Even if you are in the right track, you will get run over if you move slowly.
At the height of the debate on the economic slowdown, two ideas were being discussed. Should the government resort to heavy expenditure on infrastructure and the social sector? Or should it put more money in the pockets of the individual so that it can raise or push up consumer demand. The Finance Minister, in the Union Budget speech on Saturday, has accepted both ideas. Heavy expenditure is contemplated in Part A of the speech. This is the acceptance of the Keynesian concept of pump priming. Higher personal tax rates and slabs have been modified to the benefit of the middle class. This will certainly push up consumer demand. The fiscal deficit has been breached and will grow to 3.8% because of exceptional circumstances.
The middle class tax payer was upset that in September last the Finance Minister had chosen to confer a bonanza of ₹1,46,000 crore by way of lowering corporate tax rates with the individual getting nothing. Now, the concessions offered in the Budget will entail revenue foregone of ₹40,000 crore per year. This is all for the good.
The highest marginal rate has not been touched. India’s richest 1% have more wealth than 70% of the poorest. The combined total wealth of 63 Indian billionaires is more than the total Union Budget of India for the fiscal year 2018-19, which was ₹24,42,200 crore. Do they need relief? Certainly not.
Watch: sector-wise highlights from the Budget
Dividend distribution tax
The Finance Minister has done well to abolish the dividend distribution tax . It is a fact that it amounted to double taxation. The classical system of taxing dividends in the hands of individual shareholders is now accepted. The individual taxpayer can be aggrieved that there is no relief in the taxation of dividends in the hands of individuals. Probably a basic exemption of say ₹10,000 could have been granted to the individual shareholder. The new system also involves an element of double taxation. Just as interest on capital is made deductible, can interest on capital of the shareholders on an estimated basis be made deductible?
It was expected that a scheme such as the samadhan for service tax and central excise would be announced. Litigation is unending and prolonged. Huge moneys are locked up. The success rate of the department in appeals is very low. The Finance Minister has announced a scheme under which the taxpayer can pay just the disputed tax and get a complete waiver of interest and penalty. This will take us nowhere. The time limit is short and the compromise is no compromise at all. Under the “Sabka Vishwas Scheme” for indirect taxes, the taxpayer was allowed to get away by paying 30% or 40% depending on the case. Why this discrimination?
Corporate tax collections are pegged at ₹6,81,000 crore for 2020-21 up from ₹6,10,500 crore last year. Income-tax collections are estimated to be ₹6,38,000 crore for 2020-21 as against ₹5,59,000 crore last year. This despite the revision of tax rates and slabs. Does it show a fall in collections? Certainly not. There will always be criticism of anything and everything done by this government. The Budget is a critique of the economy and what it can achieve. This way it is a good budget and the Finance Minister deserves full compliments.
Tax administration
The Finance Minister has taken note of complaints of tax harassment and has promised a tax payers charter. This is frequently resorted to by Finance Ministers. To be effective, this should be part of the statute book and enforceable. It will also ensure accountability.
N.A. Palkhivala once called the Income Tax Act a national disgrace. It had suffered hundreds of amendments. The Finance Minister has removed around 70 out of 100 exemptions and deductions provided in the Income Tax Act and promised a review and rationalisation of the law in order to simplify the tax system and lowering the tax rate. It was this Finance Minister who thought of the option of a higher rate with exemptions and a lower rate without deductions . Millions have seen apples falling from trees. But it was only Isaac Newton who wondered why. There can be no question of doing away with the Income Tax law. We wish the Finance Minister luck in her attempt to simplify the law.
Budget objectives may look ambitious. There can be no question of slowing down and the implementation has to be fast and forceful.
T.C.A. Ramanujam is a former Chief Commissioner of Income Tax. T.C.A. Sangeetha is a practising advocate of the Madras High Court
