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LATEST NEWS UPDATES | Questions that need answers -Paranjoy Guha Thakurta

Questions that need answers -Paranjoy Guha Thakurta

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published Published on Mar 1, 2016   modified Modified on Mar 1, 2016
-The Asian Age

As one listened to finance minister Arun Jaitley deliver his third Budget speech, the overwhelming impression that was sought to be created was along anticipated lines. Here was a government whose heart was bleeding for the hapless farmer toiling in the fields, the agriculturist whose livelihood has been all but destroyed by two successive monsoon failures. Here was an administration whose representatives were concerned about the “curse of smoke” polluting the lungs of poor women cooking for their families. Here was a government rather keen on providing an insurance cover to underprivileged households impacted by “catastrophic health events”.

As his speech progressed, and especially over the last 40 minutes, Mr Jaitley started sounding less and less like a socialist Indian politician (which he is not) and more and more like a corporate lawyer (which he is) who had metamorphosed into an accountant. He elaborated in excruciating detail the various proposals that financial experts often have difficulty explaining to the layperson. Having dwelt at length on education, skills, job creation, infrastructure, investment, fiscal discipline, good governance and the ease of doing business, Mr Jaitley outlined how he would reduce litigation on tax disputes and provide certainty in taxation.

After the presentation of the Budget, he was less than transparent when he disagreed with those who chose to describe his “compliance window” scheme as yet another “tax amnesty” or “voluntary disclosure of income” plan. According to the new scheme, during a four-month period starting June, persons with “undisclosed income or income represented in the form of any asset” can declare such income and “clear up past tax transgressions” by paying a tax of 45 per cent.

There will be no scrutiny or inquiry regarding such undisclosed income under the Income Tax Act and the Wealth Tax Act. The declarants would also have immunity from prosecution under the Benami Transactions (Prohibition) Act subject to certain conditions, he added. The 7.5 per cent surcharge on undisclosed income would be called the Krishi Kalyan surcharge and used for farmers and rural development. Sounds good?

The scheme clearly entails a “moral hazard” and there is no doubt that it will disappoint honest citizens who pay their taxes on time. By tacitly encouraging those who have evaded taxes, the new scheme may end up encouraging people to evade taxes in anticipation of benefiting from a future amnesty scheme. By initiating such a scheme, is the government also not acknowledging that it has not been effective so far in curbing the generation of black money?

The government intends to raise a substantial amount of Rs 55,000 crore by selling shares of public sector undertakings, including through “strategic sales” — a euphemism for outright privatisation. In the current financial year, the government had planned on raising Rs 69,500 crore through such capital receipts but will eventually manage to obtain only around Rs 25,000 crore on account of unfavourable market conditions.

There is no guarantee that market conditions will improve significantly during 2016-17. What Mr Jaitley stated in his Budget speech is that central public sector enterprises would be “encouraged” to “divest individual assets like land, manufacturing units, etc. to release their asset value for making investments in new projects”. If this happens at the prodding of the government, it is certain to raise a political storm.

The finance minister has been criticised for claiming that his government will incur the “highest ever” expenditure of Rs 38,500 crore in a year on implementing the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the job-creating scheme that was roundly lampooned by Prime Minister Narendra Modi as a “living monument” of the failure of successive Congress governments. This is patently untrue.

The increase in the allocation for MGNREGA has been from Rs 34,699 crore in 2015-16 to Rs 38,500 crore in 2016-17, lower than the actual demand and lower than what was spent last year, which was over Rs 41,000 crore. If one adjusts pending liabilities of almost Rs 6,500 crore, the actual allocation on MGNREGA drops to Rs 32,000 crore.

There are other anomalies in the Budget numbers. It is not clear why Section 80C of the Income Tax Act has been amended to place a cap of Rs 1.5 lakh on the tax-exempted amount contributed by an employer to an employee’s provident fund. More importantly, why should 60 per cent of all pension and provident fund withdrawals of salaried sections be taxed?

While the government claims to be keen on developing the physical infrastructure, capital expenditure in 2015-16 is expected to be lower than what was budgeted and is proposed to be kept at a similar level in 2016-17. The allocations on food and fertiliser subsidies have been pruned. Expenditure on the Integrated Child Development Scheme has been cut (although the Supreme Court wanted the scheme to be enlarged or universalised), while that on minority welfare is slated to fall in real terms. In terms of proportion of total Plan expenditure, the proposed outlays on the sub-plans for tribals and scheduled castes are below targets.

Also, somewhat inexplicable is why the finance minister has assumed that total collections of service tax will hardly go up. The revenues from corporate and personal income taxes have been far short of the Budget estimate — by nearly Rs 46,000 crore — which lowers states’ share of central taxes. The fiscal deficit target has been met largely by hiking excise duties on petroleum products; these are Rs 54,000 crore higher than Budget estimates.

Whereas total tax collections in the current year are expected to rise by 17 per cent, in the coming fiscal year the rise is projected at only around 11 per cent although gross domestic product (GDP) in real terms is slated to go up by around 7.5 per cent.

Whether this will happen and whether inflation (measured by the GDP deflator which takes into account both the consistently falling wholesale price index and the stubbornly rising consumer price indices) can be contained at around four per cent, is another story altogether.

Mr Jaitley, like his predecessors, notably Palaniappan Chidambaram, is paid by the Indian taxpayer to paint an optimistic picture of the Indian economy. But things can go awry. And they do. After all, the finance minister himself warned us in the very first sentence in his Budget speech, that the “global economy is in serious crisis”.

The writer is an educator and commentator

The Asian Age, 1 March, 2016, http://www.asianage.com/columnists/questions-need-answers-516


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