March 18, 2002

This is what’s wrong, Mr. Sinha!

If there is one criticism I have leveled at this budget it is where I have been hit hard – withdrawal of tax exemptions. In principle I have no quarrel with the fact that as income tax rates are brought down (and a highest slab of 30% is low enough), exemptions should be minimum and procedures should be simplified. Moreover, as everyone knows and at the risk of repeating ad nauseum, let me state that the government has to increase its revenue base since it has very little leeway politically on the expenditure front. My disagreement/ disappointment with Mr. Sinha is on three counts:

• Firstly, there has been no attempt to reduce the black economy. Whenever there is a crisis there is an amnesty scheme given to the purveyors of black economy which makes a complete mockery of the honest taxpayer. (S)he (the honest taxpayer) feels cheated instead of being rewarded. I strongly believe the only disincentive against evasion of taxes would be strict, severe and swift punishment. Fear would be the only deterrent – otherwise few years down the line the same people would once again queue up to avail of another amnesty scheme. I of course have no readymade solution of how to bring in the black money into the white economy.

• Secondly why is agricultural income not taxed? It is high time that this holy cow was brought under the tax net since the rich farmers can jolly well pay taxes. As is well known many industrialists and farmhouse owners may stop declaring their profession as "agriculturists" if agricultural income is taxed.

• Thirdly I believe that the slabs of various rates should have been moved upwards. It is unrealistic that a person earning Rs1.5lacs pr annum would be in a position to save Rs80,000 to avail of the Sec88 benefits that the government is so considerately giving the salaried class. Also the highest tax rate of 30% should start at a higher level of income rather than at Rs5lacs per annum.

I did wonder as to why the Finance Minister was not doing what was pretty obvious and commonsensical. I realized it when I read a statement by the Finance Minister on one of the websites and the same is reproduced: "Referring to the criticism that removal of rebates on income above Rs500,000 was a big blow to the middle class, Sinha said: "My arithmetic shows that people in this category are only 3,65,000 and have an income of Rs40,000 per month." The middle class is of about 200 to 250 million." The fact is that even after a decade of reform and attempts to increase the tax payers database, the facts and figures with the Finance Minister are woefully incorrect. If there are only 365,000 people in this country earning more than Rs500,000 per annum then I am Mickey Mouse. The problem is once again of under declaration of income. If one even takes into account just the number of flats and bungalows say in Cuffe Parade and Malabar Hill, I would not be surprised if the Minister comes up with a number exceeding a few lacs. I believe the situation would be no different in New Delhi. And if all the Minister’s calculations are based on such incorrect numbers, then god save this country.

Even if the Ministry’s database is not computerized, the Ministry can at least access the database of frequent flyers on airlines, people staying in five star hotels and going abroad on holidays – this itself would be a reasonable indicator of people who earn above Rs5lacs. Lets look at another piece of information as reported in Economic Times on Wednesday. In the current fiscal till Dec 01 LIC mopped up Rs15bn from premia on policies of Rs10m and above! This is in just nine months and that too only of LIC. In Mumbai LIC has 2000 proposals pending for Rs50lac policies. This is in this year and the Finance Minister believes that only 365,000 people earn more than Rs5lacs per annum. Looking at the salaried class in the organized sector for taxes is what’s wrong with your policies Mr. Sinha! It is time you looked beyond the salaried class individual to increase your tax base and enhance your revenues. The salaried class individual can only bear so much of the burden and with your policies you are making him/ her think of creative ways to avoid taxes.  

  Courtesy : India Infoline

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