PM’s Big Gamble in Budget
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
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.