Simplification of Tax Rates Can Provide Impetus to India Inc.: Sanjeev Krishan, Chairman, PwC
Sanjeev Krishan is the new Chairman of PwC in India. Previously, he served as the Deals leader. A veteran of 29 years at the firm, Krishan became a partner in 2006 and has successfully led the firm's Transactions, Private Equity and Deals business over the years. In his first interview after taking charge, Krishan tells Ashish Sinha of BW Businessworld that there is headroom for a further simplification of tax rates that if taken can boost India Inc., individual tax payers and the tax collections.
Excerpts:
This year has been tough on companies and the economy. How has the pandemic affected PwC India? There was a major disruption. It was a time to pause and be with our people and clients. Certain aspects helped us navigate the crisis well. Embracing technology, in which we had been diligently investing, has been absolutely central to it, and the enhanced thrust on digital enablement is irreversible, to my mind.
We have helped our clients to restart, rethink and reconfigure their businesses. Most have not only adapted well to this disruption but responded with agility in bringing out efficiency and effectiveness in their operations, with focus on the evolving needs of their customers. This journey has brought us closer to our clients, helped build greater trust with them and got us aligned to their most critical missions.
What are your views on the need for further rationalisation of taxes - whether it is the GST regime, personal income tax or the corporate tax rates - in the backdrop of 'reviving the demand' in 2021?
The government has taken various fiscal measures in a bid to boost demand recovery. Rationalisation of tax rates or even simplification of tax rates can indeed be a step further for providing the much-needed impetus to India Inc. While the GST rate structure has been recalibrated to move away from the initial skew towards 18 per cent and 28 per cent, there is room for further rationalisation as we deal with a large number of slabs - 7 rate slabs for goods (zero per cent, 0.25 per cent, 3 per cent, 5 per cent, 12 per cent, 18 per cent, 28 per cent) and 5 rate slabs for services (zero per cent, 5 per cent, 12 per cent, 18 per cent, 28 per cent).
Once these rates are streamlined, the government can review and rationalise the current long list of exemptions extended to sectors such as textiles, real estate and hospitality.
Moreover, the government can consider extending the reduced corporate tax rates of 15 per cent to existing companies as well if they are making additional investments including capacity expansion and employing labour beyond predetermined thresholds. While headline corporate tax rates have been reduced, personal income tax rates are yet to see such a boost. Reconsidering the rates, say the steep jump from the 5 per cent slab to 20 per cent or reconsidering the highest tax rate, can potentially assist the government aim to widen the personal income tax base and may have benefits beyond demand recovery. Similarly, LLP and partnership firms shouldn't be required to pay tax at a higher rate than corporates as most small and medium businesses are organised as firms, LLPs and proprietorship.
What is going to be your focus as the Chairman of PwC? How do you see the first six months of 2021 panning out for PwC, for the Indian economy and for corporate India?
My main focus would continue to be our people. Their development and upskilling is key as that will enable us to deliver quality work, which will create more relevance for us as an organisation and also help build our brand. The focus on upskilling would be technology led, while also helping our people have broader conversations with clients and stakeholders.
From the client and the wider stakeholder perspective, even before the Covid crisis hit us, we were witnessing severe volatility across the globe caused by age and income gaps, technology disruption and geopolitical issues. This caused a trust deficit, which post-pandemic will likely cause many to seek outcome-driven propositions. As a purpose-led organisation, our focus would be to look at these two aspects and I do believe these would be our biggest opportunities in the near term.
As regards the Indian economy, at the macro level, returning to $2.9 trillion, the annual base economic capacity of India at the beginning of the crisis, is in my opinion just a first goal. We have already seen the benefits of digitising and formalising the economy. Continuance of this journey is bound to get us productivity gains. Government spending will have to be supplemented by private spending and this requires incentivisation beyond low rates of interest. Private capital investment is critical and in that regard, land and labour reforms are a good step.
We also do have the possibility to benefit from the geopolitical situation emerging in the New World Order but will need to make sure that we are able to bring down the cost of infrastructure and logistics. And finally, for India Inc - this is the time to accelerate their digital adoption in order to stay competitive. With rising global uncertainties, Indian enterprises have to scale and proactively expand their presence to benefit from the growing opportunities across our borders. Businesses must seize this moment to restructure their global supply chains and transition to new regional networks.
India Inc should invest in reskilling employees with long-term growth goals and keeping tomorrow's jobs in mind.
Finally, it must continue to also focus on innovation and investment as that will create sustained growth in their respective businesses and for the economy at large.
Are the Big Four effective agents of trust?
I think it comes back to the longer-term relevance and sustainability of the profession. To me, it is about delivering quality work, day in, day out, irrespective of what the task in hand is. The whole notion of what our stakeholders expect today from this profession is significantly different than what they expected, say, a decade back. Today, our role is much more complicated than it has ever been before, and the stakeholder set has become wider too. Not just anyone who looks to be or is impacted by our work, but also the society at large. The boardroom discussions have become broader too, for instance, take the whole focus on ESG and each of the elements that is Environment, Social and Governance, is both a responsibility and an opportunity.
Global Inc. is adopting sustainability in a major way, and most business decisions have an inherent component of environmental, social and corporate governance (ESG) and sustainability to be complied with. How do you think India is faring?
Conversations around ESG have become central of late. A common notion is that these have been exacerbated owing to the pandemic. Our Global CEO Survey which was released in Davos in January 2020 had highlighted that 25 per cent of global CEOs believe that climate change initiatives would lead to significant new product and service opportunities for their organisations. In India, the improvement in the pollution levels following the pandemic, and the movement of migrant labourers brought to fore the E and the S elements of ESG like never before. The benefits and the pitfalls were more evident. I would like to acknowledge the role of investors specifically the sovereign and pension funds in this regard. They have been focusing on this aspect for some time and working on raising the awareness amongst their investee companies. Many of them are now establishing metrics for their investee companies to follow and also setting up ESG benchmarks for new investments. This will make ESG even more central as India seeks private capital to revive and restore growth after the pandemic.
Likewise, ESG metrics are being set up by large foreign and even domestic customers for their suppliers and this will also drive adoption. A number of Indian companies are looking at renewable energy alternatives, reducing their emissions and adopting a more conscious approach with water consumption. We are also seeing several consumer businesses integrating a more sustainable and eco-friendly approach to their manufacturing processes. A host of global corporations including major oil players have made net-zero commitments. The correlation between ESG compliance and long-term sustainability of a company is becoming more evident and we firmly believe ESG would be a definitive value creator in times to come.
A lot is being said about how India can be the new manufacturing hub for the world. How feasible do you think that is and what would it really entail for India?
This is an opportunity for India to attract companies and investments that would help create the much-needed jobs, lead the country towards economic revival and help get back to the 8 per cent growth trajectory. Usually, we'd expect the manufacturing sector to have a multiplier impact on the economy owing to the widespread supply chains and distribution networks which would spur the services sector too and aid employment generation. However, the quality of industrial infrastructure is critical for attracting large investments. The good news is that some groundwork in terms of long-term pending reforms are already underway - like those around labour, land, etc.
While our labour cost may be on the lower side, as I mentioned earlier, it has to be supplemented by competitive infrastructure and logistics cost frameworks too. Likewise, another key focus has to be continued skilling of our workforce - this will make sure that India becomes the hub not just for "commoditised" manufacturing but also for niche, precision-based manufacturing segments too. Finally, continuous focus on R&D and encouragement to technology adoption at the shop floor, including automation adoption would be key differentiators.
"The correlation between ESG compliance and long-term sustainability of a company is becoming more evident, and ESG would be a definitive value creator in times to come"
