By TN Pandey
WHEN US President Donald Trump announced a reduction in corporate tax rate from 35 per cent to 21 per cent, there was almost universal clamour in India for getting similar reduction during the budget exercises of 2018. Ultimately, the corporations succeeded in getting corporate tax rate reduced from 30 per cent to 25 per cent for companies having an annual turnover of up to Rs. 250 crore, which comprised 99 per cent of the total corporate strength in tax net, leaving the tax structure for individuals and others untouched.
However, it is regrettable that none of the high-income group taxpayers in India have ever echoed the sentiments of US billionaire and Microsoft founder, Bill Gates, when he says that he wants to pay more taxes. His desire is that not only he should pay more in taxes, the Government should require other super wealthy people, like him, to also contribute ‘significantly higher taxes’. He said this in the context of the Republican tax bill, which he did not consider progressive and felt that the biggest benefits from this will be felt by the super rich despite the Government’s insistence that tax cuts would help America’s working and middle classes. And his fears have proven correct by the statement of another US billionaire, Warren Buffet. According to a news report, Berkshire Hathaway, the holding company of Warren Buffett, received a stunning $29 billion check last year from the US Government because of a new law that massively lowered corporate tax rates. In his annual letter to shareholders, Buffet explained that the company’s net gain of over $65 billion in 2017 was only partly due to his employees’ efforts. Only $36 billion came from Berkshire’s operations. The remaining $29 billion was delivered to company in December when Congress rewrote the US tax code. Many other major companies also booked significant fiscal gains because of tax reduction.
In India, the tax cut of 5 per cent given to corporations with up to Rs. 250 crore annual turnover needs to be contrasted with the no rate reduction to other taxpayers mostly in the lower and middle income groups. The Finance Minister, during the 2018 budget exercises, proclaimed restoration of Standard Deduction for salaried employees (arbitrarily and wrongfully withdrawn by Chidambaram) to the extent of Rs. 40,000 for employment-related expenses, but in the same breath, withdrew deductions already available to them to the extent of Rs. 34,800 in the form of conveyance and medical allowances, reducing the Standard Deduction to merely Rs. 5,800 and that too got wiped off by an increase of 1 per cent in the cess rate. And, he has done this to a group of taxpayers, whom he described in his budget speech as better taxpayers vis-à-vis businessmen and professionals, who reduced their tax burden by claiming host of expenses (real and notional). For AY 2016-17, the 1.89 crore salaried taxpayers contributed Rs. 1.44 lakh crore to the country’s exchequer as against merely Rs. 44,000 crore from business and professional taxpayers (this works out to just Rs. 25,753 per individual taxpayer in this category). The Finance Minister cannot be said to be just and fair to honest salaried taxpayers.
The impact of such tax policies was summed up by the head of Oxfam India in her press statement when she, on the basis of two reports this year in January and February 2018, said:
“The billionaire boom is not a sign of thriving economy but a symptom of failing economic system. Those working hard…are struggling to find their children’s education, buy medicines…and manage two meals a day. The growing divide undermines democracy and promotes corruption and cronism.”
The two Oxfam reports and the Forbes 2018 Rich List recently published show the imbalance in income and wealth. Clearly, inequality is growing at a staggering rate and the poor all around the world, including in India, find practically no change in their fortunes or living conditions. The Oxfam reports show that 82 per cent of the wealth created in 2017 went to 1 per cent of the global population while 3.7 billion people, who made up the poorest half of the world saw no increase in their wealth.
The position in India is equally bad. In 2017, India added 17 new billionaires taking their number to 101. Forbes shows that this number has increased to 119 in 2018. The increase in the wealth of the richest 1 per cent Indians in the last 12 months is equivalent to the Union budget for 2017-18. This 1 per cent of the Indian population possesses 73 per cent of the country’s wealth and resources. The figures mentioned in Oxfam’s reports have not been challenged by any one so far.
Though the disproportion of the kind stated earlier cannot be attributed merely to tax laws and policies. The reasons for the highly disproportionate growth in India can be attributed to the following decisions of the Government from the tax angle:
- Exemption of dividends from income tax;
- Abolition of Estate Duty (Inheritance Tax);
- Abolition of Wealth Tax Act;
- Exemption of farm income from growing of commercial crops and farm wealth hitherto under the Wealth Tax Act.
SUCH decisions leading to the growth of wealth monopolies need discontinuance since they are anti-progressive, anti-growth measures, limiting GDP and economic advancement. This has, however, not been firmly established by any empirical studies. On the contrary, such arguments have been refuted on fiscal as well ethical grounds. Warren Buffet made a statement few years back that he worked with the investors for 60 years and he has yet to see any one—not even when capital gains tax was 39.9 per cent—shying away from sensible investments because of tax rates.
Recently, at the Business Global Summit, 2018 (BGS), spiritual leader Sadguru Jaggi Vasudeo, the founder of Isha Foundation, speaking on the topic of ‘Guts, Gumption and Growth’ said that “while growth is intrinsic human nature, it should not come at the cost of others… Growth by accumulation is only sickness.” He called on business leaders to look at growth in a multidimensional way, which is sadly found lacking.
At the same Summit, Prime Minister Narendra Modi, inter-alia, stressed the need for ethics for the new India. In the context of income taxation, ethics has two dimensions: ethics by taxpayers and ethics by the Government. Ethics from both sides has failed. The floating of various income disclosure schemes and enactment of the Black Money Act indicate that, by and large, ethics is not a concern for business people. The recent PNB case, Kothari and other instances only support this view. But, in enabling the concentration of wealth in fewer hands by abolition of Estate Duty and Wealth Tax laws against the spirit of the Constitution (Preamble and Directive Principles of State Policy), the Government too can be held accountable on ethical grounds!
It is greatly worrisome that continued growth of wealth in fewer hands and stark poverty exist side by side. Vast sections of population live below the poverty line even by Government fixed standards. Such a situation cannot be considered equitable from any standards. Tax policies are, to a considerable extent, responsible for this. The situation needs immediate correction by (i) withdrawing exemption for dividends; (ii) re-enacting inheritance and wealth tax laws (it may be mentioned that a simple Wealth (Inheritance) Bill was introduced in Lok Sabha in 1989 but it lapsed due to dissolution of the Lok Sabha and obviously, nobody wishes to talk about it since then) and (iii) devising a pragmatic policy towards taxation of agricultural income and wealth. Wide discussion on some aspects mentioned in the Oxfam and Forbes reports is urgently needed. Food for the hungry, jobs for the unemployed and roofs over the heads of poor Indian citizens are the prime needs of the county and the galloping Sensex has failed to provide solutions for these. Hence, realistic measures are called for to tackle the problem of excessive and disproportionate increase in wealth in fewer hands.
A Government, which has come to power with ‘achchey din for all’ slogan, cannot remain unconcerned to concentration of wealth in just a few hands to the detriment of the larger populace.
The writer is former Chairman, CBDT
GOVERNANCE / Taxation / TN Pandey
VOL. 12 | ISSUE 1 | APRIL 2018