People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 17

April 23, 2006

Common Minimum Taxation For The Rich


                                                                                         Chittabrata Majumdar


UNION Budget 2006-07, although similar to the previous one, cannot be viewed as directionless in any sense. Rather, such a successive low-key exercise confirms the present government’s commitment to the neo-liberal framework and to withdraw, to the extent possible, from its commitment made in the National Common Minimum Programme (NCMP) for ensuring an all-round, pro-people development. Despite repeated reference of NCMP in the budget speech, a close look at the budget reveals the sheer apathy of the government to tax the rich to augment the required resources to undo the accelerated injustice on masses caused particularly during a period of more than one and a half decades of neo-liberal economic reforms.




While presenting budget 2006-07 in Lok Sabha, union finance minister P Chidambaram observed that his attempted tax reforms are yielding encouraging results. Without any significant additional resource mobilisation in 2004-05, the gross tax revenues (Provisional actuals) increased by 19.9 per cent over the actuals of the previous year and according to the revised estimates, in 2005-06 they are expected to increase by 21.4 per cent over the provisional actuals of the previous year. So, he felt it prudent to keep the tax rates moderate and stable.


There were numerous proposals from various corners for mobilising resources by taxing high-end income earners and for improving the low tax-GDP ratio. This was necessary to provide resources for implementation of the pro-people commitments made in the NCMP. Among the measures by which resources could be mobilised are the following: increasing security transaction tax rate to 0.15 per cent; enhancing short term capital gain tax rate; increasing rate of corporate tax, wealth tax and gift tax; enhancing rate of tax on luxury goods, foreign cars, foreign tours and travels; enhancing import duty on items which are also produced locally; rationalising export subsidy schemes; widening the service tax net upwards; bringing under tax net the income earned through non-agricultural activities like money lending, trading in agricultural produce etc which are presently being shown fraudulently as agricultural income; taking stringent measures to stop tax evasion by compelling the corporates, industrialists and other disputants to prepay the tax as per claim/assessment made by concerned authorities, before raising disputes; fast recovery of the non performing assets of the banks etc. 


None of the above mentioned proposals have been considered by the finance minister. He seems to be happy with the present level of tax-GDP ratio and the rate of economic growth, which in effect has been largely cornered by the affluent sections of the society. There has hardly been any sincere effort to do proper justice to the Common Minimum Programme so far as agriculture, education, health and employment etc. are concerned.




Let us now look at what the budget 2006-07 proposed on the issue of employment. On the question of employment generation, the NCMP of the UPA government stated, “The UPA government will immediately enact a National Employment Guarantee Act. This will provide a legal guarantee for at least 100 days of employment, to begin with, on asset-creating public works programmes every year at minimum wages for at least one able-bodied person in every rural, urban poor and lower-middle class household.”


Instead of National Employment Guarantee Act, the National Rural Employment Guarantee Act has been enacted. The urban poor and lower-middle class have been left out. The Act did not cover the entire rural poor and lower-middle class too. Only 200 districts in the country have been selected for this scheme. Another dilution has been in terms of funds allocation. While NREG scheme has been launched with Rs 10,170 crore of central plan outlay, the outlay for Sampoorna Gramin Rojgar Yojana (SGRY) has been slashed by Rs 4950 crore. Moreover, the Food for Work Programme (FWP), which spent Rs 4050 crore last year, has been totally wound up by merging it into NREG. Thus even while an amount of Rs 10,170 crore has been allocated for NREG, a whopping Rs 9,000 crore has simultaneously been slashed.




The finance minister in his budget put forward the argument for targeted subsidies (in effect, elimination of subsidies), particularly relating to essential commodities and inputs like food, fertiliser etc. This comes at a time of rising incidence of starvation deaths and suicides by destitute farmers across the country. And more so, when the budget is totally silent on any reduction of subsidies being given to the corporate sector, both domestic and foreign, in the name of incentives, tax holidays, tariff concessions on utilities etc.


The budget, by such proposals, has once again reiterated the government’s intention of cutting the expenditure for the common man. Majority of the recommendations of the National Commission for Farmers, like the setting up of a price stabilisation fund for agricultural commodities and extension of crop insurance to all farmers and crops, have been ignored by the finance minister.


A meagre 25 per cent increase to the existing 0.02 per cent of securities transaction tax in the budget proposal is a sheer gimmick meant to deceive the people. In the name of improving the so-called “investor confidence”, the government is allowing speculators, both foreign and indigenous, to enjoy the huge bonanza in the share market through such absurdly low taxation.


The proposed reduction in customs duties for non-agricultural products will further fuel the uneven competition the domestic industries are facing from outside.  The proposed removal of 184 items from the list of items reserved for small-scale sector will definitely ruin the small-scale industries resulting in further aggravation of unemployment problem.


Given the low tax-GDP ratio and the oft-repeated ‘resource constraint for funding the pro-people projects’, the reduction in the excise duty on small cars, making them cheaper by more than Rs 20000, is simply unjustifiable. On the one hand you have a paltry increase in allocations for the ICDS and National Rural Health Mission (the Supreme Court had ordered universalisation of the ICDS), and on the other hand the items consumed by the affluent sections of the society such as aerated drinks, ice-creams are made cheaper. This exposes the class outlook of those who are at the helm of the economic affairs of the country.


Thus, the direction of the budget has made it clear that this is not a budget for implementation of pro-people promises of the National Common Minimum Programme, including those for millions of the workers in unorganised and agricultural sectors. Rather, this is a budget to fulfil the aspirations of the upper classes, including the domestic and foreign investors.