When BJP considered abolishing income tax to woo middle class

In the lead-up to the 2014 general elections in India, the Bharatiya Janata Party (BJP) explored radical tax reforms, including the abolition of income, sales, and excise taxes.  

This consideration aimed to appeal to the middle class and urban voters by promising significant economic changes. However, internal disagreements and practical concerns ultimately led the party to abandon these proposals.

Initial proposal and vision

On December 10, 2013, the BJP expressed interest in abolishing income, sales, and excise taxes, with the possibility of including this proposal in its vision document for the upcoming general elections. Former BJP president Nitin Gadkari, who was heading the party panel for drafting the party’s ‘India Vision 2025’ document, Apple about the ongoing deliberations.  

“We were talking about tax, and although we have not decided yet, a good presentation came before us. There is a suggestion of complete abolition of income, sales, and excise tax,” Gadkari said at a political function.

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Gadkari elaborated on the potential benefits of the proposal, stating that the total revenue of the country was Rs 14 lakh crore, with 1.5 lakh bank branches operating across India. He suggested that replacing these taxes with a 1-1.5 per cent expenditure or transaction tax could generate revenue of approximately Rs 40,000 lakh crore.  

This new tax system would reduce bureaucracy, as “those 3.5 lakh people who are using beacons of various colours now will not be required anymore as no tribunals or commissioners will be needed."

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Further developments and public engagement

On December 25, 2013, Gadkari reiterated the BJP’s interest in the proposal during a gathering of traders, stating that the party would consider abolishing several taxes, including income tax, sales tax, and excise tax, to combat black money and eliminate “Inspector Raj”. He explained that a transaction tax on bank transactions could significantly increase revenue.  

“If these transactions are carried out through banks, then our total revenue should go up to Rs 40 lakh crore as against the current revenue of Rs 14 lakh crore,” Gadkari said.

Gadkari emphasised that the proposal was still under consideration, and no final decision had been made. He encouraged public debate on the issue and noted that the BJP had received around 10,000 suggestions on various topics for the India Vision 2025 document.

The senior BJP leader also mentioned another proposal to exempt 3.29 crore taxpayers from filing income tax returns and a plan to combat fake currency through the use of special fibre made from plastic or jute.

A think tank and its presentation

The proposed reforms about abolishing income tax had been suggested by ArthaKranti, a Pune-based study group specialising in tax matters, and were endorsed by some BJP leaders, including Subramanian Swamy and Nitin Gadkari.

On January 2, 2014, the anti-tax group ArthaKranti presented their ideas to senior BJP leaders, including Rajnath Singh, LK Advani, Sushma Swaraj, Arun Jaitley, Yashwant Sinha, and Gadkari.  

Jaitley and Sinha voiced strong opposition, with Jaitley cautioning that the changes could unfairly tax the poor and Sinha suggesting that such reforms would regress India’s tax system to ancient times.

Internal disagreements and practical concerns

Despite initial enthusiasm, by January 10, 2014, the BJP appeared to be reconsidering the sweeping tax reforms. Senior BJP leaders Jaitley and Sinha were at the forefront of efforts to discard the proposal, arguing that replacing income tax with a bank transaction tax could blur the distinction between the rich and the poor.  

Jaitley, the Leader of the Opposition in the Rajya Sabha, said, “The proposed changes could blur the distinction between the rich and the poor. The poor would end up paying the same amount of tax as the rich."

Narendra Modi, then BJP’s prime ministerial candidate, acknowledged the need for new tax reforms without specifying any measures. At an event organised by Baba Ramdev, who incidentally was a voice favouring abolishing personal income tax, Modi said, “Time demands a new tax reform."  

Gadkari argued that a bank transaction tax could offset the revenue loss from abolishing income tax. “If we apply around 1 or 1.5 percent of expenditure or transaction tax, then we will get revenue of Rs 40,000 lakh crore,” he said.  

However, Jaitley and Sinha’s opposition highlighted the potential risks of such a drastic change, including its impact on the poor and the challenge of distinguishing between different income levels.

As prime ministerial candidate, Modi, too, didn’t seem convinced with such a drastic idea.  

Final decision and alternative proposals

By January 15, 2014, it was clear that the BJP would not pursue the abolition of income tax. Modi called for reforms to address “tax terrorism” but did not commit to eliminating income tax. Instead, the BJP pledged to rationalise and revamp the tax system if elected to power. A senior BJP leader then said, “The scrapping of income tax is out of the question, as it was never our idea."

The BJP continued to explore various tax reforms, with proposals for a uniform transaction tax being considered.

The UPA government had previously proposed the Direct Tax Code Bill to replace the outdated income tax law. This bill maintained the income tax exemption limit at Rs 2 lakh for individuals but introduced a fourth tax slab with a 35 per cent rate for those earning over Rs 10 crore annually. The BJP’s parliamentary standing committee, led by Yashwant Sinha, recommended raising the exemption limit to Rs 3 lakh and revising the tax slabs.

The BJP’s tentative move to abolish income tax was ultimately abandoned due to internal disagreements and practical concerns. The party’s leadership, however, recognised the need for tax reforms but chose a more measured approach, focusing on rationalising and improving the existing tax system rather than implementing sweeping changes.