fixed deposit. Now he is paying tax only of Rs 14,000 as under:
1ST 1,60,0000 NIL
Nest 1,40,000 10% 14,000

If new code comes he has to pay 30% tax on his Rs. 3 lakhs bank interest income and liable to pay tax of Rs.90,000 as against his present tax liability of Rs 14,000 only, kindly look into this issue. And we humbly pray that NRI’s may be given confessional tax benefit like Residents.

5 Some expert also says that since word used in the code for NRI’s Tax is as per Companies rate means No basic exemption of Rs 1.60 lakhs available & confessional rates of taxes like 20% for next 15 lakhs also not available, and 80 ( C ) deductions also not available which will effect very NRI’s badly.

6 Most of these NRI’s holding their one or two houses in India which will be used after their retirement. The new tax code proposes income of 6% retable value & where no retable value available 6% cost of construction or cost of acquisition. Suppose Mr. Shaji constructed house in his native place at Kerala say cost of Rs 1 cr & say no retable value certificate available & no rent received still as per new code his income from house property is Rs 6 lakhs PA (6% of 1 CR) & he is liable to pay tax (on Rs 6 lakhs @30%) 1,80,000 PA ?

Further if house is self occupied no deduction will be available for local taxes paid and interest paid on housing loan, now what happens lot of NRI’s acquired houses in India on the support housing loan from Indian banks & some hoses are still under construction what will be their fate if they are retiring where shortly and planning to spent their retired life in India. Are they liable such exhiborant tax ?

7 Sec 54 amended at present ,selling of one house & buying another residential house no capital gain tax will be payable subject to certain conditions, now it is propose to amend this section & capital gain benefit is available for only one residential house that means if a person wants to change one house to another first he require to sell old house than by new else capital gain tax will be payable on sale of old house. which again penalizes those NRIs who invested in 2 or 3 residential houses as per their future planning to distribute these houses among their children’s or brothers etc. 10 TDS: At present only NRI’s are liable to pay education cess @2% and higher education cess @1% on TDS amount. But from 1st October 2009 local Resident TDS this 3% cess is not applicable. No logic for keeping cess only NRI’s on TDS not understood , therefore we pray that NRI’s may be kept at par with local Residents for TDS purposes.

8 TDS for foreign sports person is only @ 10% than why for NRI’s TDS on capital gain on sale of shares is @ 30% & investment income @ 20% and bank interest @ 30%, plus 3% cess, why this harsh method taxation to NRI’s.

9 As per new TDS provision if PAN number is not provided than such TDS is to be deducted @ 20% instead of normal rate. Sir, lot of Middle East expatriates working in remote areas. Though they have invested some of their savings in mutual funds & shares about few years ago (though their investment value eroded in last 2 years because of share market down fall) and their dividend income is such a low some time bank collection charges are much higher than dividend income, it is also very cumbersome & tedious procedure for obtaining PAN card for NRI’s. finally now a days income tax dept issuing Scrutiny notices under CASS on the basis of PAN number only. Therefore lot of NRI’s not coming forward for pan cards & even some NRI’s thinking to cancel their PAN number just because of above problems. Therefore we NRI’s pray that this pan requirement for tds purpose for NRI’s may be exempted & scrutiny case selection cannot be made only on the basis of PAN card alone.

10 EET (EXEMT-EXEMT-TAXATION) : under this scheme one can invest money now in PPF or other govt approved savings scheme but when you withdraw you have to pay tax, that means no incentive for savings. only you are postponing present tax liability to future date.

11 For NRI’s filing wealth tax Return is another big problem. We pray that NRI’s may be exempted from filing wealth tax return and more specifically assets held outside India and assets created from foreign currency by NRI’s may be exempted from wealth tax other wise it will create lot of problems like obtaining market valuation of properties every year.

12 Section 264 removed , which says that assessee can file application U\S 264 within one year from the date of assessment order, if CIT(A) filed beyond 30 days & if CIT(A) refuse to condone delay normally assessee prefers 264 now that is removed. Which causes hardship to NRI’s because communication assessment order and instruction NRI’s generally takes beyond 30 days.

13 A foreign company will be considered as Resident company if partial control & management in India.(earlier provision was only full control & management in India) In this case world income will be taxable in India. In the code no where defined what is partial control & management. Ex: tomorrow by just keeping one or two staff in India can it be said as partial control in India. As we are aware that lot of NRI’s opened private limited companies in India for technical purpose only and entire business done outside India by these NRI’s. Now they have to pay tax on earnings made outside India also.

14 U\S 166 of the code, ITO can reopen your case upto 7 years on the basis of subsequent high court or supreme court judgment. Take a case of M.A.Rafiq who was partner of RSM chartered Accountant DUBAI. He obtained Advance Ruling on India & UAE DTAA in 1997, and enjoyed capital gain exemption on sale of shares. 1n 2005 in the case of Cyril periera case AAR ruled that Indo UAE DTAA benefit not available to Cyril periera because no tax in Dubai. In 2005 same AAR in Abdul Razak Memon case ruled that Indo UAE DTAA applicable but capital gain tax exemption not available. Suppose on the basis of crycil periera case for A.Y. 2004-05 opened in 2009 (because as per sec 166 ITO can reopen the case in 7 year) and Rafiq died in 2006, and during his life time case not reopened, now one can imagine the difficulties faced by Rafiq’s legal heirs at this juncture. earlier law was reopening was done only for limited extent like mistake apparent from records only.

15 As per sec 167 of the code the rectification, can be done by ITO in next 2 years even on the basis of subsequent court or tribunal judgments in any other case. How the assessee know what will be law or after 2 years, So Section 166 & 167 most dangerous in the code which will give lot of litigation harassment to the assessee. Same are required to be dropped from the code.

16 GENERAL ANTI AVOIDANCE RULE-GAAR: Another Most Dangerous provision in direct code. Is GAAR. the CIT can treat any transaction entered into by the assessee as impermissible avoidance agreement and tax can be charged if the CIT is of the opinion that the assessee has avoided any tax by entering into such transaction.

17 Fifth Schedule of Direct Tax code gives very wide &dangerous powers to Tax Recovery officer, like attach movable & immovable properties , take coercive measures etc. Part V of the fifth schedule gives power even for arrest of the tax defaulter. Take example Mr. X filed a income tax return showing income of say Rs 2,00,000 & case selected for scrutiny & say ITO assessed income as Rs. 8,00,000 on this additional Rs 6,00,000 he requires to pay tax of Rs 1,80,000 plus equal amount of penalty i.e. another Rs. 1,80,000 plus, interest come app. to another Rs, 3,00,000. thus his total liability (1,80,000 1,80,000 = 3,00,000 =)6,60,000 on a income of Rs. 2,00,000. in such a situation if Mr. X fail to pay 6,60,000 in this situation if TRO arrest him please imagine embarrassment of Mr. presuming X files CIT(Appeal) which is first appeal & say here entire addition was deleted than how do we justify his arrest

THIS IS THE FIRST TIME INCOME TAX HISTORY( i.e. in Last 50 Years) ARREST PROVISION IS BROUGHT INTO INCOME TAX ACT, which is very danger & offen misused this provision by the tax recovery officers.

Respected Sir, these sections of Direct Tax Code will adversely affect all NRIs in many ways. It will lead to multitude of litigations with NRIs and discourage NRI investments in India as well as remittances. As NRIs work abroad, this may result in unnecessary harassment of their family members back home by tax officials. NRIs will be hard put to fight legal cases slapped against them as they cannot present themselves in courts at home. Thousands of NRIs, particularly those working in the Gulf are blue collar workers and they should not be subjected to unnecessary harassment.

So we request you not to change the existing system and urge the government to drop the new tax code clauses affecting the NRIs. A large number of NRIs live away from their families in India and are already facing social and psychological pressures and any move to add to their woes should be dropped.

In fact because of the global recession thousands of NRIs are losing jobs or getting reduced salaries. Governments like the one in Kerala are trying to introduce schemes to rehabilitate those returning from abroad after losing jobs. At this juncture, the Government of India should be introducing helpful and liberal taxation to help the NRIs and not introduce new clauses that will take away their ever dwindling income. The hard-earned foreign exchange from NRIs also has helped the government in meeting foreign debt obligations and also in buying gold from the IMF recently. So we request the government to help the NRIs more with liberal tax regime so that they can contribute more to the welfare of the motherland.

Yours truly,

For Pravasi Bandhu Welfare Trust
Sd/
K V Shamsudheen
Chairman
Pravasi Bandhu Welfare Trust
(Reg. No. 325/IV/2001)
Registered Office:Calicut 673001, India
Overseas Contact:
Post Box No. 940, Sharjah, UAE
Mobile: 00971-50-6467801
Email:kvshams@gmail.com
www.pravasibandhu.com

November 7, 2009