For some time now, there have been rumours that Finance Minister P Chidambaram intends to increase personal income tax rates for the rich. What are his options?
“See there are two ways. You can cut the fiscal deficit and it is obviously very logical. Either you increase your revenue or you reduce your expenses. Now to increase your revenue, you either keep taxing the same people who have been paying taxes all these years, levy more taxes on these people at higher rates or you widen the tax base…I hope that the budget will be aimed or directed at widening the tax base,” HDFC’s Keki Mistry told Firstpost last week.
It is apparent that many of the decisions that have been taken recently and will be taken in the near future are focused on the next Lok Sabha elections, due in 2014.
There has been speculation that the elections could be held earlier. “Hinting at snap polls, Samajwadi Party supremo Mulayam Singh Yadav on Monday said the Congress-led United Progressive Alliance (UPA) government might declare Lok Sabha elections after the budget session of Parliament,” reports Mint.
If, indeed, elections are held earlier than slated or held in early 2014 as scheduled, Chidambaram has no option but to keep taxes at the current levels – or, more dramatically, reduce them.
The budget is the last instance of the Congress being able to control good news.
Let’s look at all that could depress voters – or upset voters.
Let’s start with prices of petrol, diesel and kerosene. PC has no control over international crude prices.
Let’s take the monsoons. PC has no control over whether or not we’ll see a good monsoon.
With the current mood and thinking in the RBI, PC has no control over interest rates either. The RBI is fretting about high current account deficits.
PC has no control over inflation, which has been proven time and again.
PC has no control over the Supreme Court, which has demonstrated that it is not pliable.
PC has no control over the media, who are no longer reticent about exposing government mismanagement and corruption.
PC has no control on the performance of the Indian cricket team when they play Australia later this year.
PC has no control over the BJP, over other opposition parties or even over other UPA constituents.
In short, the only news you can control is in the budget.
It’s up to you whether you tax the current taxpayer more – or you make him or her feel better about life, thanks to the budget.
Is that a choice? Forget the tax cut, Mr. Chidambaram.