“The wealth of the world has indeed increased by leaps and bounds, but most of it has fallen into the laps of the few”.It has been more than a century since Ernest Howard Crosby wrote these lines in 1908. However, he is closer to the truth now than ever. According to a Cedit Suisse report, the richest 1% of Indians, own 58.4% of its wealth. Trend shows that this gap will only widen in the future. According to the same report, India is the 2nd most unequal nation in the world after Russia where 1% of the Russian population hold 74.5% of their total wealth.
Amongst other measures to make an economy economically “more equitable”, a progressive taxation regime is one method that has gained popularity amongst many welfare states including ours. It is now back into spotlight with the BJP announcing the Union Budget that experts are calling a budget to “woo the have-nots and hit the have-notes”.
A progressive taxation system is a system wherein the amount of tax payable increases with the taxable amount. It is usually an effort in the path of welfare as the so-called “haves” are made to pay for the “have-nots”. It is often suggested as a measure to counter and mollify societal ills such as income inequality, in addition to paying for public goods and services for the masses.
A country having a majority of its tax revenues by taxing income and consumption is one step closer to closing the gap between the rich and the poor. According to finance minister Arun Jaitley’s brand new budget estimates, almost 52% of the Centre’s revenue from taxes is from direct taxes. India’s intention of having a more equitable society is evident from the fact that direct taxes grew 22 times in the last 20 years. Similarly, by taxing consumption, the rich are targeted as they are the ones that earn and consume more than the common man. On the same lines, service tax, that levies a charge on services has gone up by a whopping 239 times during the same period. According to the FM, it is only fair that the wealthy should pay more taxes.
The new tax structure could be good or bad for an individual depending upon his/her income. Though the slabs remain relatively unchanged, the tax rate in the slab Rs 2.5 lakh and Rs 5 lakh per annum has been almost halved to 5.15% from 10%. Availability of rebate has been reduced to Rs 2500 for income upto Rs 3.5 lakh. Additionally, a surcharge of 10% will be imposed on annual incomes between Rs 50 lakh and Rs 1crore.
Taxes from production and sales such as excise, customs and VAT have gradually been losing their share in the Centre’s tax wallet. These taxes have only grown 8 times in the last 20 years. Excise duty on cigarettes, pan masala, bidis, gutkha and other tobacco products have been hiked. Such an action has the twin effect of boosting the tax revenue of the government as well as hiking up prices of “economically bad” goods to discourage consumption. Silver coins and medallions too are set to become more expensive due to higher customs duty. Train travel for the masses is set to become cheaper with the withdrawal of service tax charges for online booked tickets from the IRCTC portal.
Another step towards economic equality has been taken in the corporate sector. 96% of the firms filing tax returns in India are MSMEs. To encourage and motivate the small firms, corporate income tax on small and medium enterprises has been cut to 25% along with sops for start-ups. In an effort to spur the entrepreneurial network in the country, the finance minister announced an extended tax holiday to up to any 3 years out of the first 7 years of establishment. Till last year the exemption was for any 3 years out of the first 5 years. Subject to certain conditions, a start-up can also carry forward and offset its losses against future profits.
The government has also decided to go after economic fugitives and confiscate assets of people like the infamous Vijay Mallya and Lalit Modi. After demonetization, this step should further strengthen the Centre’s pockets which can help our revenue deficit situation to an extent.
It is often argued that governments generally adopt the “rob Peter & pay Paul” stance. It could be said that the current budget is a “people pleaser” budget as the country votes in 5 state elections. But these attempts by all previous governments have repeatedly failed as the trickle – down effect in India does not have a precedent that we can be proud of. Successive governments have robbed Peter, but the benefits have rarely reached Paul.
What remains to be seen now is whether the brand new budget that is so reminiscent of the fictional Robin Hood, is enough to bring down our notorious ranking as the 2nd most unequal nation in the world and make our country a nation that has its strength and wealth with the masses.
Ms. Dilpreet Kaur
Jagan Institute of Management Studies