dna edit: An unequal burden

In a country where the middle class has always been a soft target for government excesses, including income tax and indirect taxes, the BJP’s hinting at doing away with personal income tax and indirect (sales and excise) taxes is a canny ploy. It’s that small community known as the ‘middle class salaried’ that has been subject to taxes month on month after making provisions for what governments ought to do free for taxpayers. They provide themselves for retirement, health cover, insurance, education for children and much more besides, paying for indirect taxes on every purchase of goods and services.

The average salaried individual gets taxed to the extent of 20-35 per cent on his annual income in addition to the indirect taxes that comes along. Even insurance premiums are taxed 12.36 per cent for service taxes — this, ironically, when the middle class buys insurance not just to protect dependents and loans in the event of death but also to gain some paltry relief in the form of income tax rebates. If wealth is to remain with the wealthy — the industrialists and the rich farmers — let it be, but taxing the salaried  middle class should be done away with. There is a reason Modi’s formulation of the problem is likely to be an instant hit; many in the middle income tax bracket have long resented the unequal nature of the tax burden they bear.

The number of effective direct (income) tax payers as on March 31, 2011, was 2.77 per cent of the over 121 crore population and they paid Rs3.36 lakh crore in taxes. In fiscal 2013, the amount paid rose to Rs5.65 lakh crore. For the current fiscal year 2014, the government has an ambitious target of Rs6.68 lakh crore, despite a slowdown in the economy, salary and job cuts, high inflation since 2012, all of which have led to high incidence of home-loan default that even led to loan restructuring in a few cases. Granted, the government introduced a surcharge of 10 per cent for a year to those with over Rs1 crore annual taxable income. But given that there are only 42,800 persons falling in the said category and the initiative is only for one year, this is more in the nature of symbolism.

The salaried middle class has no room to cheat. The present structure gives enough room to earn and yet not pay taxes if one is not salaried. The industrialists invest capital, create companies that generate employment and in turn take home rich dividends. So does about 65 per cent of the population that is either directly or indirectly associated with agriculture for its livelihood — no tax.

There are two options for any government on the tax front: one, rationalise the tax structure to get a larger chunk of the population into the tax net and two, leave others where they are but spare further burdening the salaried by at least not raising the bar. Under the circumstances, Modi’s talk of abolition of income, central and excise taxes can be highly impactful. But for that, his government will have to be in absolute majority, both, at the Centre and states. Given the difficulty of that, it is time for thought leaders, irrespective of political affiliation, to get together and engage with the tough economic questions for improving the living standards of the masses as a whole, and the middle class, in particular.