Thoughts On Taxation And Other Matters : Inflation Is The Worst Type Of Taxation

It is now a more than one month since the new Government has assumed power. However, as per policy announcements, nothing much has come in the last one month. We are reading that Governors are being changed, which is neither here nor there. It is important to make some policy pronouncements so that the people know which direction this Government will take. On the political front there is no indication about administrative reforms or the manner in which they want to run the Government. In 1985, Rajiv Gandhi, on assuming office as Prime Minister, took certain decisions whereby the number of posts in the bureaucracy were increased manifold. Secretary level posts were increased in a manner that there are many Secretaries to the Government of India with very little work and very little importance. It would be wise to examine whether Secretary level posts can be reduced so that Secretaries to the Government of India are all in important positions and are doing work of some consequence. I have not heard any movement on this front. If the same bureaucratic set up is continued and decisions are taken on the basis of notes made in this system not much change can really come about.
In the Budget, which is due this week, if you really want to give relief for tax assessees, the exemption limit of income tax should be increased manifold so that the lower middle class is relieved from the agony of taxation which is already burdening them beyond the inflation. Inflation is the worst type of taxation and that shows no sign of abatement. The minimum this regime could do is make the exemption limit 5 lakh rupees so that people getting a salary of 30-40 thousand rupees per month do not have to pay income tax. The bureaucracy will not agree with this proposal because the result will be that out of the existing number of assessees, 60-70 per cent will go away from the tax bracket. The conventional wisdom of the West is that the tax net should be widened. The tax base should be widened. In India, that does not apply. Seventy per cent people live on agriculture and under the Constitution we have chosen not to tax agriculture. That leaves 30 per cent. Out of 30 per cent, 15 per cent are so poor that the question of charging tax does not arise. So, the total tax base in this whole country is 15 per cent. And out of this 15 per cent, probably one per cent are real tax payers, the rest are just eking out a living and we are charging tax on them, which is highly unfair.
The Governments in the last 20 years, in spite of liberalisation, could not change this because we are following the Western model. The need is to evolve our own model. It is a must for the Finance Minister to sit down with bureaucrats. Let us collect tax from the people who are really earning money. There is no harm in increasing the rate of taxation in the corporate sector from 35 per cent to 40 per cent and individuals from 30 per cent to 35 per cent, but on the rich, not on the lower-middle class and poor.
Salaried classes in any case, we are charging them tax at 30 per cent and businessmen also at 30 per cent. But businessmen are paying tax after all expenditure is deducted. They are paying 30 per cent on profit. But salaried people are paying 30 per cent on their gross income. It is highly unfair. The other method can be to reduce the salaried people’s taxation to 10 per cent. That will make sense. But, unless you bring relief to that sector of the population, relief makes no sense. If the Budget is going to be another normal Budget of a few per cent up or a few per cent down, then the purpose of this election or the claim of this Government that the people want a change and we have come for change will not cut ice.
As it is on the political front, the non BJP people, like all of us, are scared what will happen to the secular character of the country, what will happen to the minorities, what will happen to the freedom of the press? There are indications in the murder in Pune, whether it is a planned murder by some section of the people, people have been arrested for putting something on the Internet, all this is already creating consternation among liberal minded social democrats. On top of it, if you increase the rail fares, if you do not give relief on the taxation front, if you do not do anything different for the middle class then what change this Government will claim that they have brought about?The Budget is coming on 10th July as we have read in the newspapers. And that will give the first indications of which direction the policy is going. The only good thing that we have heard is the Agriculture Minister saying that the farmers will be given insurance better than what they have been given till now. The details have not come. But it is high time. Because of the vagaries of the monsoon — either failing or floods coming — the farmers are a helpless lot. If some relief, some insurance is given to them that will really be a big relief to the country because food self sufficiency is the first thing.
In the last ten years, agriculture growth has not been good and though we are still not in any crisis, but if this continues in the next 20 years then we will be in a crisis. Agricultural production should keep pace with the population growth and with modern technologies, modern science and modern developments in crop yield and productivity, a lot can be done in this sector and we have got enough expertise. Only the Government has to apply its mind to see that agriculture is accorded the same priority as industry or manufacturing which appears to be the priority of this Government.
We do not know the Prime Minister’s mind though he communicates through Twitter and Facebook etc, but after becoming Prime Minister the communication has been much less than what it was in the seven months or so when he was campaigning to become Prime Minister. They should formulate some sort of strategy to let the people know what the Government thinking is. More than one month has passed. It is high time the Government gives us what is the paradigm in which they want to function. The Congress paradigm we knew. The BJP paradigm, we do not know. The earlier we know, the better it is.


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