THE RECENT ROLLBACK OF E.P.F. REFORMS IS A GOOD SIGN
OF GOOD GOVERNANCE.
The
Employees’ Provident fund (‘EPF’ in short) was constituted in the year 1952
through an Act for the purpose of instituting provident fund, pension and
deposit linked insurance fund for employees in factories and other
establishments. (1) In construing the provisions of the Act, we have to bear in mind that it is a beneficent
piece of Social Welfare legislation aimed at promoting and securing the well
being of the employees…. (2) There are a good number of reasons why EPF should
be encouraged looking at present and future needs of the society instead of
weaning employees away from it or investing or devising new systems for
socio-economic security of citizens.
The
recent proposals and radical changes made to the provisions of the Act made
citizens especially members of the EPF rethink whether to continue with or open
an account or not, which although is compulsory by law for certain employees.
With
rising contractualization of labour of not only unskilled but also professional
and highly skilled jobs , rising automation of jobs there is a rising
in-formalization of jobs.
Contract workers constituted about one-fourth of all workers
in formal manufacturing in India in 2008. (3)A total of 384 million persons are
employed at various levels and out of the total employed 51% are self-employed,
while 33.5% are engaged as casual labour and 15.6% are employed as regular wage
or salaried employees as per 66th Round of NSSO, 2009-10. (4) Economic
globalization is undermining economic development by driving many workers into
low-paid, insecure jobs.(5)
Barely
34 million (or less than 11%) of the estimated working population in India is
eligible to participate in formal provisions meant to provide old age income
security. Therefore, almost 90% of India’s workforce is not eligible to
participate in any scheme that enables them to save for economic security
during their old age. Hence there is an urgent need to involve unorganized sector.
(Defining unorganized sector-(5A)). (6)
In India, due to the absence of a
comprehensive social security system funded by the Government, it is the
collective responsibility of the nation that citizens have access to the
information and infrastructure to prepare themselves for their old age, and hence the Employees’ Pension Scheme can come to
the rescue. The current retirement funds corpus is expected to be in the range
of INR 12,000-15,000 billion. Almost one third of the corpus is in the
Employees Provident Fund, which is the principle source of retirement planning
for workforce in the organized sector. By 2030, 12% of India’s population will
be in the age bracket of 60+ years, which translates into ~ 180 million people.
Because of the sheer numbers, this will be a very large population - much
larger than the population of many developed countries.(7)
More
than 60% of India’s population in the age group of 15–59 years. This is a
demographic dividend of which the country is proud. However, at the same time,
the percentage of its population that is above 60 years is increasing every
year due to improved longevity, driven by an enhanced focus on health care,
rising income levels and a better standard of living in the country (8) and
further the youth of today will be elders of tomorrow, let’s not forget that.
The
need is to bring citizens into organized sector of employment with a habit of
saving money for future. If the existing system of Employees’ Pension Scheme
can be strengthened it will be beneficial for the Nation’s future.
What
got rolled back?
1)
taxing
60% of the corpus of EPF of employee on its withdrawal. 60 per cent of EPF withdrawal will
be taxed as income if it is not invested in an annuity offered by an insurance
company. However, the subsequent income stream from the annuity will be taxed.
(8A)
2)
Contributions
from financial year 2016 onwards, only the employee contribution and interest
can be withdrawn entirely. The employer contribution will be locked–in till you
turn 58.
3)
(i)Raising
age of retirement from 55 to 58. (9) (ii) Tightened rules governing
withdrawals,(9)(iii) Quarterly revision of interest(9),iv) No interest on
dormant/inoperative accounts.
Is Government taking steps towards reducing its liability? What I perceive is that Government wants to give a signal
that Just as the government cannot bear the cost of providing for an ageing
population, you will yourself find it hard to fend for your needs with higher
cost of living and lower returns. Government should understand that the
contribution of employees is helping Government’s fiscal deficit and need to
take loans from agencies outside India thus EPF is mutually beneficial
legislation.
The present roll back of all changes that Central Government
proposed and tried to implement may or may not be an indication of image
makeover in the wake of recent elections that started from 4 th April 2016 in
the states of West Bengal, Assam, Kerala, Tamil Nadu, Pondichery and vote
counting on May 19, 2016.(10) and who will not favour safer and fixed stable
income. No one will be impressed by a party that takes anti-populist measures.
Is it possible that in future it might get re-implemented? Looking
at such a scenario, the point to contemplate and decide is whether employees
should withdraw the money as much as possible whenever possible or trust the
Government on the issue that the dilemmas on issues of EPF is buried deep
for the present term of this Government at least.
Given that 90 per cent of India’s
workforce has no form of retirement savings, any move to shrink the existing
EPF cover makes no sense. If an entire generation of Indians faces a pension
shortfall 20 or 30 years hence, the problem would certainly come back to haunt
policymakers.(11)
The rollback of the controversial EPF tax proposal is a step
in the right direction and will bring welcome relief to the salaried
class. Freedom to use retirement savings is of paramount importance to
salaried group, which is created to take care of their sunset years. People
often tend to dream of a face lift change in lifestyle by purchase of either a
car, television, a new house, marriages of children, a source of income for
family in case of job loss of any of the family members or put in a monthly income
plan in banks and many more things with the lump sum of provident fund amount
that employees get after retirement or he/she wishes to buy a dealership or
start up a consultancy, on employee’s name or his/her sons’ or daughter’s name,
this fund can be useful for starting a second professional life of employee or
employee’s family. Hence compelling an employee to shift to National Pension
Scheme account by showing the stick of tax deduction as tax can form a
significant part of the fund amount is not a sign of good governance.
LIST OF REFERENCES:
(1)
http://www.epfindia.com/site_docs/PDFs/Downloads_PDFs/EPFAct1952.pdf : As last seen on 17 May 2016:at 11:14 AM.
(2) Andhra University Etc vs Regional
Provident Fund ... on 8 October, 1985,Equivalent citations: 1986 AIR 463, 1985
SCR Supl. (3) 582: https://indiankanoon.org/doc/93844/ : Last visited on 11 May 2016 at
11:27 AM
(3) http://www.ideasforindia.in/article.aspx?article_id=364#sthash.ltCrRtYi.dpuf : Last visited
on 17 May 2016: at: 1:42 PM
(5)
http://www.thebrokeronline.eu/Articles/Low-wages-and-job-insecurity-as-a-destructive-global-standard last visited on
17 May 2016 at 1:45 PM
(5A)http://www.thehindu.com/opinion/columns/Chandrasekhar/indias-informal-economy/article6375902.ece: Last visited
on 17 May 2016:2:50 PM
(7) http://www.ey.com/Publication/vwLUAssets/EY-Pensions-business-in-India/$File/EY-Pensions-business-in-India.pdf: last visited on 17 May
2016:at2:06 PM
(8) http://www.ey.com/Publication/vwLUAssets/EY-Pensions-business-in-India/$File/EY-Pensions-business-in-India.pdf: last visited on 17 May
2016:at2:06 PM
(8A)
https://www.valueresearchonline.com/story/h2_storyview.asp?str=30458
(11)http://www.thehindubusinessline.com/opinion/editorial/right-rollback/article8327948.ece
