Let's thank top babus for removal of 10% surcharge; may cost exchequer Rs 3200 Crore

By TIOL News Service

NEW DELHI, JULY 07, 2009: FOR all the listeners of the Budget Speech yesterday, the FM's announcement of removal of 10% surcharge on personal income might have come as a barely one 'spoonful' of tax sops in the backdrop of high expectations. But the fact remains that it is going to cost the exchequer to the tune of Rs 3200 Crore. How? Do we have so many thousands of taxpayers returning income above Rs 10 lakh? Surcharge of 10% is applicable only in cases where a taxpayer's income is above Rs 10 lakh.

Sources indicate that the CBDT had received about 2.25 lakh returns in 2007-08 in which more than Rs 10 lakh income was declared. And mind it, this figure is only relating to salaried returns. There are bound to be thousands of others like businesspersons who must have filed similar returns.

The same number must have swelled to more than THREE lakhs last fiscal for the simple reason that the Pay Commission recommendations had a 'salary-fattening' effect on the salary of top echelons of the Government and various PSUs. In one stroke, the number of return filers having more than Rs 10 lakh income must have jumped by more than 30%.

In fact, TIOL would be surprised if a news comes out attributing this change to certain forces other than the top-layer of the Indian bureaucracy dominated by the IAS. The most glaringly significant beneficiary of the Pay Commission recommendations has been the Indian Administrative Service. With an IAS heading the Revenue Department, it would be indeed amzing that they were not responsible for this 'noble deed' of getting the surcharge removed.

Although the FM has agreed in principle that surcharge should not be used to raise revenue except for meeting contingencies like earthquake, flood or similar calamities, he has been reluctant to do away with the practice considering the huge revenue outgo involved. He has, however, taken the apparent baby step of removing the surcharge in respect of individuals in this Budget. In a year where government finances are in the doldrums and the fiscal deficit has reached 6.8% of the GDP and there is a serious concern about the sovereign rating being downgraded , even this step, by the admission of top government officials is likely to result in a huge revenue outgo. If you thought that this is for the benefit of the ‘aam admi’, think again. Surcharge was hitherto payable only by individuals having income in excess of rupees ten lakhs per year. Because of the bounty bestowed on the IAS by the pay commission, most of the top babus would have suddenly fallen in this bracket (60% of the arrears are still to be paid out). That could well explain this sudden step of removing the surcharge for the individuals, a step which does not benefit the ‘aam admi’ at all. Is it not a case of ‘for the IAS by the IAS?