Sucheta Dalal :An angry middle class hits out at Budget (10 March 2002)
Sucheta Dalal

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An angry middle class hits out at Budget (10 March 2002)  

At both his post-budget meetings, Finance Minister Yashwant Sinha had decided that aggression was the best way of dealing with sulking industrialists. And the strategy worked to perfection. Not only did the FM’s tactics silence industrialists, but he also squashed their feeble attempt to evade his distribution tax on dividend through large interim payouts before March 31.

Unfortunately, Sinha has not bothered to meet the vast tax-paying middle class, which is furious and despairing of his Budget. Sinha is not the first FM to squeeze higher taxes out of salaried Indians, but he has made this long-suffering group angrier than any other FM in over a decade because of the multiple blows he had dealt them in a single finance bill.

My mailbox is inundated with irate emails against the Budget, which show that this normally long-suffering group is nearing the end of its patience. How will this anger manifest itself? Does this class not matter, or will the fact they are the ruling Bharatiya Janata Party’s main vote bank make a difference this time? Economists with a macro outlook may argue that Sinha had few choices this year given the yawning fiscal deficit and low growth. But the middle class does not want to be exploited because of government’s failure to control expenditure and to raise revenue equitably.

It is argued that Indian tax rates are no higher than international ones—but the tax compliance is certainly far lower. Moreover, the rights, utilities, amenities, information and benefits that accrue to taxpayers elsewhere bears no comparison with India. Not only is the Indian government not accountable to its citizens, but red tape and rampant corruption in every service provided by the State is a constant source of harassment.

There is a clear perception that the FM is fleecing the captive taxpayer because of his own failure to expand or deepen the tax base. Sinha’s Budget speech this year began with a seeming attempt at accountability through what he calls ‘a detailed action taken report’. In this, he took credit for ‘deepening tax reforms and providing a modern tax regime’, but the report has some important omissions.

For instance, he tells you about the growing popularity of Kisan cards issued to farmers with precise numbers, but makes no mention of how many people have still not received their Permanent Account Numbers (PAN). Similarly, there is no talk about the one-out-of-six formula for filing returns. Did the scheme work, or was it such a failure that it has been discarded? The action taken report forgets to make any mention.

PAN numbers and a computerised tax filing system is the key to cross verifying data and ensuring that people actually pay their taxes. But the inordinate delay in completing PAN allotments suggests that the Income-Tax department may be deliberately dragging its feet to keep open an escape route for tax evaders.

Statistics reveal that there are barely 50,000 Indians reporting an income in excess of Rs 10 lakh. Yet, each one of us probably knows hundreds of super rich doctors, chartered accountants, lawyers and businessmen, splashing lakhs of rupees on private parties, holidays and clothes, or who figure on Page 3 or 6 of newspapers but not in the elite tax payers club of 50,000. Can they escape the tax net without active collusion by government officials?

Is not this why we have frequent tax amnesty schemes for evaders instead of collection drives—the carrot is after all, more convenient than the stick.

Since Sinha cannot tackle corruption, does not dare to tax rich farmers and cannot go beyond beauty parlours and health clubs in expanding the service tax base, his obvious other target is the captive salaried class and savers. The latter group comprises not only pensioners and retirees, but also the tens of thousands of people who opted for Voluntary Retirement Schemes in the last two years, but have failed to find alternative employment because of the economic slowdown.

What does the salaried class have to say about the Budget? Here are a few excerpts from letters, which tell their own story. One writer is furious that the rich are not declaring correct income and getting away with it, while the upper-income middle class is being bled dry.

A former deputy managing director of India’s largest bank says “It seems the ‘savers’ of the middle class are now the biggest enemies of the FM and he is out to teach them a lesson”. A Software professional bemoans the fact that he been attacked by direct taxes, and his tax shelters have also been slashed. A consultant wonders why film stars and public figures who flaunt opulent life styles rarely seem to pay taxes in proportion to what the trade magazines say they earn. Why don’t tax evader land up behind bars? he asks.

Others are angry at the ‘irritating’ reintroduction of dividend tax. Although the corporate sector has backed off from its plans to dodge the tax, the small man is still unhappy. Apart from higher payment, Sinha has saddled him with tedious paper work and forced him into the arms of equity-oriented mutual funds. This comes at a time when the biggest and most trusted of them —the Unit Trust of India—has betrayed investors’ and only the taxpayer has paid for this criminal mismanagement.

On top of this, the FM has capped investment in Reserve Bank Relief Bonds at Rs 2 lakh (and also cut interest to 8 per cent). In a system that no longer offers job security or social security, a little more sensitivity on the part of the FM was certainly warranted.

The demands for a roll back have already begun to gather momentum, and hopefully this will not be restricted to a reduction in the price of LPG cylinders. The solution is a drastic overhaul of the government’s revenue collection machinery itself to force better compliance and to cut government expenditure rather than to continue bashing the common man.

-- Sucheta Dalal