The Union Budget is just a few weeks away and the Government is saddled with many problems. Primarily, there is concern for raising more revenue amid demands for a cut in income tax and TDS. Add to this, the Centre’s outgo to States has also significantly increased. So despite some rise in revenue collection, its liabilities have increased. Thus, it has to look for avenues to raise additional revenues without drawing the tag of unpopularity.
Undoubtedly, this is a tightrope walk. As retail inflation rises and the Government is committed to increase the salaries of its employees, its direct burden is likely to be over Rs 1 lakh crore. The Budget size is also not likely to be much larger than the last year’s Budget of Rs 17.68 lakh crore as it is constrained by the concern for limiting fiscal deficit.
Consequently, the Government should be a bit liberal and design for higher deficit so that its developmental concerns can be addressed. This entails higher revenues. Hence, the Finance Minister has to reorient policies and look for new areas to raise taxes and not be bogged down by auto and pollution lobbies for a cut or reward in excise duties on purchase of new vehicles.
Remember, a new vehicle does not cause less pollution no matter the pollution lobbyists supported by car makers raising false bogies and blackmailing the Government to reduce excise duties and duty concessions for buying new cars. Besides, taxes on luxury cars or larger cars are a misnomer as many auto makers have reduced a cars length or width to come out of the definition. So higher tax on a vehicle as of now is not a sin.
Instead the Government needs to encourage second hand, used car sales. Pertinently, the US had established long back that a well maintained used car causes less pollution than a brand new vehicle even with the best specifications. Simultaneously, the Government should also remove restrictions on resell of private cars in cities like Delhi, national capital region (NCR) and other metros.
Needless to say, pollution and car lobbyists in tandem want a rise in new car sales at reduced taxes. This would lead to loss of more revenue. In its place the Government should consider hiking taxes on new automobiles.
Another way is to look for taxing some of the internet-provided services. The e-commerce portals have become virtual tax free zones. They are not paying most of the taxes as they have advantages of commitments made by the Government to WTO.
This, however, does not prevent the Government from levying facilitation fees as whatever services they provide burdens the Administration on extending various actual services like bandwidth, transportation, postal department and many others.
As e-sale volumes are increasing a central fee could be a good earning given cheap e-sales are due to a virtual avoidance of taxes. The sellers earn while the Government loses.
Further, the internet is also the carrier for some undesirable products. Unfortunately that cannot be banned. But these can definitely be checked. Various entertainment and porno sites give free access misusing the name of freedom of expression. That freedom under Article 19 too has restrictions as these are rarely used.
One forgets that freedom of expression is being used to sell bad products and continue with a trillion dollar industry —- some of it extremely exploitative for women and children. Therefore, the Government has an option. It can levy fee on access even on supposed “free” sites. In fact, there is nothing free. So a tax of Rs 100 per three minutes of access can be levied on all entertainment, gaming, porn, music and similar sites. It would be a big revenue generator.
Additionally, the Government has already made a welcome move for a higher tax rate for goods like aerated beverages and other items. It has to take care that the sellers do not befool the Administration by calling it a “health drink” via adding a few fruit juice drops and continue to take the exemption.
Cigarettes, bidis, tobacco products, gutkas, chewing gums and liquor should as usual have more taxes, while, food, power, education and health should continue getting exemptions. True, there are many loopholes in these areas too which need to be plugged.
The Government should also reconsider various other cesses —- road, tolls, Swachha Bharat, universal service obligation, primary and higher education cesses collected since 2006. Most of these were never utilized. Therefore, the Administration should come out with a white paper on how over Rs 3 lakh crore —- equal to the budget deficit of 2015-16 funds — remain unutilized for years. These are inflationary cesses and need to be done away with.
Similarly, the Government has to elucidate its intentions on lowering personal income tax rates. Ideally, this should be done away for at least an income of Rs 50 lakh to increase the peoples’ purchasing power thereby giving a boost to the market.
The loss of about Rs 1.75 lakh crore can be made with higher sales volumes and production. Indirect tax collection, system that even taxes a non-earner, would boost the Government’s kitty.
Furthermore, the near scrapping of I-T would also reduce Government expenditure on collection. Taxes should be made affordable whereby compliance is spontaneous. This would further reduce the necessity to have an army of officers and staff in the I-T department.
Moreover, it would reduce the tax outgo and also save a lot on litigation. The Government has made some right moves in this direction now it has to strengthen these with a pragmatic approach.
It also has to do away with TDS on bank deposits as this measure would increase deposits. It needs to understand, interest payments are not earnings. These are mere hedging against inflation. Even otherwise TDS earning growth has come down to 8 per cent from the earlier 18 per cent.
The Government also needs to have a relook at its outlook on increasing its income and expenditure every year as its entire budgetary approach is inflationary. The 2016-17 Budget should lay down the roadmap for creating a stable price regime, minimize regular wage revision and make available commodities at affordable stable prices through the next decade.
Undeniably, this would be a great departure from Manmohanomics and the Government would earn the gratitude of the people for this new approach.
Clearly, revenue generation and cuts in expenses are possible with an innovative approach. The Government must not shy away from taxing many untaxed large revenue earning products. A reformed I-T will be a revenue generator as also price stabilizer. —— INFA