As Budget 2020 Sinks In, The Most Taxing Question Of All

Finance Minister Nirmala Sitharaman made everyone miss lunch with a Budget speech that lasted more than two and half hours. In that time she gave us a fix for everything from agricultural to gene banks, so much so that she ran out of steam and couldn't finish last two pages. And then the TV channels spent the next 10 hours with panelists (like me) telling the world whether it was a good bad or maybe budget.

And everyone talked about the fiscal deficit, off-balance sheet spending, whether to be prudent or boost demand by giving the people more money to spend, thereby busting the fiscal deficit norms or keeping the fiscal deficit as close to 3% as possible. With no Big Bang, the consensus seemed to be that there were lots of nice ideas to save the nation, but no clarity on where the money was coming from and whether these schemes would be implemented with the efficiency of abolishing Article 370 or the messy demonetisation.

What everyone wanted to say, but didn't, was - "there is no money". There is no money for the Rs 100,000 lakh crore infrastructure boost, and there is no money to increase real wages for MNREGA (the guaranteed 100-day rural employment scheme). In fact, there is no money for the 100 days of employment for all those seeking it, and no money to pay those that have already worked. There is no money to increase the defence budget (except for the inflation equalising 6%).

And why is there no money? In a country that is the largest consumer of whisky and has the third largest number of billionaires, why don't we have the funds to Make India Great Again (sorry Donald, just borrowing a slogan) as we were for 3000 years, according to the Economic Survey?

The fault, as Shakespeare said, lies not in our stars, but in ourselves. So before we go racing to consult the astrologer with India's kundali, we should ask ourselves - why is India broke? The simple answer is, because no one who can help it pays taxes, and those that can't avoid it, pay as little as possible. No one knows the size of the black market or where the money is, but the Prime Minister had in 2014 promised us all Rs 15 lakhs from hidden wealth. Unfortunately, demonetisation, which was to suck all this black out only created a new league of black marketeers, hospitals, petrol stations, bank managers, chemists etc while we stood in the queue.


Finance Minister Nirmala Sitharaman Budget speech lasted more than two and half hours.

But why blame the government? We are at fault. Take the LPG subsidy. The Prime Minister had appealed to everyone who was above the poverty line to give up the gas subsidy so that that money could be used elsewhere. What happened? Only 4% of those with LPG connections who could afford to give it up did so (Economic Survey 2019). Why? Did these people really need the Rs 250-odd subsidy each month? So, the net result is that as rural India gains LPG connections, more money is flowing into that subsidy, as the urban middle class refuse to "give it up'.

Similarly, the much-touted GST has about 8.5 million businesses filing GST returns. In a country that has more than 50 million traders, how can that number be so small? Of course, politicians have allowed businesses with under Rs 40 lakh turnover to stay out of the GST net. Which is a good excuse for millions to escape the net. They are the new agriculturalists, exempt from tax. After all, if someone questions your turnover, you just pay the local "tax", much less than GST. Which is partly why GST collections have never met their targets. And low GST collections means there is no money spend. (GST is 18% of the Government's revenue)

The budget showed the bureaucratic mindset of the state that drives people into the black. In its income tax gift, the BJP offered a multi-layered 'tax cut' for those willing to surrender any exemptions, like house rent deductions, Provident Fund or LIC deductions, medical insurance etc.

Two questions arise. One, why have all these tax brackets, and not simple Singapore-type 20% above any threshold you choose? And secondly, if you do the math, why would anyone jump at this, when they end up paying more tax if they earn more than a lakh or so a month? Scared of losing revenue? Well, this will cost the exchequer Rs 40,000 cr. The tax giveaway for corporates cost the government three times that, so why are you so niggardly with the average tax payer? The answer is that there is no money to give away.

Similarly, what the budget gave with one hand it took away with the other. It increased the limit for no audited accounts for businesses with a turnover upto Rs 5 cr. Excellent idea. But wait for it. It would only apply if your cash 'transactions' are less than 5%! How is that possible? A shop doing sales of Rs 1 cr would be restricted to Rs 5 lakh cash sales a year? That's about Rs 1,500 a day. Someone in the Finance Ministry doesn't live in the real world.

There were many good ideas in the budget, especially the focus on agriculture, with emphasis on storage, solar farms and trees as the third crop; helping startups, listing of LIC, tax breaks for Foreign Sovereign funds in infrastructure, efforts to deepen the bond market, a short tax settlement option, and a tax payers' charter for transparency. But if the government wants to be able to really change India, it has to have money on a regular basis and not live on selling assets, whether PSUs or possibly defence land. This money can only be generated if tax collection improves.

If the government intends to efficiently collect taxes, then it needs to have very simple tax structures, minimal exemptions, single rates which make tax avoidance or fudging more difficult and remove the discretionary power that leads to corruption and drives potential taxpayers away. And unless the revenue collections increase dramatically, we will continue to struggle to find the money to actually spend on lifting India out of poverty.

Indians try and avoid the inconvenience of laws as much as possible. So unless the situation is black or white, they skate in the grey zone.

It took years for us to implement wearing helmets for rider and pillion on motorcycles. It has come about (85% or so compliance) when only Sikhs, not women, not children, not elderly, were exempt.

(Ishwari Bajpai is Senior Advisor at NDTV.)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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