“Taxation should not be a painful process for the people. There should be leniency and caution while deciding the tax structure. Ideally, governments should collect taxes like a honeybee, which sucks just the right amount of honey from the flower so that both can survive. Taxes should be collected in small and not in large proportions” said Chanakya in Arthashashtra of 1534 BC vintage.
This should hold good for finance minister Nirmala Sitharaman when she rises to present her tax proposals for 2022-23 as part of the union budget in parliament on February 1.
Chanakya’s celebrated treatise, arthashastra on socio-economic principles has been her beacon in last three budgets. Her predecessor and mentor, late Arun Jaitley had leaned heavily on the celebrated Indian administrator to tide over tight economic situation in the past.
This time round, it may not be any different. And one can expect Nirmala Sitharaman to dip into Chanakya’s teachings next Tuesday in articulating her taxation package.
Her tax proposals in all probability should not only push growth but allow enough resources in the hands of individuals, families and companies to meet expenses, consume and invest as the case may be.
Buoyant GST collections that ranged between Rs 130,000-140,000 crore during April-December 2021 and improving situation following Omicron induced Covid 19 third wave should provide her the confidence to roll out an acceptable tax package that will push consumption led demand for goods and services.
First thing the finance minister may attempt is heed the advice on pruning the ten corporate income tax rates that range between 5.2 per cent to 42.744 per cent applicable to domestic and foreign companies based on their turnover, area of operation and uniqueness.
Effective taxation will have to be brought down taking revenue considerations on board. Can effective tax rates for companies actually be brought under 5 – 35 per cent bracket is perhaps what Finance Minister should consider? Her corporate tax proposals may have to include the foreign companies that may expand their presence as part of on-going Make in India and Production Linked Incentives campaigns.
Getting rid of all surcharges and cesses levied at every touch point on corporate income tax and GST may have to be considered by the finance minister though it is easy said than done. Revenue considerations notwithstanding, reining in the fiscal deficit to below six per cent should be considered while rejigging the tax table.
Same is the case with redrawing income tax rates for individuals. While there have been suggestions for aggressively taxing the rich individuals, wealth creators and job givers may be allowed the leeway to get on their work without liquidity squeeze.
There have been suggestions to consider the work from home allowance provided by companies for inclusion under standard income tax deductions provisions owing to over two years pandemic. Similarly, professionals and workers have lost their pay big time and millions have been given the pink slips. Finance Minister Sithraman may have to find ways for providing them some relief as has been done in last budget.
Her predecessor Arun Jaitley has been popular with both companies and individual taxpayers as he managed to provide succour to each one of these categories in every one of his five unblemished budgets. Sitharaman will do well in adopting this time-tested approach.
Not just the actual tax burden, as Chanakya’s arthashastra surmises, taxes should be easy to calculate, convenient to pay, inexpensive to administer and equitable in its burden on various stakeholders. Taking forward these tax reforms – on both direct and indirect fronts – is need of the hour.
One big avenue for mobilization of revenues has been sale of government stakes in large state-run companies as part of its determined bid to get out of the business of being in business.
While LIC initial public offer and offer for sale (OFS) should bring in about Rs 115,000 crore, getting divestment and strategic sale of BPCL where Rs 55,000 crore has been targeted should be done next fiscal. Similarly selling IDBI Bank at a valuation of Rs 25,000 crore and two more state-owned banks should be pursued aggressively, if that helps reorganizing the banking sector. Similarly, selling Shipping Corporation, Pawan Hans and BEML in part or as on where basis should bring in another Rs 40,000 crore.
Well most of these companies and banks were on her radar already. But, the sale did not move forward this fiscal for a number of factors. Achieving disinvestment targets may help find resources for ambitious capital investments as well as development expenses especially in infrastructure, health and education apart from providing water at every doorstep.
Barring a few tweaks in GST rates as per recommendations of GST Council that she heads, drastic restructuring on the economic front may have to wait especially from taxation side.
As Tamil saint philosopher Thiruvalluvar in Tirukkural postulated, finance minister may have to take a pragmatic view of both domestic and external economic situation while unveiling the finance bill.
Yet another predecessor of Sitharaman, Palaniappan Chidambaram had taken refuge in Tirukkural to sell UPA’s economic agenda. The tamil philosopher saint may not have had finance ministers in mind while writing 1300-odd aphorisms.
But, saint Thiruvalluvar’s couplets have withstood the test even in twenty first century on tax breaks, prioritizing expenses from the government kitty. Kural’s chapter on knowledge of power came handy for Chidambaram to ward off unwanted pressure from different lobbies and stakeholders.
Take care not to give up exertion in the midst of work, the world will abandon those who abandon their unfinished work. Accumulate wealth in order to spend it. These two kurals of Thiruvalluvar can guide finance minister in her jest for reforms, managing resources and economy.
Over to the Finance Minister!
Author is Director & Chief Executive of non-partisan think tank, Centre for Integrated and Holistic Studies based in New Delhi