FEBRUARY 04, 2010

Taxing agri income: Dear Mukherjee, it's time to blow off the bluff and reveal emperor's hidden clothes!

By K S K Prasad, A Former Banker

''THE annual budgetary exercise is round the corner and there will be multiple demands on the Finance Minister to cut the duty rates further, to cut the interest rates and rates on income tax, not to increase taxes in sectors, which have bottomed out. While the defence sector cries for a lot of allocation, given a grim and deteriorating security scenario, especially in the neighbourhood, the country needs to invest a lot of amount on intelligence gathering, counter insurgency measures , there are sectors, which needs to be given the much needed support, like education, research, health and boost the small and medium scale industries, that create lot of employment, create clusters of manufacturing hubs to strengthen an already well entrenched manufacturing base, concentrate on reducing the regional growth imbalances, that throw up agitations etc. All this requires a balancing act on the part of any hapless Indian finance minister, which is nothing short of a Houdini act. While the options to raise the much needed resources are getting shrunk, the sectors that need the government active support have solid arguments to make a case for higher allocation. This means that guillotine has to be let loose on the so far tax-free sectors that have received lot of benefits, post independence and rectify the systemic imbalances and distortions that have kept them perennially depend upon the circari munificence, but whose capacity to splurge is rather unlimited.

The bullet has to be bitten:

How long we should allow Indian Agriculture Sector, which has till the advent of the British, sustained so many kingdoms, invited so many invasions across the Hindu Kush and also the Indian Ocean, but Post-Independence has received continuous largesse from the people of India, not to speak of the weaknesses that it continued to suffer due to absence of linkages and remained out of the economic mechanism. It received a lot of taxpayers money, in terms of subsidies on inputs like seeds, fertilisers, farmechanisation, huge investments on irrigation, electricity, fuel, debt waivers, write off, such that whatever aggrandizements it has suffered during the latter half of the British rule, it has fully recovered their sales. If you still nurse any doubts, about the inherent strength of this segment, go and ask automobile, tele- communication equipment and networking industries and the best of the jewellery stores, you will be surprised to know that the so called urban dweller ranks much lower on their calculations. The kind of the spending power, this segment is capable is one of the best kept secrets of the post independent India, especially the in recent times.

It has generated a large chunk of rural kulaks, who politically wield a lot of influence, who form the basis of this segments best lobbying power to arraign to itself the best of the benefits that Indian taxpayer is capable of giving and has a vested interest in keeping itself projected as perennially impoverished and dependent. The real benefits of this largesse go less and less to the small and marginal farmers, but more to the big and rich based on land fragmentation, but benami land holding. This has given birth to many who received education with the Indian tax payer money, made it good in the shores across the globe and has made huge investments in this sector and continue to receive the largesse from the government. This obviously has given rise to lot of distortions in the sector as well as in the economy. If this sounds pouring vitriol, excuse me, but it is time to call a sickle as a sickle and not a spade. Obviously, when the food grain prices and other agricultural products have risen to such unprecedented levels, definitely you have a right to ask, where all this money is going, except to the farm sector and those who are linked to the farm sector. It is time to blow this bluff off and reveal the emperor’s hidden clothes and put the agriculture sector firmly in the correct scheme of things and it’s pay off time has come, to stand up and be reckoned as part of the Strong Indian economy, rather than what it would like to project itself with a perennial begging bowl and donning the rag clothes. Farm hand suicides notwithstanding, which are the outcome of the distortions that have crept into the agriculture sector, that makes smaller segments out of sync with the market and drives them away, as unsustainable, Agriculturists should be brought into the tax system, especially those big and rich farmers, who are capable of enjoying princely lifestyles,contest elections, spending huge amount of money in political campaigns, but when it comes to payment taxes, become impoverished.

However how much one may like to persist with the “poor Kisan'' image of the Indian farmer, the truth is on the other side. It is good that the CBDT has made it compulsory, submission of the PAN CARD number, wherever the TDS is applicable and if the government does not buckle under the pressure of this lobby, and sticks to this rule, it will find to its biggest surprise, how much of this segment is awash with money in the form of deposits with banks, private financial institutions, private and public life insurance companies, but still remain out of the fiscal system, by a mere declaration of being not under the tax bracket. So to start with let Finance Minister introduce a small 10% tax on all households, that own a four wheeler or a harvester or a tractor, under the assumed income of Rs. 2.00 Lakhs annual income, allowing the concessions that are available to other assesses, with the onus of rebuttal of the presumption, on the assessee. Other mechanisms can also be devised to assess how much financial inflow is there and to bracket them appropriately. The Finance Minister would be dipping his hands into a well that has perennial supply of water and let him draw from this source, to sustain whatever the sector requires that frees him to allocate resources to the other sectors. Let agriculture sector stand on its own legs and sustain itself rather than being a perennial drawer out of the public pool.

Once upon a time the circari babus and a few rich business people might have been drawing incomes that come within the tax breaks. (now with the pay revisions, even the class IV employees of the government are on the threshold of the tax bracket) It is no longer the only segment, but due to deficiencies in assessment of incomes, many, in spite of earnings that put them on the higher side of taxable incomes, successfully dodge the taxman, to remain outside the tax system. Professionals, like doctors, chartered accountants, lawyers, consultants can claim deductions that put them outside the tax fold and yet continue to thrive. You can add many industries and industrialists into this fold that have invested Crores of rupees of money into enterprises, but do not pay any taxes at all as responsible citizens, either through the enterprise or at the personal tax fronts. It is time to reflect how far it is justiciable, that you tax only a handful of salaried employees, but keep a host of privileged segments out of the tax fold, for the simple reason that their incomes cannot be proved, but enjoy lifestyles and spending powers that should put them straight into the tax brackets. It is time their bluff is also called out and transparency is brought into the tax assessment and collections, to ensure better compliance by one and all and stop accumulation of unearned rents and concealed incomes.

If the Finance Minister can muster political will and consensus and ends this distorted regime of tax assessment and collection and include everyone who should be in the tax system, a death knell can be blown to the existence of privileged groups of tax dodgers and equality before the tax laws are enforced to bring in more resources into the national pool, such that each segment contributes and allocates resources on a more equitable basis.