Union Budget 2023-24: Why setting store by GST, fuel tax regressive

The Goods and Services Tax (GST) collections have been surging recording Rs 1.50 lakh crore or so in December 2022. We can take a ballpark figure of Rs 18 lakh crore per annum. Fuel tax collections for the Centre too have been impressive at around Rs 8 lakh crore in each of the three financial years ending 2021. Add to this the Value-Added Tax (VAT) imposed by state governments on fuel at the ballpark figure of Rs 8 lakh crore, and the story is complete—excessive reliance on fuel tax and GST, the two low-hanging fruits that while filling the governmental coffers, hit the common man the hardest. Direct taxes collections were Rs 12.31 lakh crore till January 10, 2023. In fact, there is only one direct tax in India i.e., Income Tax, having junked Wealth Tax in 2015 and Estate Duty way back in 1985. Govt should revive estate duty, wealth tax Rahul Gandhi’s suit-boot jibe is bound to resonate against the backdrop of the above tax minutiae. The Narendra Modi government must squarely address this distortion in the upcoming budget 2023. Developed countries set greater store by direct taxes. To wit, many states in the USA impose a stiff 50 percent estate duty or inheritance tax. The Netherlands too, another avowedly capitalist nation, imposes a hefty inheritance tax. We in India, suspended it in 1985 on the facile ground that legal heirs were constrained to dispose off the immovable properties inherited to pay off the estate duty dues. We should revive estate duty duly rationalized and sanitized. Ditto for wealth tax that doesn’t pick and choose but secularly taxes all assets if the net wealth exceeds say Rs 5 crore. Ek haath mein IT return aur doosri mein wealth tax return would enable the assessing officer to make a fair, if not accurate, assessment of both. Skewed wealth distribution The top 10 percent of the Indian population holds 77 percent of the total national wealth and 73 percent of the wealth generated in 2017 went to the richest 1 percent. Against this, only 670 million Indians who comprise of the poorest half of the population saw a mere one percent increase in their wealth. This strengthens the belief that Indian growth is K-shaped. The Narendra Modi government cannot disown responsibility for this skew with the pat explanation that Pareto’s law (80 percent of the people own 20 percent of the riches and 20 percent own 80 percent of the riches) applies to all situations and nations. India cannot be an exception from its immutable and inevitable applicability. To be sure, revival of wealth tax and estate duty may not prove to be a cornucopian source of revenue for the government but it would send out the right signal—the Modi government does not cosset the suited-and-booted gentry. Tax collections can be increased from capital market The real and heightened collections can be made from the capital market which sadly has been left with just a slap on the wrist—long-term capital gains are taxed at 10 percent if they are in excess of Rs 1 lakh and short-term capital gains at 15 percent. A salaried middle-class person who doesn’t get to dabble in stocks naturally is aghast at this skew in favor of the capital market. There is no reason why foreign institutional and domestic institutional investors with deep pockets should be coddled with the soft tax. The short point is subsidizing the poor with taxes collected from fuel and GST is turning Robinhood tax on its head. You must collect taxes from the rich and spend it for welfare of the poor. There is another area that can be tapped—-charlatan charities. Most of our educational institutions and charitable hospitals fleece their students and patients respectively. Yet, they enjoy Income Tax exemption on the ground that they are carrying out charitable activities. To be sure, their pursuits are laudable but by no means charitable. It is time we changed our worldview of charity and taxed business profits secularly without being fooled by the facade of charity. Flogging a dead horse has become the Income Tax administration’s pastime. Instead of viewing salaried class tax returns with magnifying glass, the department must fan out to pockets of affluence. For example it can compile a list of Mercedes and other imported car owners from the Regional Transport Office (RTOs) and gun after them to see if they are paying their income taxes properly and fully. You can hide your income but not the visible status symbols like swanky cars and luxurious houses including farm houses which by and large have nothing to do with farming. We reduced corporate tax rates (to 15 percent subject to a tight timeline which alas was extended in the last Budget) in a hurry believing that foreign companies would make a beeline for India. India would beckon foreigners when our infrastructure is world class with minimal irritants. Low tax rate alone cannot be the gravitas. (The writer is a senior columnist. He tweets @smurlidharan) Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.