Surcharges and their Sanity

By Geetanjali Kedia

The Modi Government has time and again stated that it will be pro-people with minimum government and maximum governance.  With their first full-fledged Budget just round the corner, lots of speculation is underway as to what sops and rebates could the Finance Minister dole out for the tax payers.

While India Inc. has been pitching for incentives for spending on Swachh Bharat Abhiyan and Clean Ganga projects, the Government may grant tax breaks for amount spent on these projects by corporates, as part of their mandatory 2% CSR (corporate social responsibility). Judicious sops given to encourage investment and infrastructure creation are good. But it is also talked that Govt. may introduce surcharge or cess for such projects. Charging cess or surcharge in the name of growth and development may be burdening the tax payers unnecessary. 

In a layman’s parlance, Surcharge means an additional charge. Thus, surcharge is an additional charge of tax over and above the income tax slabs. Whatever be the objective of the surcharge, it is essentially an additional tax burden on the tax payer. Why should surcharges exist in the first place?

Another liability such as cess (which also means tax or levy and interestingly, is levied only in three countries of the world – Scotland, Ireland and of course, India) increases the tax outgo, while keeping general income tax and corporate tax slab rates unaltered.

While UPA had, in Finance Bill 2013, introduced the super-rich tax, wherein surcharge of 10% was levied on income tax, if income is over Rs. 1 crore, this was continued by the Modi Government as well last year. In effect, this increased the tax liability from 30% to 33% (excluding cess). As a one-time exercise to build a fund or avert any potential economic crisis in the country, surcharge is justified. But imposing new surcharge on one hand, and talking of rejig of tax slabs to reduce tax liability for increasing disposable income in the hands of the consumer on the other hand, amounts to double-standards and is very illogical.

Primary education and secondary and higher education cess was also introduced quietly. But funds from the budget anyway do get allocated for education. Then why there is need for a separate cess? This will call for cess and surcharge for all the needs of the country – sanitation, cleanliness, vocational training, low cost housing, smart cities, renewable energy and the list is endless.

There is also talk of inheritance tax or estate tax, to make a comeback in this Budget, which was abolished in India in 1985. Even if it has a very high threshold limit of say over Rs. 10 crore, inheritance tax by nature, is discriminatory. Although, inheritance tax is in practice in a few countries across the world, the cost of collection and other administration expenses may not justify the revenue collected by imposing such a tax. Also, wealth is created by a person during his life time by paying taxes thereon and asking the heirs to pay a token 1% or 2% on his total wealth, after his death has no moral sanctity as well. This may not get liked well by the people and can spoil the good measures, if any, suggested in the Budget. This will also be termed as a ‘penny wise pound foolish’ move.

While there is an indication of making country more investment friendly for foreign capital, domestic wealthy businesses cannot be given an unfair treatment. Likewise, on one hand Government talks of making airports and highways free of user development fees and tolls respectively. But if this calls for imposing other charges (read surcharge, cess, welfare fee or any other levy by whatever name called) on the broader tax net of the country, then the public at large get penalized for the obligations of a Govt. , which they owe to the country as a tax collector and of its judicious spending and allocation.

In the same light, wealth tax rules need a re-think. Cash in hand of over Rs. 50,000 is taxed under wealth tax. This is a very impractical limit, given today’s day and age. Rs. 50,000 is a paltry sum given emergencies, windfalls and contingencies, which an individual, who is covered under wealth tax net, is required to keep.  

Finance Minister Arun Jaitley has made it clear umpteen numbers of times that he wants to leave money in the hands of the people, especially the middle class. Hence, personal income tax slabs may see a rejig, if no increase in the threshold is given by him, with rates unlikely to get hiked. But if ample of sops are doled out, hope other levies elsewhere to make up for the fiscal balance, do not squeeze the public at large. 

All eyes now on the Budget Speech next Saturday!