Finance Minister announces tax sops for big business

Finance Minister Nirmala Sitharaman.

Union Finance Minister Nirmala Sitharaman continued her series of sops to big business on September 20 by announcing a scaling down of taxes and other levies on India’s richest tax payers in a desperate attempt to halt the economic slide. The most significant of these was in taxes paid by companies, the Corporate Tax. Companies, she announced, would need to pay only 25.17 per cent of their incomes as tax, instead of the prevailing 30 per cent. If they seek no exemptions, they need pay only at the rate of 22 per cent — a reduction of a whopping eight percentage points. The spate of gilt-edged announcements, strictly for the well-heeled, means that new companies need pay even lower taxes—at the rate of just 15 per cent (without exemptions), lower tax rates for share buybacks and capital gains and more. In all, the bazooka of goodies sent the sleeping bulls on Dalal Street on a rampage. The Sensex registered a gain of 2,285 points at its highest point during the day before eventually settling down with a gain of 1,921 points—the biggest gain in a day in a decade.

The latest bonanza means that since assuming office for a second term in June the Narendra Modi Government’s sops are costing the exchequer almost Rs.2 lakh crore. The latest sops are estimated at Rs.1.45 lakh crore; including the sops announced to exporters, the total forgone taxes are now in the region of Rs.1.95 lakh crore. To put this magnitude in perspective, such a sum is almost one per cent of India’s fast-decelerating Gross Domestic Product. Or, to put it a little differently, the unprecedented largesse of Rs.1.76 lakh crore from the Reserve Bank of India made just a few days ago, appears to have suddenly vanished into thin air. That largesse, which some optimists hoped would go to either plug an impending revenue shortfall—mainly because of the accursed Goods and Service Tax—or be used to pump prime a sagging economy, has been instead wasted on smoothing the ruffled feathers of corporate chieftains. The revenue shortfall is likely to be serious in 2019-20; more catastrophically because it comes after a serious shortfall of at least Rs.1 lakh crore in 2018-19. Apart from the hole in Nirmala Sitharaman’s budget, it has ominous implications for finances of State governments, especially in terms of their ability to help towards an economic recovery. An even more ominous scenario is that Nirmala Sitharaman, faced with a gaping hole in finances, may impose an additional dose of taxes, cess and duties on ordinary Indians, while the cognoscenti would be laughing their way to the bank.

But the most shocking aspect Nirmala Sitharaman’s announcement is the egregious disregard for even maintaining a pretence of fairness at a time of widespread distress. So, at a time when lakhs of workers in the automobile industry have either been laid off or have suffered loss of wages because of factory shutdowns, she has chosen to reward Indian Auto Czars with a cut, while not lifting a finger to address the multitude that has borne the brunt of the crisis. Her approach, which can only be described as a pig-headed persistence with supply-side doctrine when all indications are that India is in the midst of a full-blown demand-side crisis — illustrated by the collapse in wages, both rural and urban, and the relentless slide in sales of everything from cars to toothpaste. As the polity lurches from one distraction to the next, innocent Indians need to brace themselves, ready to pay a heavy price for the follies of the witless few.