part 3 and concluding part of review
visit part 1 at >> https://mouthshut.com/readreview/58330-1.html
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Dr Kelkar’s task force is gracious enough to promote savings by providing exemption that is double the current level under 80CCC ie to Rs 20000 per annum, simultaneously removing almost all other exemption. If the Young India saves Rs 20000 per annum for a working life of 35 years that works out to 7lakhs. Does the panel expect them to live on the earnings of this corpus standing at Rs 7lakh, in their old age? Inflation will eat up possibility of any livelihood on this paltry sum of exemption!!
After analyzing tax at the time of investing, earning phase, withdrawals and whether to tax or exempt at each of these stages (sec 4.75 of the Task force report), the Task Force has quite easily concluded that the front loading ie TEE (Tax, Exempt, Exempt) is the best method (never mind for whom!). While there is merit to review whether some of the EEE schemes are still needed, it is heartening to note that the Task force has not chosen to take the TTT route!
Infact they have left the innovative TTT proposal to be taken care of not under Direct Taxes but thru Service Tax at 16% (due for implementation, sooner than you and me think) on virtually everything we consume!! Even though you would have paid income tax on what you earned as income, ’manufacturing the produce’ and your employer had paid Corporate tax, on the income ie diff between sale price & his costs, when you consume, you pay service tax on the full value of the Produce (billed) when you consume & not just on the value addition cost of delivering the ‘produce’ to you!! That in essence seems to be the new Service Tax road map. Welcome to TTT regime.
Be brave & proud of the Motherland, to pay, effctively, a 46% tax on your individual turn-over, largely to pay for the growing wage bill of the Babu who has no accountability, job risk, salary or pension threat unlike the vast millions employed in the private sector!!
Inline with the (much touted) International practice, it is gratifying to note that India has Double Taxation Treaty with most major countries that NRIs, Indian’s do Business with & pay tax overseas, claim rebate here, on returns filed; it is about time that for the sake of Indian taxpayers, India had a Double Taxation Treaty with India!!!
Talking of NRIs, the biggest blow the Task Force has struck is by way of removal of RNOR status, self denying the much needed asset forming investment potential from capable returning NRIs. In the absence of any visible ‘sizeable capital spend increase from GOI’ (since it is busy meeting its ever north-bound Revenue expenditure; unfortunately north bound, even after adjusting for inflation), the impact due such actions ie ’turning away assured capital that is here to stay, unlike the fickle FII route of FDI’, is even more worrying for India’s future.
If the on going ’tax reform’ is unfair to productive engagement of ’’returning Indian’s potential in India’’, unlike China, the blow on NRIs who salvaged the country in 1991 FC crisis is even more hurting to the country. The first step of this disaster is sown in this year’s budget by removing tax exemption on all FCNR/NRE a/c interest earning ie even on past deposits. As Mr H P Ranina said recently at a Budget review meet, US 1.8 billion due for withdrawal by NRIs on 1st Sep 2004, SHALL certainly be withdrawn, driving rupee down the black hole, forcing FIIs to pull out their dollars invested, ahead of that date, to protect their dear ’dollars’ already invested as Rupees. That would further compound our internal problem in that increased fuel import bill will have to be borne. On this one aspect, the whole exercise smacks of poor mis-managed tax reform of this hard-currency asset.
Come next April, the assumed ambitious revenue realization, consequent to widening of tax base, even if attained, Left permitting, will be completely eroded due such man made avoidable shocks like increased fuel bill, to leave the country back in the brinks. Small mercies : FM is duty bound to explain (away) to the people thru the Parliament, GOI’s record on Fiscal (irr)Responsibility and Budget (mis)Management Act(ion).
While some of the provisions of Direct Tax proposal needs careful review, Dr Kelkar is right on one thing; if the politicians donot have the will to implement the whole package of Direct Taxes, instead resort to cherry picking to please ‘interest groups’ for eg granting higher tax slab of Rs 400000, without responsible pruning of the plethora of exemptions & indeed taxing High Agri income, we have an accelerated path to doom. The evil coalition Dharma (it does not matter whether its called NDA or UPA) will possibly ensure that the ’cherry picking’ mess is created!
A classic example is the Fifth Pay Commission of the recent past – substantial raise and tax exemptions were granted to the bloated bureaucracy of GOI Inc, even denying the same tax-breaks to Salaried class in Private Industry, just to give bureaucrats the cover & comfort from inflation (with a faint hope that atleast they would come to their Govt offices on time, as a first step), without implementing the necessary & concomitant ‘force’ reduction, in all Ministries and Departments. Today a whole generation of Young India is paying the price & will continue to pay for a long time to come.
With current Interest payment liability of GOI over taken by Fiscal deficit, we are in a situation of having to borrow year on year the same amount and even more just to pay Interests.
If Dr Kelkar’s proposal of widened tax base, thus an increased revenue collection is going to fuel the wasteful expenditure of GOI Inc bureaucracy (spare the thought, Left is already making noises about next Pay Commission), we cannot continue to draw comfort from the fact that Income Tax in India is lower than elsewhere in the world, comparing only one side of the story as Dr Kelkar does with ease, ignoring lack of essential quality basic service delivery, for the tax collected!!
What is even more worrying for aam aadmi like you and me is that even Prime Minister is extremely concerned that bureaucracy should rise to the occasion to deliver? Can he fix the all powerful India Inc machinery?
Don’t worry, should things go wrong horribly, another commission will look into it, to establish if things have indeed gone wrong & its successor shall look into that report to see what needs fixing; first things first - after all nothing can be fixed unless it is broken!
As they say, if there is any growth in GDP and international competitiveness of India, it is despite Our Govt and its Bureaucracy!
God bless the honest, harassed individual & corporate tax payer! Long live Babudom!!
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