Taxing times

In his address to Parliament on Monday, President A.P.J. Abdul Kalam spoke of the government8217;s resolve to keep tax rates stable but promised nevertheless an education cess on all central taxes. This is in keeping with the Manmohan Singh government8217;s Common Minimum Programme, which talks of allocating six per cent of GDP on education. Desirable as it may be, this adds up to an extra Rs 45,000 crore. Meanwhile the Left is pressing for increased subsidies 8212; and would want these bankrolled by higher taxes. Information and Broadcasting Minister S. Jaipal Reddy has mooted the idea of a licence fee from radio and television owners, to fund Prasar Bharti and secure its autonomy. It is more than likely that the money will be collected but government control will remain just as strong.

Beyond the specifics, there is a larger point to be made about this government8217;s economic philosophy. It is simply this: when in doubt, tax. Having sought to differentiate itself from its NDA predecessor as a more caring government, the UPA ministry is committed to increasing social spending and public expenditure. Yet its socialist hangers-on prevent it from making compensatory cuts in its housekeeping budget or to push ahead with privatisation. So resources will inevitably be raised by milking the middle class.

Paradoxically, the Congress8217; economy wonks argue this is not their intention. They promise a calm and realistic tax regime, realising the trend in major economies is to lower income tax rates to feasible levels and augment revenue by using indirect mechanisms such as VAT. That aside, a government instinctively inclined to raising taxes 8212; while paying lip service to the need to 8220;broaden the tax base8221;, an old chestnut if ever there was one 8212; will inspire little confidence. It will take Indians back to the days of looking for loopholes in the tax law. It will discourage consumption, depress sentiment and excite only chartered accountants and tax office babus. It will claim one immediate casualty: the honest tax-payer. Prime Minister Manmohan Singh would do well to excise his tax-happy colleagues8217; rhetoric; and do so without exemptions.