Tax on EPF: Middle class should not be unhappy with Budget 2016 when it has Kanhaiya Kumar

The budget shows Narendra Modi's government is UPA plus Kanhaiya Kumar.

With its mid-term course correction and pro-farmer tilt, the Modi government has indicated it will now aggressively pursue the rural voter by spending more on social security schemes and farmers and taxing the urban voter.

Kanhaiya Kumar in a file photo. PTI

Kanhaiya Kumar in a file photo. PTI

In principle, Finance Minister Arun Jaitley's economics is smart politics. Like Marie Antoinette who wanted people to eat cakes, the BJP is convinced that urban voters and the middle class will be content with slogans, news hour debates and nationalism certificates. So, it is shifting the focus to India's villages, where the noise from TV debates may not be enough to win elections.

The rural economy is in a mess. Figures from the latest economic survey show that the average annual income of the median farmer net of production costs is less than Rs 20,000 in 17 states. This means, they live on just Rs 1,500 per month.

As per the survey, only 34 percent of the total cropped area in India is irrigated, implying dependence on the Monsoon and financial distress when rains fail.

So, the government now wants to spend aggressively on irrigation schemes and crop insurance to shield farmers from the vagaries of weather.

Since the promised investment will take years to show results, the government has fallen back on MNREGA, allocating Rs 38,000 crore to the scheme, after ridiculing it as a symbol of the UPA's failure.

The Prime Minister is hoping that income of the farmers will double in five years because of his government's rural tilt. Even if it goes up from Rs 20,000 per annum for farmers in 17 states to Rs 40,000 in five years, it would not have a significant impact on their lives. Yet, any beginning is laudable.

Writing for, former media advisor to Manmohan Singh argues, whatever the views of the government’s critics, Prime Minister Narendra Modi has chosen to tread the middle path like any Congress-led or Third Front government would. It should now be clear that on economic policy and foreign policy there is no major difference between Modi and his predecessors. At the end of the day, the difference between the BJP and its critics is essentially on social and cultural issues.

So, Rahul Gandhi should be happy that 'suit-boot ki sarkar' is trying to become a dhoti-chappal ki sarkar.

The middle class, obviously, will have to suffer the consequences of the government's policy of robbing Peter to pay Paul. For spending money on its rural schemes, the government has to perforce pick the pocket of the middle class. So, the crorepatis will have to pay additional 3 percent surcharge on tax and for everyone else there is a 0.5 percent cess on service tax for Krishi Kalyan.

Jaitley's refusal to change the tax slabs is a painful reminder of his advocacy of exempting income up to Rs 5 lakh. Many in the middle class had also been swayed by Baba Ramdev's trial balloon of scrapping Income Tax and replacing it with a banking transaction tax. Instead of asking for rebates, the middle class will be happy if the government roll backs the tax it has introduced on PF withdrawals.

The middle class has every reason to ask the government what it is getting in return for paying Income Tax, service tax, tolls, excise duties, VAT and the surcharges and cesses that are added to the list every election. A back of the hand calculation would reveal that people who are in the 30 percent tax bracket, end up paying more than 50 percent of their income to the government as taxes. So, every tax payer has the right to ask how would the government help him if tomorrow they a) lose their job, b) fall sick or c) need social security.

Finding innovative ways to squeeze more money out of the middle class instead of thinking of taxing rich farmers is a ploy no government has been able to resist. Modi's isn't the first.

But, as long as people are busy debating food habits, sedition laws and the national flag, every government can keep taking the support of this section for granted.

Who wants more money in hand when the government is giving us Kanhaiya?

Updated Date: Mar 01, 2016 18:12 PM

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