People's Democracy

CITU Opposes Move To Impose Tax On Savings Instruments

The secretariat of the CITU has issued the following statement:

 
THE Centre of Indian Trade Unions has been opposed to the move of the finance ministry to subject all kinds of savings instruments to taxation at the stage of terminal withdrawal, ever since it was announced during the budget speech in 2004.

The savings instruments comprising provident funds, small savings, insurance policies etc. have all along been exempt from taxation at all three stages viz. contribution, accumulation and withdrawal, known as EEE system. But, the proposed migration to the EET system, on which an expert committee is reportedly at work, with a mandate to complete its work by October 31, 2005, will virtually make the exemption at the earlier stages of contribution and accumulation a mockery. The imposition of tax at the withdrawal stage is nothing but cumulative taxation on the entire corpus and will naturally be at the peak rate of tax. This would cause serious financial hardship to the millions of workers and the vast community of small savings public, including the senior citizens.

The government of India during the NDA regime had, over the years, cut down the administered rate of interest, payable on all these instruments, from 12 per cent in June 2000 to 8 per cent from April 2002. The present UPA regime had turned a deaf ear to the unanimous demand of the trade unions for restoration of the interest rate to 12 per cent. The move to tax all savings instruments at the withdrawal stage is a further attack on workers and saving public. 

This move is aimed at widening the tax net at the base, which with the tax deduction at source (TDS) will be a captive source for resource generation by the government. The finance minister generously abolished the tax on long term capital gains and imposed a Securities Transaction Tax at 0.15 per cent but later buckled in to the blackmail of the brokers to reduce it to 0.015 per cent last year and reduced the rate of corporate income tax, bringing it on par with the personal income tax in the current year budget. But, he is out to squeeze the regular income earners at the bottom rung for his fiscal management.

The high rate of household savings and its continuous growth rate have been one of the fundamental strengths of Indian economy. It is a tragedy that the government had not been able to convert these high savings into investments. The present taxation move will result in eroding the growth rate of savings in the economy. As small savings had been a significant resource-base for the state governments, this move is likely to put the state finances under deep strain.

The CITU demands of the UPA government to give up this retrograde move and continue the decades old EEE mode for all savings instruments.