Budget 2014: Why Arun Jaitley's sops are a huge let down for tax payers

The budget 2014-15 presented by the Finance Minister Arun Jaitley is a huge let down on the personal taxation front. Status quo and incrementalism marks the budget insofar as personal taxation is concerned. While the hike in tax-free limit from Rs 2 lakh to Rs 2.50 lakh was in any case warranted given the erosion in purchasing power thanks to food inflation, there was a case for going beyond tokenism in favour of the middle class. Those earning less than Rs 5 lakh would have been better served had the exemption limit for them been hiked to Rs 3 lakh at least.

The one-size-fits-all approach to savings-oriented deduction under section 80C called for a paradigm change in favour of encouraging savings on part of those who could afford to save more. It is meaningless to allow an additional savings of Rs 50,000 to a clerk or a householder with a huge family for the simple reason that it would leave him with that much less money to run his family.

On the other extreme, the same heightened limit of Rs 1.5 lakh is a tokenism for a High Net Worth individual. Jaitley should have ushered in a sliding benefit scheme that would hold attraction to HNIs. If a person wants to save Rs 2 lakh i.e. Rs 0.50 lakh more than what is on offer, he should be allowed an 80 per cent deduction only for the additional Rs 0.50 lakh invested. If a person wants to invest Rs 1 lakh more than the one-size-fits-all limit of Rs 1.5 lakh, he should get an incremental deduction of 75 per cent alone for the next additional 0.50 lakh invested. In other words, the total deduction for him would be Rs 1.50+0.40+0.37. In the process the government would have garnered long term funds for physical and social infrastructure projects cheap.

[caption id=“attachment_90455” align=“alignleft” width=“380”] Jaitley presenting the Union Budget today. PTI[/caption]

Wealth tax remains as it is. It should have reached out to all assets from the existing just six categories of assets alone. Inheritance tax is conspicuous by its absence in our country, having been kept in a suspended animation for more than three decades now. Many states in the US, the cradle of capitalism, have inheritance or death tax or estate duty with some of them appropriating as much as 50 percent of the estate. Small wonder, the likes of Bill Gates and Warren Buffet have seen merit in making donations during their lifetimes rather than steeling themselves for squirming uncomfortably in the grave at the discomfiture caused to their wards. In India, fearing tax on gifts, elders prefer to write wills so that the properties inherited after their lifetime is left alone.

Nothing has been done to read the riot act to businessmen. We have presumptive taxation schemes that are butts of jokes. Neither the trucker nor the small shopkeeper bestirs to pay the small tax contemplated by the schemes.

Just 8 per cent is presumed to be the taxable profit if the turnover does not exceed Rs 1 crore. On Rs 8 lakh, a tax of Rs 85,000 can be collected from a retailer selling material worth Rs 1 crore a year. Those selling less than Rs 1 crore would of course have to pay a lesser tax but the truth is hardly anyone is evincing any interest in the scheme in the smug belief that no taxman is going to come calling.

The point is Annual Information Return needs to target big ticket transactions. While it must continue, what should be done is to spread the tax net so that millions of shopkeepers dotting our urban scape are brought into the tax net. That would enable more elbow room to the Finance Minister to offer relief to the sitting ducks.

One hopes Mr Jaitley presents a more robust budget next time around.