The rich must pay more: P Chidambaram
The burden must be shared equitably, senior Congress leader and former Union Finance Minister P. Chidambaram said in Rajya Sabha this week
Taxes, as a proportion of GDP, are low in India when compared to other developed countries and other emerging economies. If direct tax does not grow, it means that people are accumulating wealth and not paying enough taxes, whereas large mass of people, who pay indirect taxes, are bearing the bulk of the burden. The burden must be shared equitably, senior Congress leader and former Union Finance Minister P. Chidambaram said in Rajya Sabha this week.
Mr. Vice-Chairman, thank you very much for calling me to speak on behalf of the Congress Party. On the Finance Bill, I have a few points. I think, the entire Income Tax Act must be replaced by a Direct Taxes Code.No one benefits from this Income Tax Act except the chartered accountants and the lawyers…
The next provision is the novel concept called ‘faceless assessment.’ Sir, earlier, there was an Assessing Officer. He knew the Assessee’s history. He has the entire records with him. The Assessee may have been an Assessee for the last 30 years or 40 years or 50 years. He knows his history and then he will deal with assessment.
Today, you have introduced a faceless assessment! Of course, some people will argue a faceless assessment is a great improvement. According to me, this is a regressive provision. Numerous people have complained to me that this faceless assessment has put them through enormous hardship, because we even don’t know who is hearing the matter, who is deciding the matter and what records he has.
Now, I want to go to the Appropriation Bill. The hon. Member, who spoke before me, said that our direct tax revenues have increased. These are the numbers I have. I have taken them from ‘The Budget at a Glance’. In 2013-14, after about three-four years, I think it is about 2009-10, for the first time, direct taxes revenue, as a proportion of GDP, exceeded the indirect tax revenue.
And, in 2013-14, when the previous Government demitted Office and the new Government took over, the numbers were: 5.6% of GDP was direct tax and 4.4% of GDP was indirect tax. This is progressive taxation -- direct tax, as a proportion, increases and indirect tax, as a proportion of GDP, decreases. This is the right direction. Now, this direction continued till 2016-17. In 2016-17, sadly, indirect tax, as a proportion of GDP, crossed direct tax, as a proportion of GDP. And, I had cautioned even then that this is a bad trend; reverse this. Indirect taxes, as a proportion of GDP, should not cross direct taxes, as a proportion of GDP. Actually, direct taxes must increase.
Now, in this year, 2021-22, according to our ‘Budget at a Glance’, both have become equal - 5.4% and 5.4%. Next year, the FinanceMinister expects that direct taxes will go up from 5.4 to 5.5% and indirect taxes, as a proportion of GDP, will come down from 5.4% to 5.2%, which means, we are reversing the bad trend that has been set in the last five or six years. It is good and I hope that Government achieves this. But, mark this, total of indirect taxes and direct taxes touched 11.2% in 2017-18. This year, it is 10.8%, and next year, it will come down to 10.7%. If your total tax, as a proportion of GDP, falls by as much as 0.4% or 0.5%, there is something seriously wrong with your tax policies and tax administration.
Taxes, as a proportion of GDP, are low in India when compared to other developed countries and other emerging economies. We should increase our taxes as a proportion of GDP. But, unfortunately, the trend is not very encouraging. I want to utter a word of caution again that if your tax, as a proportion of GDP, does not grow, and if your direct tax, as a proportion of GDP, does not grow, it means that people are accumulating income and wealth and not paying enough taxes, whereas the large mass of people, who pay indirect taxes, are bearing the bulk of the burden. The burden must be shared equitably. People must pay taxes, but the rich must pay more; the people who accumulate wealth must pay more. Last time, when I spoke on the Budget, I did point out how the wealth of the top one percent has increased astronomically by Rs.20 lakh crore in one year. So, this is a bad trend. This is not a good trend and nothing to be proud about.
Now, I have another question. According to the ‘Budget at a Glance’, in the year 2021- 22, at current prices, the GDP will be Rs.232 lakh crore. In 2022-23, it will be Rs.258 lakh crore, and the ‘Budget at a Glance’ correctly calculates ‘nominal growth’ (underline this) at 11.2%. Now, I want to ask the hon. Finance Minister that after making this estimate of 11.2% growth, which was made on the 1st of February, 2022, whether you had an opportunity to review it. There is now the Ukraine war. Supply chains have been choked. The shipping rates have gone up astronomically. There is a chip shortage. There is a shortage of containers. There is a shortage of credit. World trade will be affected. In fact, the IMF has estimated that the GDP of every country will be down by 0.5% to 2%.
Now, given all these developments in the last eight weeks, are you still confident that ‘nominal GDP’ will indeed grow by 11.2%? I don’t wish ill. I wish it grows by 11.2%, but I have serious reservations whether in the changed circumstances, in the year beginning on 1st of April, it will actually grow at 11.2%....
I heard the hon. Finance Minister emphasizing once again in the Lok Sabha that this Government believes that Government’s capital expenditure will be main driver of growth. The rhetoric is inspiring but the numbers are not inspiring….
For the next year the Finance Minister projected a capital expenditure of Rs.7,50,246 crore. We were all very impressed when she read out that number. And she claimed that, point to point, it is an increase of 35%. Of course, that proportion is wrong. This, Rs.7,50,246 crore, is not a correct number. Have you included in Rs.7,50,246 crore the one lakh crore rupees that you will allow the states to borrow additionally for their capital expenditure? If you have included this one lakh crore rupees, then this will be counted as capital expenditure by the states if they borrow this one lakh crore rupees and show it in their Budgets. How can it be the capital expenditure of the states as well as the capital expenditure of the Centre?
So, my respectful submission is that the real number is Rs.6,50,246 crore. Over the current year’s revised true estimates of Rs.5,50,840 crore, it is an increase of exactly one lakh crore rupees. It will be an additional capital expenditure of one lakh crore rupees next year. What is it like? It will be a mosquito bite.
Your GDP is Rs.258 lakh crore in which one lakh crore rupees additional capital expenditure, if it materializes, will make no difference. Please spend this additional one lakh crore rupees. But this cannot be the driver of growth. The driver of growth can only be if private investment is the main driver. Household savings, people’s savings channelized into private investment can only be the true driver of economic growth. Government capital expenditure can supplement private capital expenditure, but unless private capital expenditure is stimulated, triggered, boosted, this will not make a difference.
Finally, I want to ask the Government. Have you lost faith in private investors? Or have private investors lost faith in investment in India? They are investing abroad. So, somehow there is a lack of faith. Please go into it. This will not give you the kind of growth we need. We need high growth….
I am afraid the year ahead is a difficult year. It requires sound tax policies, sound financial management and sound economic management.
(This was first published in National Herald on Sunday)