A number of BJP ministers, including Nitin Gadkari, have gone on record justifying, nay, rationalising, the heavy petroleum taxation as inevitable given the government’s commitment to welfare schemes.
A moment’s reflection will reveal the contradiction with which this approach is riddled. The heat of heavy petroleum tax is felt more by the poor than by the rich who can always take every additional Rupee of burden in their stride. In the event, it is senseless to first subject the poor to tax and, in a manner of double take, restore some of the tax back in the form of subsidies and direct benefit transfers.
Direct to Indirect Tax Ratio Not Satisfactory at All
The direct tax collections were Rs 1,002,741 crore in 2017-18 and the indirect tax collections for the same period were Rs 9,11,466 crore. This makes direct taxes 1.1 times the indirect taxes. This is not satisfactory at all, especially in terms of the redistributive effect the Narendra Modi government has been focusing on since its ascension to power.
While GST collections hover around Rs 1 lakh crore a month, collections from petroleum products are a sizeable amount. During April-December 2018, the central excise collections were Rs 1.97 lakh crore on petroleum products. On an annualised basis, this translates to Rs 2.63 lakh crore.
Add to this the local sales tax by state governments on petroleum products, which on an average, can be taken as the same as the excise amount. That will make the total annual tax collections from petroleum products a whopping Rs 5.26 lakh crore which, juxtaposed against the rough annual GST collections of Rs 12 lakh crore, works out to make 44 percent of the GST.
Petroleum Products Should Be Brought Under GST Fold
Finance Minister Nirmala Sitharaman should, therefore, make a bold decision and bring petroleum products under the GST fold. It is duplicitous to tom-tom about GST while keeping away an important segment, petroleum products, away from it. It would bring down the fuel prices significantly, besides moving in the direction of a comprehensive GST regime.
The resultant loss of revenue has to be made up through a more comprehensive and meaningful direct taxes regime.
The following measures would see a surge in direct taxes collections:
- There is no need to pamper the capital market with a soft 10 percent tax on long term capital gains, that too after exempting the first Rs 1 lakh secularly across the board. Income tax should be levied uniformly without favouring a particular form of income.
- There is no reason either why short term capital gains from bourses should be pampered with a flat 15 percent tax. The twin measures would see the exchequer’s cash register ringing merrily, given the staggering volume witnessed in our bourses.
- The invidious DDT or dividend distribution tax should go and dividend should be taxed in the hands of the recipients, period. There is a rumour in the air that the rich could be called upon to pay a 40 percent tax on their income in excess of Rs 50 lakh. Whether the maximum marginal rate becomes 40 percent or remains 30 percent, the case for restoring the status quo i.e. the pre-1997 position in the matter of taxation of dividend brooks no delay. A 10 percent tax on dividend in the hands of the shareholders earning more than Rs 10 lakh by way of dividend is neither here nor there.
- Wealth tax must stage a comeback. The then Finance Minister Arun Jaitley abolished it in 2015, on the specious ground that the revenue therefrom was not even enough to compensate for the expenses incurred while administering the law. How could there have been enough revenue when only six categories of assets were taxed? It must be a comprehensive tax at the rate of 5 percent on all assets, including shares and bank balances in excess of Rs 5 crore.
- Estate duty has been in a suspended animation since 1985. A tax on the dead, as it were, must be revived without delay. When some states in the US can tax the estate or the inheritors at a stifling 50 percent, there is no reason why we shouldn’t tax the deceased’s estate in excess of Rs 10 crore at the rate of 10 percent.
- A concerted drive against tax evasion must begin by making the tax sleuths stir out of their offices. Instead of harassing the taxpayers and return filers with demand for more and more information in the ITRs, tax sleuths should ferret out income by gunning after visible symbols of wealth and opulence. Swanky cars and luxurious bungalows are two assets the rich like to flaunt. Columbia taxed its citizens on the basis of visible signs of wealth. The least we can do is to identify these visible signs of wealth and gun after tax evaders.
(S. Murlidharan is a Chartered Account, and has also written extensively for The Hindu Business Line between 1996 through 2013, and later started contributing regularly to Firstpost on a range of issues like business, economic, tax. He is currently based in Chennai. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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