Left’s plan for Govt: tax malls, 5-star hotels, use PSU funds

But an analysis of the proposals on resource mobilisation suggest that nearly none of them would tie in with efforts to rationalise and simplify the tax structure. As for resource mobilisation for social sector development, more expenditure has never been known to lead to better results. Social sector spending is a noble cause but without accountability it adds up to very little.

Consider the proposal for better utilising the cash reserves of 57 central PSUs which, according to the Left’s draft note, have a surplus of Rs 2,21,157 crore. With only Rs 18,805 crore invested by the PSUs, the Left feels the surplus is underinvested and the government should seek special dividends from the PSUs.

But it is for the PSU boards and their shareholders to decide whether to invest or otherwise. Being dictated to would mean taking away their autonomy. Then, the Left wants the ambit of the securities transaction tax to be widened, and a flat rate of 0.10 per cent introduced for both delivery and non-delivery-based transactions. But bringing non-delivery-based transactions into the securities transaction tax net would also reduce speculation. In other words, it would affect price discovery and discourage people from investing.

Saying that corporate tax in India is very low, the Left parties will suggest at Thursday’s meeting with UPA leaders an increase in corporate tax and a gradual phasing out of corporate tax exemptions. The Left will, further, suggest raising capital gains tax from 10 per cent to 15 per cent. But capital gains tax is actually taxing profits a second time after corporate tax. However, the suggestion to phase out corporate tax exemptions is without doubt a good one, considering the exemptions—comprising accelerated depreciation, incentives for goods produced in backward areas and incentives for goods produced and exported from special export promotion zones—erode the tax base and affect decision making.

The Left will suggest the introduction of payroll tax, a social security tax that comes as a tax cut from salary and against which the government will pay a pension on superannuation.

But given the funds crunch that India’s social security funds face, would this be a good idea?

In order to tap conspicuous consumption, the Left will be suggesting to the UPA a surcharge on sales tax in 5-star hotels, discotheques, airconditioned restaurants, multiplexes and theme parks as well as a surcharge on sales tax in shopping malls.

But, higher tax has always meant less compliance. A better idea would be to extend VAT, a tax on consumption, to all goods and services.

Other suggestions include raising wealth tax and removing the maximum exemption limit on wealth tax. It will also suggest imposition of inheritance tax with a suitable exemption limit.

But inheritance tax especially could prove to be a burden on those receiving inheritance and be an impediment to wealth creation. There could be a social message to this. Consider the plight of a poor woman if she were to pay inheritance tax.

Arguing that owners of high value diesel vehicles need no concessions, the Left parties are set to suggest to the government that excise duty be imposed on diesel cars, but excluding public transport. The Left will also suggest higher excise duty on diesel generators and captive power plants run on diesel.

But removal of price disparity between diesel and petrol would better serve the purpose of rationalisation, instead of adding one more distortion to the tax structure.

The Left had briefly spoken about their alternative proposals for resource mobilisation at the last meeting of the UPA-Left coordination meeting. The Left’s suggestions follow its opposition to stalling disinvestment in PSUs and opposing the move to cut EPF rates due to a funds crunch.