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If I can just give to the world more than I take from it, I will be a very happy man. For there is no greater joy in life than to give. Motto : Live, Laugh and Love. You can follow me on Twitter too . My handle is @Raja_Sw.

Friday, March 01, 2013

Budget 2013 - my main take-away!

(This is not a post about my views on the subject of taxation at large. That is a MUCH broader subject - and one which I would like to sometime expound on from a philosophical angle, including a discussion on role of government. This post is purely about Budget 2013 and the one item that I want to highlight).

The Union Finance Minister of India, Mr. P.Chidambaram (PC) presented the Finance Bill 2013, containing the Budget for 2013-14, to Parliament yesterday.

As usual, there was a lot of anticipation and discussion before the budget presentation.

And, as usual, there was a lot of discussion after the budget presentation.

The media – print, TV and social media – was expectedly in overdrive. Analysts, economists, “tax experts”, who suddenly seem to be a dime-a-dozen come budget time, got their 15 minutes of fame (some only 5 minutes in an overcrowded space), all of them eager to add their decibels to the noise. Corporate honchos, an increasingly prominent and vocal constituency in an increasingly capitalist India, were keen to share their wisdom and cover their own bases. And of course, politicians were not to be left out – their opinions on such occasions always admirably reflecting their self-interest.

It was all a lot of fun, if a little too much sometimes. The key when such an event happens is to know when to switch off and on. The media, always hungry for content and salivating on such occasions IS most certainly not going to hold back – it is upto the recipient to pick and choose.

Much of the post-budget discussion was spent in “rating” the budget. Various analysts gave it a thumbs-up, many qualifying this by saying “It was good, but that’s mainly because it could have been much worse. The budget could have raised taxes much more than it did, given our fiscal deficit situation”.

Most of the analysts, when asked for their main take-away from the budget speech, talked about the balancing act that the FM had done.

His attempt to continue on social equity initiatives without jeopardizing what has now become a fairly stable tax regime.

His efforts to boost investment through measures like the investment allowance.

His announcement of the first public sector women’s bank also came in, expectedly, for a lot of attention and discussion.

His announcements, potentially affecting investments for FIIs from tax-havens. This seemed to confuse many. In a post-budget press conference this was one of the areas he was most quizzed about. He went to great pains to try to explain the changes in this area.

The other much-talked about announcement in his speech was his intention to impose a one-time surcharge (of 10% of tax) on taxpayers with a taxable income of Rs 1 crore (Rs 10 million) or more. This would be a one-time exercise and, together with increasing taxes on corporate with profits of over Rs 10 crore, is expected to bring in additional tax receipts to the government.

Obviously there was much more than all this but I’m not going to discuss the budget. I’m not competent to do so.

What I want to talk about is MY main take-away.

Let me start by saying I’ve always enjoyed reading about the Union Budget. From the very first one I remember reading about (Finance Minister C.Subramaniam’s budget of 1975 – which I didn’t understand anything about), to this day (when I still don’t claim to understand too much), budget days have been interesting and full of anticipation.

I’ve always liked to know where my country plans to invest its thousands of crores. How much in Defence, how much in Healthcare, how much in Education and so on. And where all that money is going to come from. Early on, I realized that – in a “planned economy” model - where there’s no allocation, one shouldn’t expect much to happen in that area.

Of course, allocation in itself doesn’t really mean much in a country where there is NO real follow-up or accountability. So it ends up being a license for the concerned Ministry to spend the allocated money, without having to show deliverables against the money spent. Ok, so there’s a CAG which is supposed to audit government accounts but the whole system is such that it doesn’t lend itself to easy transparency or public scrutiny.

But we all know this, we keep ranting about it – that’s a matter for another discussion. This is about this Budget.

The reason I digressed a bit into giving a slightly personal historical perspective is that I’ve long since stopped caring about the nitty-gritty details of a budget. I’ve seen too many budgets just tinkering with the numbers for me to care too much. An amount of 10,000 is changed to 15,000. A 20% is made 25%. That sort of tinkering. Often this tinkering gets a lot of attention – and everybody’s happy (or unhappy).

Over the years, especially as I’ve grown older, I’ve learnt to look at matters holistically instead of being caught up in the instance. I’m not talking only about this budget. I’m talking about most things. From politics to sports to religion to business to social matters – events and instances happen everyday (and we get caught up in them) but it's important to remember they work within a framework established earlier. They are rarely isolated instances. So it is often much more meaningful to look at that framework – to question its legitimacy, its currency in today’s times – rather than pick on the instance.

For example, religious rabble-rousing. Incidents happen every day, we get caught up in who said what and did what. Instead of looking at the framework in which society breeds such passions. If we don’t fix that framework, we will only be addressing every incident.

Or, our security issues. We react on every bomb blast - again, addressing every incident. Or our Freedom Of Expression issues. Or our Violence Against Women (VAW) issues.  I can go on and on. We get caught up in the incident – we might even try a quick cause-and-effect exercise for that particular incident. But we then leave it at that. We don’t look at the entire gamut (or at least a broad enough canvas) of the issue to come up with a holistic approach to addressing it.

But I’m digressing. This is about the budget exercise – and my main take-away.

The budget exercise is supposed to present the govt’s accounts (at a high level) for the current year. And supposed to present its estimates for the coming year. It is of course an excellent opportunity for the Finance Minister to share his thoughts on the financial state of affairs of the country, his concerns, what he perceives as opportunities, how he plans to address his concerns and so on. A sort of “State of the Nation” address – but economy-oriented. Of course, the Economic Survey is a big part of this – and is often the basis for the proposals for revenue and expenditure planning.

This is always the first part of every budget speech. And sets the tone for the expenditure and revenue planning.

Yesterday, the FM made it clear early on itself that his budget did not give him much room for providing tax relief in terms of existing slabs or rates. There was a token relief – too token to be considered significant, in my opinion, though he did emphasise that a certain number of crores of taxpayers would benefit. He also said that if he wanted to have a broad tax net and revenue base, he could not afford to raise the slabs.

I was a bit confused – so I put on my “holistic” hat.

What is the real purpose of taxation?

To collect revenue?

Or, to get as many taxpayers as possible?

What, if the Finance Minister could get more high-income taxpayers into the net? So that, even at existing rates (or even lowered rates), his revenue could be sufficiently augmented? Would that mean he’d find it ok to leave the marginal (first-slab) taxpayers out of the tax net? Since the new taxpayers would be high-income, many more marginal taxpayers can afford to be left out of the net.

Of course, there would then be comparisons with other countries to justify an approach. The US, Europe etc. India has a very moderate tax regime compared to Europe. (It is a moot point though what the tax payer gets for his tax payment). So why should the govt pamper its citizens even more, with higher slabs and lower rates? Should India anyway compare itself with the US and Europe? Very different economies, at different stages of development and need for growth, with different demographics, aren't they?

Even as I was mulling over this, I heard the FM say something that shocked me.

He was talking about the surcharge on those with a taxable income of Rs. 1 crore or more (Everybody’s been calling them the “super-rich”, but the FM didn’t like use of this term).

He said there were, in all, 42800 such individuals and entities who were covered by this.

My first reaction was “What??? Just 42800? In all of India? You’ve got to be kidding me!”.

And THIS is MY biggest take-away from the budget speech.

This figure of 42800.

The FM said it, without batting an eyelid.

Surely he himself knows that this is a ridiculously low figure, given the number of businesses we have in the metros alone, leave the rest of India aside for a moment?

What have his Income Tax officials been doing?

If they really put their minds to it, they could get many more in Mumbai’s Kalbadevi area alone, I’m sure. An annual taxable income of 1 crore, in today’s India, is not really that much of a big deal.

Similarly, other metros have their catchment areas.

It is not about the magic figure of 1 crore. It is about the blatant extent of tax evasion among those in the high-income brackets. And how easy it really should be for the Income Tax Department to find these individuals/entities, should they focus on it.

So, if THIS is set as a target for the Income Tax officials – that they rope these into their net – we should have a much more comfortable revenue amount collected by the government. The Finance Minister wouldn't have to sweat so much.

And maybe this then allows the government to consider some relief for those at the marginal level. Ok, that may mean some will fall out of the tax net, but so what? Many of them aren’t exactly living a luxurious life anyway – what with the general cost of living and inflation nowadays. Also, it will simplify the administrative work of the Income Tax Department and give a number of marginal taxpayers peace of mind.

If however, the Finance Minister chooses not to pass on any relief to existing taxpayers, at least this would have augmented his collections and helped in his efforts to rein in the fiscal deficit.

What’s most important is that these need to be brought into the tax net on a war footing. I repeat – I don’t see why it should be so difficult to do this. And this is not a one-off. Once they are in the tax net, the revenues would flow in every year – and far more than from the marginal many.

THIS then is one of the biggest weaknesses in our system. Our poor tax collection record. And this needs to be holistically and structurally addressed.




harvey said...

Well, dear Raja, you forget that these poor people in Kalbadevi whom you are aiming at also have their expenses you know? Poor people are left with nearly nothing. sab investment ke baad ek sukhi roti ke liye bhi paisa nahin bachta. Kya kare aaj kal business zara manda hai! ;-)

Raja Swaminathan said...

Thanks for your comment, Harvey. :-) I agree there are poor people in Kalbadevi (aren't there everywhere). I used Kalbadevi as a metaphor, could have used another place in another metro too. Idea is to refer to those who do have successful businesses but do not seem to report taxable income of 1 crore.

Ava Suri said...

It was a very busy time for me and I missed reading/hearing about the budget entirely.

What you say is correct, a few figures are pushed about, but one is never sure anything will ever get done.

I suppose we are a very polite nation, we never grill our leaders enough.

Ah.. I am sure a single suburb in Ludhiana could yield more than those numbers of Richie-Riches. I wish I were Gloria :)

harvey said...

O dear Raja, my sarcasm was lost on you!

squarecut.atul said...

Another statistics. Only 2.5 % of Indians pay income tax. 44 % of the income tax payers pay income tax amounting to less than Rs one thousand each.