Union Budget 2013: On whom will Chidambaram's tax axe fall?

While containing the fiscal deficit would be high on the finance minister's agenda this Budget, it remains to be seen if the upcoming Budget will soak the rich or merely poke the rich.

History suggests that no country has ushered in a high growth rate by increasing taxes. Firstpost spoke to economists Ajay Shah, Ajit Ranade and Surjit Bhall on whether  increasing taxes will help the Finance Minister reign in his fiscal deficit target at 5.3 percent of GDP by moping up tax revenue collection.

While they all agreed that a flat tax rate would be the ideal situation, the focus for the finance minister should be to curb wasteful expenditure to shore up its finances rather than on introducing new direct taxes.

According to Surjit Bhalla, unnecessarily taxing the rich more will not generate much revenue. Instead tax compliance and bringing in evaders, salaried people, professionals etc under the tax bracket is the need of the hour.  He also believes that tax revenues alone will do nothing for the government, rather the real Budget story lies in curbing expenditure.

Reuters

Reuters

Economist Ajit Ranade on the other hand believes that taxing corporate dividends at a flat 15 percent implies that the poor and corporates end up paying the same tax. He recommends implementing  tax deducted at sources for dividends too.

However, Ajay Shah disagrees as taxation of dividend would imply double taxation because the company has already paid income tax.

On a separate tax for commodities similar to the Securities Transaction Tax, the panelists were unanimous that a commodities transaction tax will act as a dampener for investors and cut trade volumes too. In fact they even recommended abolishing the STT altogether.

Watch the entire video below to understand all about taxation and whether soaking the rich with a higher tax slab makes sense.