Poor pays, rich escapes

Poor pays, rich escapes
Highlights

The tax revenues of the Union government have surged in the first half of 2015-16, growing faster than the budgeted. But, the government pooled more tax revenues through indirect taxes that affect common man. While, the direct taxes collected mostly from the rich grew less than the expected.

surge in central revenues

Hyderabad: The tax revenues of the Union government have surged in the first half of 2015-16, growing faster than the budgeted. But, the government pooled more tax revenues through indirect taxes that affect common man. While, the direct taxes collected mostly from the rich grew less than the expected.

Analysing this trend, Dennis Rajakumar and R Krishnaswamy in an incisive article in Economic and Political Weekly (Surge in Union Government Revenues) say that though the increase in tax receipts is a welcome development, the regressive form of taxation like indirect taxes leading the growth in revenue would accentuate income inequalities in India.

There has been a phenomenal 25.7 percent growth in the total receipts of the Union government in the first six months of financial year 2015-16 (April – September). The revenue receipts in this period registered a rise of 22.8 percent which is far higher than 7.2 percent in the first half of 2014-15.

Revenue receipts account for most of the total receipts while tax receipts constitute the major share of revenue receipts. This year‘s increase in tax revenues is remarkable even when compared to the last five financial years too. The revenue collections of the Union government in the first half of the current fiscal have been remarkably higher across the board both in terms of year on year growth or as percentage of the GDP.

The budget for the current year had expected an increase of 18.9 percent in indirect taxes as a whole. But, the actual increase for the first half of the current fiscal is 33.9 percent, way ahead of budget projections. Among the indirect taxes, significant rise was in excise duties with a growth of over 70 percent in the period April – September this year. The service tax revenue grew by 20.8 percent in the first half of 2015-16 as compared to 14.2 percent the previous year.

The customs duty grew by 18.6 percent in the first half of this fiscal compared to only 5.3 percent the previous year. Among the direct taxes, personal income tax collections registered a subdued performance despite imposition of additional surcharge of two percent on super rich (those with a taxable income of over Rs 1 crore).

The trends indicate a decisive shift from taxing income to taxing consumption. But, such a strategy would hard hit the common man as the lower income groups spend most part of their income on consumption while the rich spend only a miniscule part of their income on consumption. Thus, the poor and the middle class seem to be contributing more to the Modi government’s revenues while the rich and super rich seem to be spared.

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