Economic Highlights

New Delhi, 11 July 2008

Higher Tax Collections

EXTRAVAGANZA & CONTRACTION

By Shivaji Sarkar

Rising inflation seems to have little impact on decision-making. While the corporate sector, supposedly the driver of the economy, is gasping for breathe, the income tax department is on a spending spree buoyed by a rising tax collection. It is out on a buying spree of high-end properties.

Planning Commission Deputy Chairman Montek Singh Ahluwalia has welcomed the inflation as it has led to higher tax collection i.e to Rs 314,000 crore. But Ahluwalia is certainly not correct in his observation. Taxes have risen not because of inflation, but for four reasons: tax rates are high, the I-T department is squeezing out taxes, interest rates were low and that there was a period of correct corporate and economic performance. The last two factors particularly, have played a significant role in higher tax contribution. Added to this was an affordable price regime, which too has been lost.

This apart, the bungling with interest rates to squeeze the “bad money” out of circulation (what Reserve Bank calls money circulation) has led to a general slowdown in performance everywhere –be it housing, corporate or even individual. High prices have affected household spending and all factors are bound to have a severe impact on the economy in the current fiscal. The question is: will the general slowdown lead to higher tax collection?

Clearly, this is the most critical time for the economy. The nation needs to save its resources. Money from higher tax collection should have been utilized for higher public investment in infrastructure. This is left to PPP – private-public partnership – a euphoria for reducing public investment in almost every sector, including the highways.

The Government can boast that the I-T department’s decision to acquire properties “only reflects that concern”. Does it? Especially, when the investment and profit of corporate sector is coming down? The process does not seem to warrant it.

People pay taxes not for extravaganza by Government departments, particularly in a country where only around two per cent of the population pays. These are paid for overall development and for the benefit of the under-privileged. Is the Government doing that? No. More so, at a time when corporate investments for expansion have come down to 32 per cent from 136 per cent just within a year -- between 2007 and 2008. A survey by the Economic Times has covered 488 companies. Among others, it finds that investment performance of the top 50 companies has been worse. In 2006-07, their investment growth was 180 per cent as against 19 per cent last year.

Profits of most of the companies have reduced in the first quarter of the current financial year, including the automobile sector. Reports suggest a fall in sales almost everywhere. Simply translated it means the companies would pay far less taxes. This should have rung alarm bells. The higher tax income should have been kept for reserves, to mitigate budget deficit in the coming fiscal as well as for higher government investment for welfare and infrastructure development measures. If instead, that money is squandered away, it would not only have a negative impact on government finances, but would also result in imposition of higher level of taxes next fiscal.

The tax department is like the bread earner of a family. If the bread-earner himself eats up all that he spends, it would reduce the family to penury. Earning by a Government department does not give it the right to spend. It has to do so prudently. It doesn’t seem to be doing that.

The department is not short of accommodation. But is buying posh properties. It has already purchased an office in BCC Plaza at Pushp Vihar, South Delhi at a cost of Rs 145 crore. It has acquired three floors - 8th, 28th and 29th – at World Trade Centre at the prime Cuffe Parade in Mumbai by paying Rs 80 crore. Remember, the cost of furnishing would be separate.

Deals have reportedly been struck for prime plots of land and office space in several cities across the country. The emphasis is on acquiring centrally air-conditioned buildings with Wi-Fi enabling and plush reception lounges. Now, not only Bangalore and Hyderabad but small cities such as Guwahati and Cuttack too could boast of state-of-the-art buildings. Plans are afoot to spend at least Rs 100 crore on these acquisitions. In addition, it is also spending Rs 40 lakh for each of the 600 range offices--Rs 24,000 crore --for giving them a plush look, other than hiring air conditioned buses to ferry its staff in metro cities.

The department reportedly has plans to increase such spending every subsequent year, notwithstanding that such decisions don’t perk up the economy. Expenditure on the department has already increased manifold during the past few years. It simply means it gobbles up what is earned from the people in the name of public welfare.

It is high time a total review of such decisions is undertaken and not only IT, but other government departments too are asked to cut down expenditures. Money circulation does not increase for pumping in of foreign funds and other kinds of inflow, but the government’s futile expenditures also add to it.

Thus, the money collected such should be utilized properly even to create an emergency fund to help ‘players in need’ in the economy. Agriculture, despite some small rise in production last year is in dire straits. The country has squandered on its buffer stocks leading to increase in food prices. The health, education and road sectors need increased public funding. But, this is simply not happening.

Let the Government not care for its officers’ luxury. It must come out with a tangible proposal for the benefit of all and an overall economic growth. As it is, indications are that the growth rate would come down. The commerce ministry has, already brought it down to 8.5 per cent. But, as the index of industrial production (IIP) is suggesting even this target may be difficult to achieve. The nation should not prepare for a doomsday, instead chalk out a strategy to avoid such a situation. Higher collections are required to be utilised for that noble purpose.—INFA

 (Copyright, India News and Feature Alliance)