Column: Budget
2016 – Don’t piss on the rich
It is not clear whether the budget will address the issue on
Monday, but there is a view—particularly among senior members of the BJP—that
the rich are a pampered lot; as individuals, they don’t pay taxes on their
dividend incomes or on capital market gains and, as companies, they get way too
many tax benefits and, in any case, do not create enough jobs to justify this
largesse.
That is why, for instance, prime minister
Narendra Modi said that while corporate tax giveaways were Rs 62,000 crore in
FY15, this did not include the benefits the rich got by not paying taxes on
dividends or on capital gains they made in the stock market. As this newspaper
has pointed out earlier, the prime minister was badly briefed since India Inc
paid nearly R26,000 crore as dividend tax in FY14 on behalf of their rich
shareholders—just because dividend is taxed at the hand of the company and not
in the hands of the shareholders doesn’t mean that dividends are tax-free.
That, in itself, works out to over a tenth of the personal income tax in the
year—and the securities transaction tax paid in lieu of capital gains was
another R6,000 crore in FY15—but these numbers are never totted up in this
fashion.
Of the
roughly Rs 3 lakh crore of personal income taxes, as much as a seventh comes
from just 83,000 people earning over Rs 50 lakh a year, according to a
calculation done by Surjit Bhalla based on the taxman’s data; those earning
over Rs 10 lakh a year are around a tenth of the taxpaying population but
contribute more than half the income tax collections. If that’s not the rich
paying their dues—more than it actually—it is not clear what is.
As for the
tax giveaways to India Inc, they have been given for a purpose, to encourage
firms to invest in India. Around Rs 37,000 crore of this, or around 60%, is
accounted for by accelerated depreciation which, anyone who understands
taxation knows, means the tax paid by the company over a 5-7 year period
remains unaffected, it just gets lowered in the first few years of a plant
being set up and is critical in terms of helping finance the project through
internal accruals.
You can
argue, and rightly, that firms shouldn’t require sops to invest but sops are
given for two reasons—one, they are meant to compensate for the inherent
problems of investing in India in terms of delays in getting land and
permissions, poor infrastructure, etc; two, they are meant to ensure the
effective tax for corporates in India is not too different from that in
competing investment destinations. That, of course, is why finance minister
Arun Jaitley is trying to reduce corporate tax levels to 25% from the current
30%, while reducing all tax giveaways. If, for the sake of argument, there were
no tax sops, given the difficulties associated with investing in India, it is
possible many firms would relocate to South East Asia or China. In other words,
the government is giving the sops only to ensure there is a Make-in-India—it is
not doing India Inc a favour.
It is also
important to point out that the tax giveaways to corporate India are around a
third of those given on excise duties—the former equalled 14.6% of total
corporate tax collections in FY15 and the latter totted up to 100% of total
excise collections. Ostensibly, excise duty concessions are also given to
producers, but the sole purpose of these is to lower prices for
consumers—sadly, the budget does not give a detailed break-up of excise
giveaways for a more elaborate examination of which consumers were pampered
most. Corporate tax giveaways, to give a different perspective, are also much
smaller than the Rs 150,000 crore or so of annual theft that takes place in
so-called schemes for the poor, and the largest beneficiaries of this are the
political-bureaucratic class.
It is also
worth keeping in mind that while total capital investment across the country in
FY15 was Rs 38 lakh crore, Rs 15 lakh crore of this came from the private
corporate sector—and a sixth of this was accounted for by just the top 25
companies (excluding banks which do not, by definition, invest).
Indeed,
while the government has managed to reduce all the good work done by telecom
companies to just one issue of call-drops, without paying any attention to the
huge spectrum shortage that is responsible for the call-drops, the fact is that
just three telcos—Bharti Airtel, Vodafone and Idea—invested Rs 35,000 crore in
capex in FY15, and that’s not counting the R85,000 crore that they bid for
spectrum in that year. In this list of the top 25 firms, just one company,
Reliance Industries, according to its chairman’s statement, invested R1 lakh
crore in FY15—and that’s after, thanks to the government not allowing
free-market prices for natural gas, the company lowered its investment in gas
exploration.
Reliance
Industries, interestingly, also accounts for 14-15% of India’s exports. Another
company, though not in the top 25, Cairn India, accounts for roughly a fourth
of all the crude oil production in the country. The top 25 firms also account
for close to 16% of the total corporate tax collections in India.
Collating data on the employment by each firm is
difficult, but a recent ICRIER study showed that, thanks to the faster growth
of capital-intensive industries—that is what India Inc is mostly about—the
growth in employment in these industries was faster than in labour-intensive
sectors. In any case, it is only modern industry that is globally
competitive—in a globalised world, if Indian firms are not competitive, imports
will take over the market. The government may wish to favour labour-intensive
manufacturing, but if it is not globally competitive, there are going to be no
jobs—they will be created in China, or Vietnam.The government, naturally, is free
to do what it wants in the budget, and move the so-called incentives away from
the corporate sector—or fail to make any serious moves in stopping tax-terror
—but it has to be keep in mind that, in an era when capital is mobile, the only
loser will be the country.
No comments:
Post a Comment