Robin Hood or just Hood? FM has mugged all, rich and poor

If you rob from the rich and give to the poor, you can be called a Robin Hood. But what if you rob from both the rich and the poor?

Perhaps you should just be called a Hood - a Hoodlum or Thug.

In his 2012-13 budget, Pranab Mukherjee has hit all comers with a blunt instrument - rich, poor and middle class, without fear or favour. Just in case you accuse him of favouritism, he has hit his own companies on the head with a weighty cosh.

Let’s start with the rich.

The retrospective amendment proposed to soak Vodafone and all overseas buyers of Indian assets is expected to bring in Rs 33,000-35,000 crore (read this _Firstpost_ report on what the finance secretary has said). But we didn’t see this figure anywhere in the budget.

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In terms of direct taxes, companies seem to have been spared, but the budget now seeks to impose an alternate minimum tax of 18.5 percent on small firms - partnerships, sole proprietary firms and associations of persons (clubs, associations, etc). These are precisely the firms that generate the most employment, not the big firms.

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Since service taxes have now been extended to all companies and people providing services (barring a small negative list), it means more small firms will pay service tax. The little rich will also pay a price for growth.

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Not that big firms have been spared. They will now be subject to transfer pricing norms - which means any big transaction above Rs 5 crore between related parties that the tax authorities think is not priced right may be taxed.

And don’t forget the Rs 58,000 crore earmarked as receipts from telecom companies. When telecom companies have to pay more for spectrum auctions (2G, 4G), the money will come from your pocket - since telecom companies cannot hope to pay from their own profits.

The public sector has been clubbed. One reason, of course, is the oil cess hike. ONGC will bear Rs 4,600 crore of this burden and Oil India (around Rs 800 crore). The private sector Cairn (owned by Anil Agarwal’s Vedanta group) will bear Rs 1,200-1,300 crore.

The Life Insurance Corporation, which was egged on to buy ONGC shares in the last share sale, is sitting on market losses of over Rs 1,000 crore because it bought the shares at a premium. The FM can also be said to have fooled LIC into buying ONGC shares when it knew all along that it was planning to impose an additional cess that would make ONGC shares cheaper after the budget.

The budget has also marked out Rs 50,000 crore as income from public sector dividends. They will have to cough up more to government.

But the other reason why public sector companies can consider themselves particularly unlucky is a decision which allows public sector companies to invest in other public sector companies, reports the Business Standard. This sounds like a great liberalisation, but any bets this provision will be used to make one public sector company buy shares of another from the government? If LIC is pressured to buy ONGC, isn’t it probable that of it needs more money, Coal India or ONGC will be asked to buy shares of some oil marketing companies or power plants to give the government more money through disinvestment?

Next, the middle class.

The middle class was seemingly bought off by an increase in the tax exemption limit from Rs 1.8 lakh to Rs 2 lakh in the budget. But the finance minister has taken away with the other hand what he gave with one. He removed the Rs 20,000 deduction for investment in infrastructure bonds - these tax-free deductions are gone. Surprise: the Rs 20,000 gain in terms of the hike in the tax-free basic exemption limit is exactly equal to the removal of the infrastructure bonds exemption limit.

And let’s not forget gold. The increase in gold taxes will bite the middle classes which needs this metal for making jewellery and for special occasions like marriages.

Lastly, the poor.

First, the NREGA scheme is being pared down (for good reasons, true) by Rs 7,000 crore this year. And the Food Security Bill is in limbo for the major part of the year. So, any gain for the poor is either reduced or put off for later.

The poor aren’t being taxed directly, but indirectly. This has been done by avoiding an increase in direct taxes and shifting the burden to indirect taxes - taxing goods and services of all kinds. Since both excise and services taxes are up by 2 percent - sounds small, but it will raise Rs 45, 940 crore in a full year - the costs will be passed on to everybody, rich and poor.

The resulting inflation, whether through taxation of everything in sight or by raising fuel prices (diesel, kerosene and cooking gas), will also be paid largely by the poor.

By mid-year, every Indian will know that the FM has been kind to none.