Budget 2007 – what is right for the left?
Will Corporate India see red?
The left parties have sent in their proposals for PC’s Budget 2007.
Salaried employees will be happy to note that the comrades are with them. “The withdrawal of standard deduction of salaried employees along with the raising of the basic income tax exemption limit to Rs 150000 made in Budget 2006-07 have put the salaried employees in a disadvantageous position compared to businessmen. Businessmen are able to book expenditures like travel, depreciation etc. as business activities while salaried employees cannot claim exemption on account of travel and other related expenses. This can be corrected through the reintroduction of standard deduction for salaried employees. Tax relief should be provided to senior citizens. The health allowance for pensioners who cannot access the CGHS should be enhanced.”
The left memo says,
The 6% plus inflation rate surely cannot be justified by the 8% GDP growth rate being experienced in India today, since developing countries like China have succeeded in holding inflation at much lower levels despite having a higher GDP growth rate than India”.
The other important suggestions:
The shortage in food items like wheat, sugar and pulses that has arisen is a direct fallout of the sustained neglect that agriculture in general and the food economy in particular has suffered since the policies of liberalization were initiated in the early 1990s. (What can the champions of liberalization, Dr. Singh and Mr PC say to this?)
++ The Budget should also demonstrate the political will to mobilise resources, primarily through taxation of burgeoning corporate profits, capital gains and wealth.
++ While the scheduled corporate tax rate is 33.66% including the surcharge and the education cess, it has been recently reported that the effective tax rate for the corporate sector in 2005-06 has only been around 16.5-17%, due to the myriad tax breaks.
++ Continuing with such corporate tax exemptions in a context where corporate profits have increased sharply in the past few years, besides being morally unjustifiable makes little economic sense.
++ Doing away with the myriad corporate tax exemptions, which are nothing but subsidies to the corporates, would be sufficient to finance the entire increase in Plan expenditure that is being sought.
++Tax exemptions for sectors like IT, which have been registering record profits in recent times, have also outlived their economic rationale.
++ The reintroduction of the long-term capital gains tax and increasing the rate of the Securities Transaction Tax should be seriously considered, in view of the speculative excesses currently being witnessed in the financial markets.
++Why should the effective tax rate of any FII be substantially lower than what is being paid by Indian corporates?
++The dismally low rate of capital gains taxation currently prevailing in the country, with a 10% short-term capital gains tax and zero long-term capital gains tax as compared to above 30% rate of corporate tax, is an open invitation for reckless speculative activities, which stifle genuine entrepreneurship.
++ Reimposition of a long-term capital gains tax of 15% and a flat STT rate of 0.1% on the trading in all financial instruments, including equities, bonds, derivatives and government securities, would not only remove the anomaly but also contribute to the resource mobilisation effort.
++The list of Indian billionaires show that within one year, i.e. between August 2005 to August 2006, the wealth of the richest Indian grew by over Rs. 32000 crore, which is nearly 1% of India’s GDP.
++ One wonders why in such a backdrop, the wealth tax collection of the Government remained at a paltry Rs. 265 crore in 2005-06, and exactly the same amount was budgeted for 2006-07.
++ The Wealth tax rate should be increased from 1% to 3% without further delay and initiatives need to be taken to broaden the wealth tax base by bringing all the urban as well as rural crorepatis into the wealth tax net.
++ The obsession with cutting customs duties down to ASEAN levels with scant regard for its implications for revenue and adverse impact on domestic industries and agriculture need to be abandoned.
++ The recent cut in customs duty on a host of items including cement, metals and chemicals just ahead of the Budget, was an ill-conceived move.
++ Expenditure on Education has to increase substantially in order to meet the commitment of spending 6% of GDP on education.
++ Additional funds for expanding secondary and higher education should be generated by increasing the education cess.
++Taxpayers do not resent paying the education cess since it directly contributes to social welfare through expansion of education in the country.
++ Reduce Petrol and Diesel Prices by Restructuring Duties and Taxes Reduce excise duties for Small Scale Industries.