Context: Finance minister recently announced a relief package for businesses, easing tax compliance and bankruptcy rules in a bid to help companies and workers cope with the fallout of the coronavirus pandemic.
More about the announcement of the economic relief measures:
The measures include tax relief, both direct and indirect and everyday working norms for a variety of economic magnates such as exporters and importers, small and medium-sized firms, and individuals as well.
- Government has taken following tax compliance relief measures
- Waived Late fee,
- Interest and penalty on delayed tax payments,
- Gave extra time for various statutory compliances and
- Raised the threshold of payment defaults to trigger bankruptcy proceedings from ₹1 lakh to ₹1 crore. This will help micro, small and medium enterprises (MSMEs).
- If the economic distress continues or intensifies — the government would consider suspending Sections 7, 9, and 10 of the IBC for a full six months after April end. These sections are provided in the box below
The Section 7 of the Act empowers the government to give directions to the central bank on matters of public interest. The RBI Act empowers the government to give directions to the central bank on matters of public interest.
Section 9- Application for initiation of corporate insolvency resolution process by operational creditor.
Section 10- Initiation of corporate insolvency resolution process by corporate applicant.
- The above date extensions and waiver of late fee, penalties and interest are for compliance requirements relating to
- Income tax: Deadline for filing income-tax returns for 2018-19 has been relaxed and the penal interest rate has been reduced.
- The goods and services tax (GST)
- Customs and central excise
- Compliance and regulations related to the Companies Act
- Insolvency and Bankruptcy Code (IBC)
- The fisheries department
- Banks and commerce.
- FM has also announced three more months for filing income-tax (I-T) returns for FY19 as well as for linking their Permanent Account Numbers (PAN) with Aadhaar unique identity numbers.
- For the common man:
- Debit cardholders will now be able to make any number of cash withdrawals from ATMs of any bank for three months, without being charged for them.
- The government also waived the minimum (account) balance fee and reduced bank charges for digital trade transactions for all trade finance consumers.
- In case of delayed deposit of tax deducted at source (TDS):
- Interest has been halved to 9% for payments deposited by 30 June 2020.
- Assessees could sign up for the direct tax dispute settlement scheme Vivad se Vishwas till 30 June without the additional 10% charge.
- The payment due date without interest under the indirect tax dispute settlement scheme Sabka Vishwas was also extended to the end of June.
- The due dates for various actions like filing of appeals, furnishing of returns, investing in savings instruments or investments for rollover benefit of capital gains tax under various laws administered by the revenue department were also extended to 30 June.
- Apart from the compliance relief covering eight areas an economic package is also being readied.
Significance of the above economic measures
- Reducing the burden on the Formal sector: These measures will reduce the regulatory and compliance burden in the formal sector of the economy.
- Help the troubled firms: These decisions will certainly help at a time when firms are not only facing tremendous disruption in their supply chains, but are also finding that the demand for their products and services has almost evaporated overnight.
- Need to take direct measures: The above economic measures do not directly provide money to the distressed sectors; these measures only stop asking for dues for the time being.
- Need of focusing informal sector of the economy as well:
- About 90% of employment in India is in the informal or unorganised sector.
- Economic slowdown affects that sector the most, and is likely to result in massive unemployment and deprivation.
- For instance, to support unorganized construction workers who sustain their livelihood on daily wages, an advisory has been issued by the Ministry of Labour and Employment to all the States/UTs to use Cess funds(under the Building and Other Construction Workers Cess Act) for Welfare of Construction Workers.
- Need of tackling problem associated to job losses:
- Various steps on the lines of Kurzarbeit, a scheme in Germany that provides for partial compensation for a worker’s earnings in such situations, can be taken.
About Germany’s Kurzarbeit scheme
Scheme provides for partial compensation for a worker’s earnings in adverse situations, and is now modified to account for the current COVID-19 pandemic.
- Kurzarbeit is German for “short-work”. The policy provides for a short-time work allowance, called kurzarbeitgeld, which partially compensates for lost earnings during uncertain economic situations.
- Understanding shortened work hours:
- When companies face a loss of earnings due to unforeseen economic situations, they often need to cut back on their working hours or send some of their employees home.
- This scheme aims to address workers who are impacted by loss of income due to shortened work hours during such times.
- Stepping in of the government:
- Workers who are impacted can apply for short-term work benefits under the scheme, with the government stepping in to pay employees a part of their lost income.
- This helps the companies retain their employees instead of laying them off, and allows the latter to sustain themselves for a period of up to 12 months.
Origins of the idea
- The scheme dates back to the early 20th century, according to a 2011 paper in International Labour Review, titled ‘Short-Time Work: The German Answer to the Great Recession’.
- The trigger for such a policy was an amendment made to tobacco tax laws in 1909, which eventually led to less work in tobacco processing plants.
- Period after WW-I:Short-time work benefit was integrated into the newly created unemployment benefit scheme for all sectors of industry in Germany.
- 2008 Financial Crisis:Germany’s use of Kurzarbeit during the 2008-2009 economic crisis has been cited as one of the reasons why the country was able to hold its unemployment rate to within 7.5 per cent even during the recession