Wednesday , 24 October 2018
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Another cess will do no good to anyone

By Dr  D M Deshpande

A blue print of how to boost the Indian economy and solve its myriad problems was unveiled in the 84th plenary session of the Congress party recently.

To be fair, it did cover a wide range of issues and challenges facing the Indian economy.

Unfortunately, however, it does not come out with any innovative ideas to solve the major problems the economy is facing. Instead, its template remains the same, harping on populism such as loan waivers, higher support prices, redistribution of wealth and the like.

Missing in the action plan is a coherent policy to improve productivity or how to create more and rewarding jobs for teeming millions of youth passing out of our colleges and Universities in the country.

Worst, however, is its idea of taxing the rich even more. If it comes to power next year, it would like to levy an additional 5% cess on 1% richest Indians. It is a rank bad idea and must be junked at the earliest.

We have a history of imposing cess and surcharges in one or the other pretext. Invariably, the collections were never used fully for the purpose for which the tax was levied.

To quote just one example, between 2006-07 and 2016-17, Rs 84,397 crore was collected in the name of secondary and higher education.

Neither the reasons for crisis in every level of education were found out, nor were sufficient funds allocated to the sector!

Learning crisis continues at all levels of education including the tertiary level.

So, when the Congress party plenary session announced its intention of creating a IT skill upgradation fund or the poverty alleviation fund, no one is enthused; it is like old wine in new bottle!

We are already a nation where the level of taxation is very high. The World Bank in its report has pointed out that Indian GST system has one of the highest rates in the world; worse, it said that it is also too complicated.

This certainly does not go well the objective of promoting ease of doing business in India.

Indian Corporate tax rate is also on the higher side and in fact, the present government did not fulfill the promise of reducing it to 25% to all entities in a time frame of five years.

It is not that the government is not aware of these issues; it is simply that there is a show of greater urgency in levying newer/more taxes!

The BJP led NDA government too has run the economy on similar lines. It hiked the rate on petroleum when the crude oil prices were falling in the global markets. In a way it was justifiable, to build a cushion since it is well known that oil prices are given to wide fluctuation in world markets. But there is no sign of lowering these levies as the oil prices have firmed up in the global markets. In announcing loan waivers too, this government has not lagged behind.

It is important to note that the best antidote for poverty alleviation is the faster economic growth. There is enough evidence to show that during boom years of higher economic growth, more people have been lifted from below poverty line. There is always a risk of certain section of population falling back below the poverty line; to prevent this from happening, governments need to invest in health, hygiene and education.

In the absence of these, productivity will take a beating with all its attendant problems.

The rich and even the not so rich, already pay a stiff tax in India. To burden them further is only an encouragement to stay away from the radar of the taxman.

It is better to widen the tax net for more revenues rather than fleecing the small number of those who are honest tax payers.

To an extent this has been accomplished by demonetisation. Yet quite a significant number of those who have to be paying tax, are not doing so. While it is right to blame them, governments too have a share in it.

Firstly, the basic income tax exemption limit is ridiculously low; it hurts the assesses in the lowest slab. Secondly, the top two rates of income tax kick in quite early; it is 20% for those earning between Rs 2.5 and Rs 5 lakh.

And it is 30% for those with incomes of Rs 10 lakh and above.

There is a need to think of how taxes can be rationalised so that more revenues could be garnered.

Let hackneyed rhetoric not win over sound economic wisdom!

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