With an economy in disarray, the budget highlights an effort to rack up resources and tackle the fiscal deficit by hiking taxes – and it squeezes the honest salaried taxpayer.
Multiple reports of sluggish industrial production, agriculture and retail economy, decreasing consumption and increasing fiscal deficit shed light on the phase of desperation India’s economy has entered.
The first Union Budget of Modi 2.0 came at a time when unemployment stands at a 45-year high, farmer suicides continue, the rates of saving and investment going down and sectors like manufacturing and exports are slumping.
Experts believe not concrete proposals are made to ease liquidity crunch in financial markets. This is also the first time that allocations have not been mentioned. But what it relies on is amplifying taxation – in direct and indirect ways.
It proposed to raise income-tax surcharge on the ultra-rich, but also gives corporates with an annual turnover of Rs. 400 Crore an income tax break from 30% to 25%. But for the arguably more honest and transparent salaried taxpayer, there’s no relief.
No relief for salaried class
Finance Minister Nirmala Sitharaman stated that the direct tax revenue grew by 19.13 percent in 2017-18 and 13.46 per cent in 2018-19. At the same time, number of taxpayers increased by 48 per cent over the period 2013-14 to 2017-18 from 5.71 crore taxpayers to 8.4 crore taxpayers.
However, income tax slabs were kept at what was announced by Piyush Goyal in the interim budget in February of full tax rebate for citizens with net annual taxable income up to ₹5 lakh.
But for those earning above, there’s none. The Finance Bill frees those earning up to ₹2.5 lakh per annum, keeps slab at 5% for those earning between ₹2.5 lakh and ₹5 lakh, 20% between ₹5lakh to ₹10 lakh and 30% above it.
The sentiment is explained by K.R. Shyam Sundar, a labour economist and professor at XLRI Jamshedpur, “While the government will claim that zero tax for net income up to ₹5 lakh will benefit low paid employees and pensioners, at a time when consumer demand for products like automobile and white goods are low, a higher income tax exemptions limit was needed.”
In fact, salaried employees are bearing the brunt of declining pay hikes in a stagnating economy in the past two years amid rising living expenses, which has resulted in reduced spending and saving capacity.
Compulsory filing and wider ambit
Although individuals earning less than 5 lakh have been given relief, it comes in the form of indirect rebates. Those earning between 2.5 lakh and 5 lakh are still required to file ITR returns. Even those who otherwise do not fall under the tax ambit but indulge in high value transactions, are now required to file tax returns, based on pre-conditions.
The Budget proposed making return filing compulsory for people depositing more than 1 crore in a current account during a single a year, or have spent more than 1 lakh on foreign travel or more than 1 lakh on electricity consumption in a year.
Additional cess on fuel is also a direct burden on taxpayers. Finance Minister Nirmala Sitharaman said crude prices have softened from highs which paved way to review excise duty and cess on petrol and diesel. She added that it was aimed at meeting public funding needs without hurting individual taxpayers.
Price of fuel were hiked by Rs. 2 the very next day, which falls directly on the pocket of such taxpayers with no relief. This issue was voiced by the opposition, including West Bengal Chief Minister Mamata Banerjee, who said, “As a result, price hikes will hit from transport to market to kitchens. Commoners are suffering and suffering…This is Election Prize!!”
Short-term gains instead of long-term stability
As per government’s official data, salaried employees on an average pay three times more income tax than individual business taxpayers. In 2016-17, 1.89 crore salaried individuals paid a total tax of ₹1.44 trillion, while 1.88 crore individual business taxpayers.
Also, tax collections in 2018 were a full 1 percentage point of GDP lower than the 7.9% the government had targeted. Analysts Rathin Roy who is the Director of the New Delhi-based National Institute of Public Finance and Policy, described it as an “unstated fiscal crisis.”
As per Rathin, the government’s plan should include restructuring a flawed GST, and making long term plans for reviving consumption and private investment. Instead the budget takes the shortcut near-term route to show volatile progress.
No hike in exemption limit for those with bigger salaries, proposal for additional excise duty and road and infrastructure cess of ₹1 each on every litre of petrol and diesel leaves the country’s honest largest tax paying group disappointed.
By: Chitresh Sehgal, Senior Editor, Dkoding Media