Spotlight

New Delhi, 10 February 2018

Lopsided Budget

ONE NATION, MANY TAXES

By Nikhil Gajendragadkar

Prime Minister Modi has always criticised the Congress for following, what he calls Nehruvian Socialism. Ironically his Government has reverted to the same ideology with a little difference. Perhaps with the next general elections in mind, Finance Minister Jaitley is back to ‘robbing the rich and helping the poor’ game. Undeniably, the 2018- 19 Budget showers rural India with big schemes and taxes the salaried class and rich.

Alas, Modi’s Government has failed to bring in the ‘one nation one tax’ regime too. Consequently, how can India attract investments from other parts of the world?

It is clear that the BJP is preoccupied with elections. Though the Lok Sabha polls are a year away, nearly 8 States will have elections in the coming nine months. Hence, the annual Budget is a powerful tool to woo voters to the Party and the BJP has done it grandiosely. The Finance Minister’s Budget proposes to provide more than a massive Rs.14 Lakhs Crores (trillion) to give a thrust to the rural economy.

Besides, Jaitley has tried to present a ‘please all’ Budget. Actually, it has turned out to be a lopsided one. Though it claims to give a boost to rural economy and the agriculture sector and has provided big sums for the purpose a close scrutiny reveals that actual allocations have marginally declined. The amount stated, is in reality a sum of allocations made for various Ministries, so there is nothing new in the exercise.

Shockingly, India’s agriculture growth has slipped to a meager 1.9%. To revive this important sector, it needs huge investment. Questionably, who will do it?

Another ambitious programme announced in the Budget is to provide health care for the weaker sections .Touted as the ‘biggest in the world’ health care cover scheme, it raises questions about its implementation. Think. The cost of the ‘Modicare’ programme is projected to be around an enormous Rs 6 trillion.  But, the Government has no funds to run it on its own so the Finance Minister has asked the private sector to donate from their Corporate Social Responsibility (CSR) fund. Will they comply? And why should they do so? 

Undoubtedly, the NDA Government has failed to improve its income through tax collections. One reason is India’s exports are faltering and growing by the lowly 12% annually. Although the Government and BJP are propagating that every foreign trip undertaken by Modi is a huge success, these visits are not getting translated into investments from abroad.

An example, the ‘Make in India’ initiative launched by NaMo three years ago has not yet shown any viable results. Nor has the manufacturing sector seen a steady growth for many quarters and private investment is not picking up as per expectations. This has led to either job losses or low jobs creation.

Also, the Finance Minister had promised to reduce Corporate Tax from 30% to 25 % in a phased manner. Last year he did so for companies having an annual turnover of Rs.50 Crores (500 Million).This year he extended the ambit to cover companies with an annual turnover of Rs.250 Crores (2500Million).With this, he claimed, nearly 96% of all companies would enjoy reduced tax burden.

However, big and large companies are left out. They might comprise of only 1 to 4% of the total companies but are responsible to pay over 90 to 95% of corporate tax. This move has dampened the mood of the industry. The collapse of the stock exchange, a day after the Budget was presented, reflects this sentiment.

Further, the long awaited Goods and Service Tax (GST) came into effect last year and the Prime Minister had declared an era of One Nation, One Tax. Yet, the reality is far from it. Excise duty which was to be subsumed in the new tax on petroleum products is still in place. And tax on tobacco products known as ‘sin tax’ to which none can oppose has also increased.

More over customs duty or import tax is still there and has increased on several items this year. Reportedly, this has been is done to support or protect the ‘Make in India’ project. True, this move will make mobile phones, TV sets, perfumes, cosmetics and many more items expensive; but will it make Indian products attractive or competitive?

Importantly, to garner more resources Jaitley has re introduced Long Term Capital Gains tax. According to stocks market and finance experts this is a regressive step and will deter small or retail investors to enter the primary market. With the Securities Transaction Tax remaining in force it will make stocks related activities unattractive.

The Finance Minister has also reintroduced ‘dividend distribution tax’ for equity oriented mutual funds. With the middle and upper middle class and senior citizens using this instrument for saving and earning some income as interest on Fixed Deposits is also now being taxed. It goes without saying that this class has expressed its unhappiness on these taxes.

To top it all, Jaitley has increased the education and health cess by 1% from 3% to 4 %. It looks a small increase but this cess is levied on all services.  Thus, from phone and electricity bills, eating at a restaurant, travel by train or plane, visiting a beauty salon or a gym to sending a letter by courier will cost a lot more.

Now there are many taxes like customs duty, LTCGT, DDT, excise and above all cess .What happened to the promise of ‘One Nation One Tax’?   Even Multi-national Companies (MNCs) who do not have a physical presence in India but have operations in the country (Google, Facebook etc) will have to pay taxes.

Certainly, India is still called largely an agrarian society with a large number of poor people and it is the duty of the Government to provide its citizens food, shelter, medical care and many more things. Recall, after the country embraced market based open economy and globalization, the idea of a ‘welfare state’ took a back seat. The latest Budget tries to ‘fill the gap’ with schemes for the rural and poor people.

Prime Minister Modi has always criticised India’s first Prime Minister Nehru for his ‘socialism’ and the Congress for following those principles. However, with this Budget, it appears, the BJP and NaMo’s Government are going back to the same principles. Will this move win them votes next year? One has to wait. ----- INFA

(Copyright, India News & Feature Alliance)