FMs Agenda for middle-class - Indian Budget 2005. Review on Union Budget 2005

So is it a dream Budget 2005 from PC? - hardly!

• On the back of robust growth and positioning for similar performance this year, one would have expect courageous budget.

  
  




• Alas, Left has managed to scare enough, the PM and FM that the annual planning and statement of intent (and more importantly allocation of money or as is the case, otherwise) was a whimper.

  
  




• More renaming of erstwhile/already operational schemes and grandoise statements with often nil allocation or peanuts. Take Bharat Nirman, Water bodies revival, Infrastructure special purpose vehicle .... 100 crores is not enough in most of these initiatives for the multitude of bureaucrats we have in our system to put a file note (leave alone implementation) from the comfort of their fifth pay commission compensation with special tax relief for being in Govt (never mind) service.

  
  




• Granted, to allow industry as usual to perform despite the Govt policies, PC has been kind partly to do nothing too adverse - barring the preposterous presumptive taxation on 'fringe' benefits on things such as Business travel expense, hosting a lunch or dinner to prospects etc etc..

  
  




• What we needed was Expenditure reform rather than Tax reform to hit the malaise of bureaucrats eating into livelihood of India Inc - Future, as they have successfully finished off the present anyway. If the Govt needed more money for it to plunder, the FM should have said that he needs it & a transparent & simple & straight-forward to administer tax on corporates rather than such slight, where nuances of interpreting what is in and out of fringe-benefit by bureaucrats & courts will obviate the end purpose - revenue mobilisation. The people who have to do such things as Business promotion, travel will only know better how much they hate it & how much they would like to have a quite evening and a simple meal at home! This presumptive 'perquisite' taxation - that is daylight robery.

  
  




• PC had mentioned in his budget speech, that there is a need to bring Corporate tax on a par with Individual tax - why so? More could have been done to 'offer' real reduction of Individual income tax, to improve compliance, broaden the base, make it realistic to the service level (or otherwise) felt by people on ground, to say a max rate of 25% or atleast so till Rs 10lakhs, indeed removing complicated exemptions alongside, to simplify the whole process & cost of compliance.

  
  




• Enough has been said, as the FM had cleverly anticipated, regarding the introduction of withdrawal tax of Rs 10 on every Rs 10000 drawn or taken as draft/banker's cheque in a day. It was a master stroke to divert attention away from the money-less grand-schemes, fiddling the figures by restructuring the base of statistics, for eg - projecting a leave-taken from fiscal reform only for one year - while in reality, a substantial sum of Central responsibility for allocation is left for States to raise market, while there is no matching reduction in either central expenditure, effectiively making FRBM act a mockery.

  
  




• Aterall, if every MP is having Rs 5 Crore per annum for him to spend on his pet project to his constituecy, by getting the responsible bureaucrat to award the associated contract to 'friends and relative', splitting the spoils between him and babu, then the Govt (& its ministry such as FM) must have a more innovative way of splurging public money, hoodwinking the people at large with such fiddle-the-figure gimmick!!

  
  




• Talking of going after the 'black money', with this blatantly stupid idea of withdrawl tax, may be the babus in FM could start with the asset declaration made by the sitting parliamenterians and aspirants, to the election commission, in the last Lokshaba election. That I am sure will yield more 'tangible' result & be a foundation to go after the black money generators like builders, havala operators et al, the lesser criminals.

  
  

---------Below-Thoughts on the budget before it was presented---------

Both Mr Parthasarathy Shome (Rev Secretary) and Dr Vijay Kelkar (Consultant Tax reforms) and their committees have said that their direct and indirect tax reforms, in particular proposed rates and slabs dont take into account higher revenue from improved compliance.

Tax code simplification and complex removal of complex exemptions that we have accumulated over years of amendments as proposed by these (in particular Kelkar's) commissions is welcome. Yet, considering the fact that ..

1) exemption removal hurts honest tax payer (the salaried class), though needed in the interest of simplicity

2) the real cost of living faced by the middle-class, a significant part of which is living in costlier urban India to make a livelihood,

3) progressively more items of basic consumption is proposed to be Service taxed (VAT/GST), that too at increasing percentages from 5 to now 12 on proposed even 20% in some cases

4) cost of living is already further driven up by higher inflation of recent 2-3 yrs, lowering returns on savings,

5) taxing income (income tax) & and second time at the time of consumption (service tax) on almost all items of basic consumption tantamount to double taxation (whose avoidance treaty is there for Indians with other countries but it appears that we need such a a treaty with India!)..

....the Finance Minister should give the following reprieve to middle-class& yet India Inc shall be able to meet its expenses given the higher compliance (as is proven by recent spurt in service tax revenue mobilisation)

• increase the 20% tax slab upper limit to 8 lakhs.

  
  




• bring down individual max income-tax rate to 25% (instead of 30%).

  
  




• Tax all agricultural income above 3 lakhs like normal income; afterall its the rich middle-men (and not real agriculturist who robs both farmer & end customer) that benefits with current exemption. Poor farmers will continue to enjoy the needed full exemption as 3Lakh annual income is a boon to them, if that income ever were a reality, to the real 'farmers'!

  
  




• aggressively reduce and set target for other ministries, to cut Govt bureaucracy head-counts and associated Revenue expenditure, rather than raise revenue to meet not just 'status-quo' but ever growing un-productive revenue expenditure

  
  




• review overlapping public spending for rural India that is dismally poor in its implementation effectiveness; bring greater control through NGO overview

  
  




• scale down populist pronouncements like 'free power' to farmers that only promotes irresponsible use. Dispel the popular belief that FM is the Robinhood of India robbing urban Peter to pay rural Paul. indeed (in a relative sense) prosperous urban Peter should contribute to (only) ''asset creating'' expenditures of rural Paul, to ensure that our Agri dependant

  
  

economy flourishes.

• offer aggressive tax incentive for Solar power tapping device manufacture, efficiency improving innovations & lower capital cost of the ISI certified units (to promote large scale use). That should bridge the energy gap in a sustainable way as bulk of the country is blessed with 'no-cost'Sun for good part of the year.

  
  




• cut bureaucracy size aggressively - not promised 3% cost reduction evey year for 5-10 years that does not even cover rising cost of inflation of (largely) wasteful spend on bureaucracy given its (lack of) efficacy (unlike private enterprise workforce).

  
  

-----------------Reference--------------

For more on Kelkar's recommendations:

https://mouthshut.com/review/Ministry_Of_Finance-58330-1.html

Who is on Individual tax payers side:

https://mouthshut.com/review/Dept._Of_Commerce_