Fifth budget of Arun Jaitley as Finance Minister:
Finance Minister of India announced the budget plans, last week. Interesting point was that he could not manage to curtail fiscal deficit. Another highlight is that this budget aims at pushing rural economy and healthcare. No candy has been provided to tax paying middle class by way of reduction in income tax unlike last year when many argue that the relief was academic.
The accounting of budget 2017-18 is here. As may be seen the revenue from non corporation income tax improved by over 20% and this buoyancy has perhaps led to the Government to ignore the long standing demand to simplify the Income Tax laws.
Income Tax in India:
The most dreaded law for common man is income tax. See the sheer volume in above picture. Income tax Act book is many times larger than Constitution of India. The bare Act (statute) runs in thousand of pages. Different provisions for different tax years. Check the wikipedia page on Income Law here. Vast discretion conferred on Income Tax Officers to allow or disallow almost anything. Above all the vast powers of search and seizure with only requirement to ‘record reasons for belief that income has been concealed’. Unfortunately in real life these requirements have also not been met. Hundreds of thousands of accounts of bullion/Jewelry dealers were attached in 2016 post demonetization without even service of order to concerned person. Complete violation of natural justice and the Income Tax Act.
To make the matters worst, an amendment was introduced in Income Tax Act in last budget of 2017 which will permit the search and seizure merely on the basis of suspicion. This can turn the country into a police state though nothing of the sort has happened so far.
An opportunity lost:
When BJP Government first came to power in 2014, reforming the tax laws was its top agenda. While it did simplified tax laws by introducing GST last year which subsumes hundreds of earlier tax laws and thus paving the way to one market one tax. However it has not shown similar zeal to income tax laws.
To the credit of the Government, in 2014 it did simplify the income tax filing making it easy for the salaried class. It takes barely ten minutes to log in, file the return and log off. But the same can not be said about other classes of tax payers. The tax filing for a professional especially who owns one or more properties is very difficult. The level of difficulty can be guessed by the fact that often the fee paid for filing of tax return is more than the income tax paid. That is the crux of problem for average middle class. Finance Minister missed this opportunity to win the hearts of middle classes in this regard.
Another problem is technicality. The exemption limit of 2.5 lac makes millions of Indians defaulters. Average income of domestic maids is about 20-30 thousand per month which crosses above limit. Neither they file tax return nor Government has means to enforce the law upon such a large population except if it is made simplified enough to be filed without any accounting expences. But finance minister continues with the rhetoric about a non-compliant country without realizing that the income tax filing is also part of ease of living and ease of doing business and India is still at 100 rank which means that there are 99 countries which have better tax laws.
Another opportunity lost.
Another problem, the economy is facing that the rate of savings has fallen below 30% which has never happened since independence. The obvious reason is not consumerism but lack of incentive. The section 80-C caps the exemption for savings at 1.5 lacs. With rise in GDP over the years this limit has remained the same though it was revised upward a few years ago, apparently it was not sufficient. This should have revised again, if nothing else. Even better that a new exemption may have been issued for Development Bonds for various infrastructure schemes for which Government requires money.
The great irony:
There is a story about Indira Gandhi, the then Prime Minister of India. It is said that she had two sons. Elder son was trained to be a pilot and younger was trained to run the country (as politician). The younger son Sanjay, flew a plane and crashed it and became mortal. the Elder son Rajive drove the country and crashed it politically that it took thirty years for country to have a first non-coalition, (and non-castist) majority Government.
BJP has its own irony. It has a brilliant lawyer Arun Jaitley who is the Finance Minister managing the economy. BJP also has a brilliant Economist, an ex professor from Harvard, Subramanium Swami, and he is fighting all the corruption cases against the previous Government officials et all. Thus economist is managing courts and lawyer is managing economy. God may help us.
Elusive health care:
The provision of Rs.2000 crore for providing healthcare to 10 crore households especially to poor is rather a gimmick. A similar announcement of Rupee one lac per person, was made in the budget of 2016 but nothing has been done for its implementation. If it could not be implemented in two years how an increased amount of 5 lacs per person on healthcare is going to be implemented in next 6 months. Further, the primary health care is in shambles, not for lack of money but due to rampant corruption. Unless the huge holes in delivery system are plugged, increased money shall simply vanish like all subsidies doled out in past. This is really an election gimmick.