Only 42,800? That’s rich!

The budget papers contain facts that prove the Finance Minister wrong on the number of people whose taxable income exceeds a crore a year

March 06, 2013 01:17 am | Updated December 04, 2021 11:16 pm IST

The Finance Minister’s tally of the super rich does not add up.

The Finance Minister’s tally of the super rich does not add up.

Much has been said and written — mostly favourably — about the budget for 2013-14 presented by Union Finance Minister P. Chidambaram. His heavily ornamented speech led the electronic media to enthusiastically vote for his budget in less than an hour after he had presented it. The print media followed suit. “PC Taxes the rich to pay for the poor” claimed one. Another praising him for voting for growth and rated the budget at /. Most comments must have been written relying on only the Minister’s speech, without looking at the detailed budget papers which the Finance Ministry had put up in detail on its website fairly late in the night on February 28. When the Finance Minister’s speech does not truly reflect the budget documents he presents, it misleads. And that is precisely the case here — particularly on the most critical aspect of the budget, namely revenue raising.

What the figures reveal

Take the case of the surcharge levy on the “super rich” highlighted by the media. Has the Finance Minister really “taxed the rich” to raise resources as part of his “inclusive growth” ideal? Or is it an exercise in symbolism for politics? This is what he says: “Wherever possible, revenues must also be augmented. When I need to raise the resources, who can I go to except those who are relatively well placed in the society? There are 42,800 persons — let me repeat only 42,800 — who admitted to a taxable income exceeding Rs.1 crore per year.” He has levied a surcharge on them. First, his tally of the super rich seems to be far less than the 1,25,000 High Networth Indians [with investible wealth of $1 million (Rs.5.5 crore) plus house and durables] reported by KPMG International. Their income cannot be less than Rs.1 crore per year. Again, with the luxury car market touching some 27,000 cars a year, the number of super rich cannot be as low as 42,800. Next, are these the only ones from whom taxes can be raised? To test whether the Minister was being truthful here, one needs to only look at the facts tucked away in the budget papers which expose what his political symbolism conceals.

More than anyone else, he knows that in today’s corporate capitalist model — with, all over, 98 per cent of Indian corporates being family-owned and controlled — individuals and families hoard and enjoy their incomes through the corporates they control.

And see how these “rich” corporates are taxed in India. The statutory corporate tax rate of 32.5 per cent in India is among the lowest in the world — the United States [40], Japan [38], Argentina [35], Belgium [34] and Brazil [34] tax corporates more. But no Indian corporate pays tax even at the lower rate of 32.5 per cent. The Statement of Revenue Foregone [Annexure 12 to the Receipts Budget] laments that the effective rate at which the Indian corporates pay tax is almost 10 per cent less. And corporates that earn more than Rs.500 crore plus pay tax at sub 22 per cent. Does it mean taxing the rich? Or sheltering them? If all corporates pay tax at statutory rates, technically, tax revenues would be higher in 2013-14 by Rs.1,90,000 crore.

On taxes

The statement of revenue foregone laments that thanks to rebates granted, the effective tax realised is far less. It brings out that for the year 2010-11, the customs and excise duties foregone was 132 per cent of the tax realised, which means that for every Rs.100 of tax realised, the tax foregone was Rs.132. In the next year, 2011-12, it was worse. The tax foregone was 145 per cent of the tax realised, that is for every Rs.100 of tax obtained, the tax sacrificed was Rs.146. The total amount of indirect tax foregone for 2010-11 was Rs.3.65 lakh crore against Rs.2.75 crore realised. For 2011-12, the tax forgone was Rs.4.35 lakh crore against the tax of Rs.2.99 lakh crore realised. In direct taxes, the tax rebates for 2010-11 was Rs.94,928 crore and for 2011-12, Rs.93,640 crore. The total tax foregone for 2010-11 was Rs.4.6 lakh crore and for 2011-12, Rs.5.31 lakh crore. Had these giveaways been withdrawn, there would be no fiscal deficit at all. The budget document equates “tax foregone” to “tax expenditure,” implying that it is an expenditure that is not shown in the budget as such.

See how the Economic Survey for 2012-13 presented 24 hours before the budget speech laments the tax giveaways. Under the paragraph titled “Tax Expenditure,” it says: “As indicated earlier in the section on the collection rates, the magnitude of revenue foregone [tax expenditure] is indeed high.” It talks about the corporate tax foregone [Rs.57,192 crore for 2010-11] and Rs.51,292 crore for 2011-12]. It equally laments the indirect tax giveaways [Rs.2,12,167 crore in excise in 2011-12 and Rs.2,30,131 crore for 2010-11 and Rs.2,33,950 crore in 2009-10, in customs duty which is projected to rise to Rs.2,76,093 crore in 2011-12] The Survey concludes: “there is merit in limiting the exemptions or their grandfathering on a case-by-case basis so as to realise the fuller potential through wider tax base.” How misleading then is the Minister’s statement that he has to turn only to the 42,800 “rich” in the country for small add-on revenues. His own budget documents and the Economic Survey prove him wrong.

The alert Minister is not unaware of the huge giveaways. In his second innings as Finance Minister in 2007, he had indeed promised to scrap them. In a news report titled “Bye Bye Exemption: Tax Exemptions hits Govt’s revenue collection, PM promises action,” India Today Online [February 12, 2007] said: “Buried in the voluminous budget documents is a startling disclosure: for every two rupees the Government collects in taxes, it forgoes one” by way of tax giveaways. It pointed out that in 2004-05, against the tax [Rs.3,03,037 crore] collected, the exemptions robbed the government of Rs.1,58,661 crore. The report charged that, thanks to lobbies, successive governments had doled out exemptions, of course in the garb of incentivising a sector or attracting investments to a backward region. The report said that “last year, the big boys (companies with taxable income of more than Rs.500 crore) milked exemptions to pay 16 per cent in taxes,” well below the normal rate of 33 per cent.

The magazine had quoted Mr. Chidambaram as saying “subsidies for poor should continue, exemptions for rich scrapped.” And supporting him, Prime Minister Manmohan Singh also said, “Our tax regime should not have too many exemptions.”

But the budget proves that both of them have conveniently forgotten their promise. And now eight years down, the giveaways, far from being scrapped, have more than doubled from Rs.2.35 lakh crore to Rs.5.73 lakh crore. Turning a blind eye to these elephantine sums, Mr. Chidambaram says he has only to look at the 42,800 rich for levying surcharge for a few thousand crore. Of course he was right in taxing them as their tax rate is low. The question is: why did he not scrap the giveaways worth lakhs of crores enjoyed by the corporates as he had committed to do in 2007? That could be the game changer not only for the government and its balance sheet but also for the national economy. Are the Finance Minister and the Prime Minister listening?

(S. Gurumurthy is a chartered accountant and corporate consultant.)

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