Photo: Mint
Photo: Mint

Opinion | This eat-the-rich budget looks at much more than a few mounds of rice

The budget is a work in progress and to look for a game-changing story is perhaps futile

Promising to be the elephant that accepts a few mounds of rice from a small paddy field when given voluntarily, rather than come in and trample the entire field in the quest for that paddy, finance minister Nirmala Sitharaman sounded the trumpet call on tax evasion. This was bad news for the super rich in India who earn more than 2 crore as they will pay much more tax than before due to the new surcharge. This is certainly more than just a few mounds of rice and is going to impact both consumption and savings by this category of people. This is clearly an eat-the-rich budget. No change in rates, slabs or deductions for the rest of the people.

The first budget of the second Narendra Modi government will be seen as work in progress rather than an announcement of big bang reforms or major structural change. The appetite for drastic out-of-the-box ideas went out after the demonetization idea went awry. Striking a no-nonsense chord, Sitharaman breezed through the two-hour-and-then-some speech, with her tone, body language and energy giving no time to the usual back-benchers to whistle, hoot and otherwise disrupt proceedings. As a household, your life does not change much post this budget—you got the big tax break in the pre-election Interim Budget when the acting finance minister made taxable income of 5 lakh a year tax free.

But the rich will pay substantially more tax. If your taxable income is more than 2 crore, you will pay 25% and if it is more than 5 crore, you pay 37% surcharge on your tax. For a person earning 2.5 crore, this is an additional tax of 7.5 lakh; the tax is a huge 37.18 lakh more for a person with taxable income of 5.5 crore. There is an additional tax deducted at source of 2% on cash withdrawals of more than 1 crore in a year per bank account. Like I said: this is an eat-the-rich budget. This could impact savings and spending since this select cut of the population has the ability and means to do both. For the rest of us lesser beings, life goes on.

Those wanting to buy a home that does not cost more than 45 lakh this year get an additional 1.5 lakh deduction on the interest, taking the full deduction to 3.5 lakh. This will be helpful to people in the smaller cities. But travel will cost more as petrol and diesel prices got hiked by 2. National Pension System subscribers benefit since 60% of the corpus is now tax-free.

In a bid to take away graft by the tax man, the government will now anonymize the much-abused scrutiny process. The identity of the tax filer will be hidden from the person who does the scrutiny and there will be no contact between them. This should come as a relief to taxpayers who get slapped with a high tax amount on scrutiny and then are encouraged to pay a bribe to “settle" the matter. The other big change will be a pre-filled tax filing form ostensibly to reduce the work done by the taxpayer, but it is really about what the government knows about you through big data. It has access to various financial relationships—bank accounts, investments, income and assets—and will now use this to pre-fill your form. With this, the government turns the equation from them going after those who do not pay, to taxpayers proving that the numbers are actually wrong. This is the classic nudge approach—a version of opt-out rather than opt-in.

The government has maintained the fiscal deficit under control, despite the bond market pricing in a possible relaxation of the target. The expectation that the government needs to crack start the economy with funds and will use the fisc to do so was clearly wrong. It will instead use the issue of infrastructure bonds, public sector disinvestment through the ETF route (will add this to the ELSS, Section 80C basket) and will encourage retail investors to buy government securities directly through the stock exchanges.

The budget is a work in progress for the journey to a $5 trillion GDP in the next six years and to look for a game-changing story in it is probably futile. The game change is political and the economics is following by slowly tweaking rules and trying to formalize the economy. The challenges ahead are to get the credit flows going once more, to remove the distrust between government and business and to encourage more people to pay their taxes and turn their businesses legitimate. The budget briefcase traded for a red bahi-khata is perhaps symbolic of Indian solutions to Indian problems.

Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation

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