4 ITHETIMES OFINDIA,AHMEDABAD, THURSDAY, FEBRUARY 26, 2015

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(Theauthoris tax expert, and

columnist)

t istimethe FM undertakesthe exercise of rationally

restructuring the tax rates,which should comeas awelcome relief forthe middleclasstax payers, whohavehighexpectationsfrom Budget,2015. Similarly; alltaxpayers,including companies andpartnershipfirms, deserveacleanmax-tax rate of300/0, withthe removal ofthe clutterofsurcharges, which effectivelyresultinthe maximum tax ratebeingas high as 33.99%.

economics pr inciple of the 'Laf­fer Curve': lower taxes lead tohigher tax collections. The taxrate s were gradually scaleddownt072%,60%, 50%,40%andfmally 30%in the late 1990s.

While the max-tax rate of30% has remained unchan gedsince then, the past decade since2005 witn essed the restructur­ing of tax rates and the raisingof the threshold income limitfor max-tax from Rs 1.5 lakh to

Rs 2.5lakh , then Rs 5 lakh ,on toRs8lakh and fmallyRs 10 lakh . Every time

~~:l!l\. the bar was raised, it re­sulted in better tax com­pliance and higher taxrevenue in the years to

follow.

MukeshPatel

1997·98 2005-06 2008-09 2019-11 2012-13 2014-15Exemption 40,000 11akh 1.51akh 1.61akh 21akh 2.5lakhlimitIncome limit

1.51akh 2.5lakh 51akh 81akh 10lakh 10lakhfor maxrateIncomeTax 6,731 57,308 1,06,046 1,39,069 1,96,512 3,00,474'InRs cr ' Budgeted

~ Lower taxrates have always yielded higher revenues

Bowl clean rates:No tax googlies

Believe it or not,India with apopulation of 120crore hasjust 3.5 crore taxpayers .

This works out to a meagre 3%in comparison to the 45% of theUS, which boasts of around 14crore taxpayers in a populationof 31crore. More shocking werethe statist ics revealed by theStanding Comm ittee on DTC(Direct Taxes Code) two yearsago, that India had only around4 lakh taxpaye rs declaring in­come of more than Rs 20lakh,and just around 42,800 who ad­mitted income above Rs 1crore.

The unlisted super rich inIndia may perhaps far outnum­ber the listedsuper rich!The realchallenge before the FM lies notin taxing but hunting the superrich. In this context, the logicaland objectiveapproachshouldbetodeepenthe taxbaseand ensurebetter tax compliance. It wouldbefar more just and equitable totax those who don't pay theirdues,rather than recovermore tax from thosewho fairly dischargetheir obligation.

In the early 19708,the peak rate of per­sonal income tax pre­vailedat 97.5%,FMssoon realizedthe mean­ingful rel­evanceof the

(The author is directorgeneral, Indian Management

Institute, Delhi)

from the common man's view­point.

Sharp drop in internationaloil prices has reduced the oilsubsidy burden, improved our

current account position and ' 1:::::::::::eased inflationary pressures.Moreover, giventhe hangoverofglobal economic slowdown ofthe recent past with the pros­pects of Chinese GDP growthslowing down in 2015 and 2016,India will have to seriously pur­sue Make in India strategywithstrong focus on the revival ofdomestic demand through con­sumption as wellas investmentroutes.Since the available infor­mation indicates that both sav­ing and investment rates havenot picked up so far, it is essen­tial that government takes thelead in terms of acceleratinginvestmentduring 2015 and 2016.

Thefavourableglobalfactorscoupledwith reasonable successof divestment programme hascreated enough room forthe FMt o go for ambitious public ex­penditure programme in select­ed areas. Time has come to ac­cord higher priority to growthwithout being too conservativeon the fiscal front, so long as wedo not deviate from the overallpath of fiscal consolidation.Un­der the prevailing circumstanc­es, the FM needs to adopt theconfident and courageous ap­proach along the lines so ablydemonstrated by Shikhar Dha­wan, who played under similarconditions in India 's recent en­counter with South Africa in theongoing WorldCup,and the re­sult was our first-ever winagainst this formidable oppo­nent in a World Cup match.

2013-14 2014-15

6.0 3.8

9.3 9.410.1 4.8

3.0 3.39.5 7.0

frastructure projects; take allnecessarysteps toquicklyrevivestalled proj ects in the road,power, and mining sectors; andsignificantly increase publicexpenditure to start new green­field projects in several sectors.Special incentives for employ­merit-oriented manufacturingwith focuson small enterprises,urban infrastructure, and low­costhousingsectorswouldmakebudgetproposalsmore inclusive

T

the FM has no choice - he hasto present a growth-oriented.reform-focused and forward­looking budget and avoid pop­ulism.

The FM should aim atachieving at least 8% GDPgrowth in 2015-16 and around 9%in 2016-17, whilemaintainingef­fective control on inflation. Toachieve this, the first priorityshouldbeto removeexistingbot­tlenecks in the execution of in-

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Japan

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da of economicand administra­tive reforms. The markets arebuoyant on high expectationsand foreign investors have al ­ready restored their faith in theonce famous India growth story.It is now for the FM to ensurethat his maiden full budget rep­resents a firm step towardsbuilding confidence that suchhigh expectations would be sat­isfactorily met within a reason­able timeframe. In this context,

of new jobs for the aspir­ing youth; providing ad­equate support to thesocially and economi­cally vulnerable sec ­tions; and providing a

st rongthrustto thel o n g- .pend­i n gagen-

Sector Agriculture Industry services category 2008-09 2009-10 2010--11 2012-13 2013-14 2014-15·

2008-09 0.1 4.4 10.0 Basic Goods 1.7 4.7 6.0 2.4 2.0 7.62009-10 0.8 9.2 10.5 Cap. Goods 11.3 1.0 14.8 - 6.0 - 3.7 4.82010-11 8.6 7.6 9.7 Inter. Goods 0.0 6.0 7.4 1.6 3.0 1.62011-12 5.0 7.8 6.6 Cons. Goods 0.9 7.7 8.5 2.4 -2.6 - 6.3

2012-13' 1.2 2.4 8.0 Overall(liP) 2.5 5.3 8.2 1.1 -OJ 1.9

2013'14' 3.7 4.5 9.1 Exports 13.7 -3.6 37.5 -1.8 4.1 4.62014-15' 1.1 5.9 10.6

~ Trends ingrowth rates ofreal GDP , Growth of industrial production and exports .Based °rA~~flalbo~~v';;:;'~ ~r~

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Bakul Dholakia

FM shouldopen likeapinch-hitterNeed For ABold, Imaginative And Growth-Oriented Budget That Can Pave Way For Meaningful Reforms

The fmance ministeris all set topresent theModi government'sfirstfull-fledged budg­et on February 28 in

the backdrop of huge expecta­tions of var ious stakeholders.Within ninemonths in office, thegovernment can hear noises ex­pressing serious concerns overthelackof visiblesignsof majorchanges in policy and businessenvironment marked bythe lackof concrete action at the grass­roots level. Th is budget willprove to be an acid test of thegovernment' s commitment andability tomovetowardsfulfilling

, poll-time promises of quicklyregaining momentum of highGDP growth, significantly im­proving the ease of doing busi­ness in India, and generatingmillions of new jobs in the me­dium-ter m hori zon. This sce­nario represents a formidablechallenge as well as a huge op­'por tunity for the FM. In thiscontext, the budget 2015 is per­haps the most keenly awaitedIndian budget .in the past twodecades.

Main expectations fromBudget 2015 would be restoringmore than 8% GDPgrowth; ac­celerating industrialgrowth to around 9%;imp roving savingand inves tmentrate; sustaining lowWPI (WholesalePrice Index)and CPI(Consumer Price In­dex) inflation; main­taining stability 'of the In-dian ru-pee; ere-at in gmillions