Tax terror & prices to rise

The Union Budget is harsh. It has some signature of Narendra Modi in terms of measures for youth, senior citizens, the weaker sections and ‘make in India’ but it also bears the continued stamp woefully of Manmohan Singh, ousted by the people. It is more bureaucratic and inflationary. There was a sea of opportunity at a time when inflation was coming down, people had heightened expectations of a break from the oppressive UPA-set pattern and better days, even if not achhe din.

Agriculture that was expected to get special attention with BJP vision of changing the economic dynamics has not got the preferred status to alter the face of India.

Tax terror that was promised to be eliminated would now haunt all businesses and individuals in the new proposed law to tackle black money, basically tax evasion. It criminalises tax payment, introduced by the society as a voluntary contribution to the State. The proposed 10-year jail terms, making it non-compoundable offence, denial to approach Settlement Commission and penalty of 300 per cent of tax, give draconian powers to the income-tax authorities, not themselves known so much for honesty.

This apart, provisions defy the concept of natural justice, free and fair trial. It gives the power of judge, jury and prosecutor to the I-T department. The step turns taxpayers into criminals. Real criminals are always known to go scot free and the honest ones are heckled and humiliated.

The draconian provisions must not be allowed to become a law to save the citizens from untold oppression. The expectation of checking savings from tax-deducted at source (TDS) of bank deposits has also not been considered. It helps the I-T department rob savings of the poor and burden financial institutions with additional cost.

The Opposition and the critics of the NDA Government try to paint it as a corporate budget. It is not. It promises to bring down the corporate tax to 25 per cent in the next four years. This is welcome as effective tax rates are already 23 per cent. The critics ignore that they have also been saddled with 12 per cent surcharge that is to be realized from all – individual, Hindu undivided family (HUF) or firm - having an income of over Rs 1 crore. The little mercy shown to the corporate is that they would have to pay at 7 per cent up to Rs 10 crore.

The foreign companies being lured to invest have neither been spared. They would pay the surcharge at 2 per cent up to Rs 10-crore income and beyond that at 5 per cent. Companies too would also have to pay additional income tax of 12 per cent instead of present 10 per cent for dividend payment and buy-back of shares.

The Budget increases tax burden on all. Steep hike in road cess, on petrol and diesel from Rs 2 to Rs 8 a litre for “allocation of additional resources for infrastructure” is making travel and transportation expensive. The Government could have balanced it with abolition of highway toll. The road cess has accumulated into an over Rs 1 lakh crore fund. It will also undo the small relief given to the salaried on exempting transportation allowance of Rs 1600 from Rs 800 as of now.

Eating out and air travel are going to leave a bigger dent on the wallet as service tax is raised from 12.36 per cent to 14 per cent as part of its gradual transition towards goods and services tax. And, it could get worse if the 2 per cent Swachch Bharat cess is actually levied. “The cess can be levied on all or some services” Finance Minister Arun Jaitley states. The effective rate of service tax could be 16 per cent of the value of service, tax experts note.

While that appears to be a little distant, there are new services that will face a levy starting with recognized sporting events such as cricket, tennis or hockey games, ballet and other theatre performances as well as concerts and pageants, where tickets cost over Rs 500 per head.

The Finance Minister tries to rationalize it by stating that education and higher education cess is being subsumed in service tax. Even Government or local authority services to business entities would invite service tax payment. Similarly, if a folk artist or a classical singer or dancer charges a fee of over Rs 1 lakh, she will now be subjected to service tax.

Central excise duty has also been increased by from 12.36 per cent to 12.5 per cent - 0.14 per cent - in the name of rounding off. The seemingly small amount would cause significant increase in prices of manufactured goods.

Those flying ‘business class’ will now have to pay levy of 60 per cent of the value, instead of 40 per cent. Additional 30 per cent service tax would make rail, road and vessel transport expensive causing price rise for all commodities and goods. Even availing service by way of free telephone at airport or hospital would lead to payment of the tax!

Jaitley has also increased the levy on goods transported by railways, a move that may increase freight rates marginally. What will add to the burden is the move to levy tax on food products, other than grains, pulses, flour, milk and salt, which are transported by rail or road. The Government has also decided to levy service tax on chit fund services and those selling or marketing lotteries. At the same time, mutual fund agents and distributors have been brought in the tax net. Individual has not got any relief in I-T. The exemptions are subject to availing of services like health insurance or making additional deposits whether he is a young or senior citizen. The deduction limit from Rs 60,000 for serious diseases is not automatic. It would call for harassment, if not denial, by the I-T as it calls for routine favourite review for making senior citizens run to the I-T offices.

The Finance Minister instead should again consider abolition of income tax to ensure people have more money to boost Prime Minister’s dream manufacturing and ‘make in India’. The step would boost business sentiments and add to real growth.

Modi must intervene to make the Budget non-inflationary and removal of draconian tax hikes and provisions to give a healing touch to his constituency—the people-- before the Budget is passed. They had voted him in not for this budget!

By: Shivaji Sarkar