Progress with less tax burden

Year of New Politics

By Shivaji Sarkar

The New Year, 2018, is a week old. It raises aspirations and there is hope all around. The first day of the year showed the core sector growth hitting a 13-month high and car sales grow highest in four years to cross three million. It also raised problems for the Government as the indirect tax kitty tightened. As a result the government is toying with higher direct tax realisation to manage the revenue shortfall.
So a new year is just another year and whatever will be cannot be prevented. It is also the year that prepares for the next General election so there are expectations of sops from the Government in the Budget to be presented after three weeks.
It also sees politics changing in the South, with cine star Rajinikanth entering, various political parties in the North and many in the South and even the North-East toying with new alignments. A rapidly growing BJP-led NDA is matching those alignments having new friends within its folds.
Will this competitive politics and the ensuing Budget bring some relief? Ideally it should. The biggest hope is in direct taxes particularly after US President Donald Trump made a massive cut in corporate tax from 35 to 21 per cent and income tax rates to create jobs.
Yes, ideally it should happen. But the Indian income tax department is under pressure to increase tax realisation by another Rs 20,000 crore to meet the shortfall in GST realisation, which is stated to be at its lowest at Rs 80,000 crore in November, after rate cut to assuage feelings of the voters, even as 5.3 million of the 9.9 million registered for GST paid the tax.
The hope is in 14.4 per cent increase in direct tax receipts till November, disinvestment realisation at Rs 52,000 crore, Government hope of special dividends of Rs 25,000 crore from public sector firms and Bharat 22 exchange traded fund yield of Rs 14,500 crore. The merger of ONGC and HPCL is also to garner Rs 30,000 crore for the Government. This brings an additional Rs 1.21 lakh crore.
Thus, the Government would not be in that tight situation as not to pass on some benefits to the electorate. It needs to lower income tax rates as also various tolls and other charges. The US suffered a high tax regime leading to the Trump reforms. India needs to follow it up. It is not only for giving relief to the taxpayer but also to boost the job growth and economy. The tax threshold at Rs 2.5 lakh a year is low and has not been adjusted to the rising inflation since 2010. Even now prices are rising rapidly despite GST.
If the nation has to progress on the growth of the core sector—coal, cement, steel, fertilizer, electricity, refinery products and crude oil — that hit 6.8 per cent in November, faster than 5 per cent in October and 3.2 percent in November 2016, direct tax changes are a must.
It needs to raise the threshold to Rs 10 lakh so that taxpayers could have the benefit of the little income they have in boosting nation’s progress and happiness index. The rates should be lowered to allow people have extra money so they could go to the market and increase sale of goods.
While fixing road tolls the highest rates are adhered to in India. In the US, the rates vary from 50 cents to $5 and the number of toll roads is not that high as in India. In the UK it varies from 0.5 pounds to 6.5 pounds and again there is limited number of toll roads. Germany has the least number of toll roads and at a low fee of Euro 0.75. France and Italy have the highest number and toll varies from Euro 2.5 to Euro 24.8.
A travel of less than 500 km from Delhi to Lucknow can cost over Rs 900, Delhi-Agra Rs 415 by Expressway and by the other highway over Rs 300. Even a trip by taxi from Ghaziabad in UP to Rohtak or Faridabad in Haryana, would cost Rs 300 in municipal toll as one crosses Delhi and another Rs 100 for entering Haryana — Rs 400 in a day. For trucks it is much more.
The toll policy has to change and be linked to ending it after cost realisation as it has happened to a judicial decision on Delhi-Noida DND toll bridge. Tolls must not be for profits, as it is a tax on the goods and people. It adds to inflation and consequently affects growth.
A relook at higher often extortive bank charges, arbitrary deductions of high fees, levying penalties for low balance, reportedly on many Jandhan accounts as well, and charges for issuing cheque books are working against the Government objective of universalising banking. One needs to remember that people who do not have money are forced to have low balances in their accounts. The SBI levy of Rs 2000 crore penalty on low balance accounts is counter-productive.
Many start ups face so many taxes and hassles, they prefer to close down. They face several income-tax notices and valuation problems. Many move out of India to countries such as Singapore.
Even as the Government is poised for development, it is under heavy pressure of more revenue realisation. But it also has to remember that higher tolls or taxes people pay has a bearing on the development of the people themselves. And, the average income of Indians is low.
The government has limited capacity to augment despite intention to raise universal basic income to Rs 7620 a year with poverty and hunger alleviation the stated objective. It would cost 5 per cent of the GDP besides a high cost of implementation. It can also lead to drastic changes in social security and welfare systems. There can also be unpredictable changes in the labour market.
Till such time the Government is in a position to do it, let us keep various tolls and taxes at a low rate. The universal observation is that a nation that keeps tax burden low, progresses faster. It brings down income inequality and gives less leverage to the rich to manipulate or extort. The year 2018 has promises but it is linked to how the tax burden is lowered and benefits to people are increased. Will the Finance Ministry make a note?—INFA