PM’s Big Gam­ble in Bud­get

The Economic Times - - Front Page -

WITH FIRST CIT­I­ZEN: Union fi­nance min­is­ter Arun Jait­ley and his deputies AR Megh­wal (2nd L) and SK Gang­war (2nd R) with Pres­i­dent Pranab Mukher­jee at Rash­tra­p­ati Bha­van ahead of presenting the Bud­get on Wed­nes­day

cap­i­tal. A pit­tance com­pared to what banks need.

The Bud­get has shrunk the fis­cal deficit not just by shrink­ing over­all ex­pen­di­ture, but also by as­sum­ing a huge in­crease in per­sonal in­come tax col­lec­tions. The saviour in 201617 has been ex­cise duty, col­lec­tions from which have gone up 35%, pri­mar­ily be­cause of higher taxes on petroleum products and higher petroleum prices. Per­sonal in­come tax also played a big role: col­lec­tions are slated to go up nearly 23%, thanks to pro­ceeds from the vol­un­tary dis­clo­sure of in­come scheme and the yet-to-be quan­ti­fied col­lec­tions un­der the de­mon­eti­sa­tion-re­lated par­tial tax amnesty scheme.

In­ter­est­ingly, es­ti­mates for FY18 put the growth rate in cor­po­rate tax rev­enues, cus­toms, ex­cise and ser­vice tax re­spec­tively at 9%, 13%, 5% and 11%. Yet, per­sonal in­come tax is slated to grow 25%, even with­out the aid of any tax amnesty scheme. How?

GST will widen the base of not just in­di­rect taxes but also of direct taxes. But a new tax regime will take a few years to sta­bilise. So it is not the GST’s au­dit trails

POLL PROSPECTS

that the gov­ern­ment re­lies on to jack up in­come-tax col­lec­tions. Chief eco­nomic ad­vi­sor Arvind Subramanian talked of data min­ing. The Bud­get holds out some­thing more omi­nous.

Tax­men are be­ing given sweep­ing pow­ers to at­tach prop­erty, call for scru­tiny of doc­u­ments and de­ter­mine fair mar­ket value. Given the po­lit­i­cal econ­omy in which tax­men have op­er­ated in In­dia, tax­pay­ers can only dread em­pow­er­ing tax­men with ar­bi­trary pow­ers.

The re­duc­tion in cor­po­rate tax rates has been re­stricted to small com­pa­nies, and will not en­thuse the large ones that add the most to cre­ate in-

come. What is un­am­bigu­ously wel­come is the re­duc­tion in the per­sonal in­come tax bur­den on small tax­pay­ers with in­comes be­low ₹ 5 lakh.

But this falls short of com­pen­sat­ing for the hurt caused to peo­ple in ru­ral ar­eas and the econ­omy’s in­for­mal sec­tors by de­mon­eti­sa­tion. Peo­ple had high hopes of the claimed bounty from de­mon­eti­sa­tion, the value of notes that do not come back to the bank­ing sys­tem and un­taxed in­come de­clared un­der the PM’s Garib Kalyan Yo­jana, be­ing dis­trib­uted to the poor via their Jan Dhan ac­counts. Noth­ing of the sort has been at­tempted. Even the fis­cal gains from de­mon­eti­sa­tion have not been quan­ti­fied.

What this speaks of is the un­der­ly­ing po­lit­i­cal con­fi­dence the prime min­is­ter has, that peo­ple at large would sup­port de­mon­eti­sa­tion on the strength of his word that it is in their long-term in­ter­est. Whether this is hubris or a bold gam­ble that pays off awaits to be re­vealed on March 11, when the re­sults of assem­bly elec­tions in five states, in­clud­ing in the prize state of UP, are an­nounced.

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