Modi, Jaitley look to high taxes

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Modi, Jaitley look to high taxes

Socialist streak in PM, FM getting stronger                                              

Modi, Jaitley look to high taxes

By Parsa Venkateshwar Rao Jr

One of the prime reasons for digitizing money transactions is that the Modi government feels that too many people are out of the tax net. It is not just the biggies like builders who seem to slip through the cracks as it were, but it is also the very small people—the vegetable vendors, the carpenters, the washermen/women—who seem to duck the need to pay legitimate taxes.

Prime Minister Narendra Modi and finance minister Arun Jaitley seem to agree on this one point; not that there are too many differences between the two. Mr Jaitley had shuffled his feet quite a bit on the taxation issue. In 2014, in the discussion on his first Budget in 2014, he argued that taxation would be low but the tax collections would be large enough. But when the time came to determine the rates of Goods and Services Tax (GST), which still remains undecided, he was strongly in favour of higher rates apart from the many slabs.

One of the compulsions was that the state governments were seeking compensation for the tax losses they would incur, at least initially, with the implementation of the nationwide single tax, the GST. But Jaitley put forward the argument that it is unfair to tax the man on the street who buys daily necessities and the man who buys luxury ties at the same rate. Jaitley, who has been a guarded free market liberal, seemed loath to lose tax revenues as such. He went on to offer the socialist justification that the taxes would be put to better use by the government, for improving infrastructure and for welfare measures for the poor.

Modi is positioning himself as the man standing up for the poor man as against the rich man with his sacks of black money, and he will not only unearth illicit wealth but will also tax the bad people so that the poor people will have the satisfaction of seeing that what is due to the government goes to it, and once the government is well-stocked with money then the poor people too are well-stocked because the government belongs to the people.

 It looks like that the Prime Minister’s hugely unpopular demonetization measure not only wants to demolish the black economy but also wants to rake in the legitimate tax booty, or windfall if you will, for the government. The finance minister concurs in the thought because it would ease his job of containing the fiscal deficit.  Of course, like the money that came in with spectrum auction in the first year, and the dreams of meeting disinvestment targets, demonetization, too, is a one-time tax bounty for the government.

But what the prime minister and finance minister seem to do on a longer-term basis is expand the tax base by not only bringing in a lot more people into the tax net but also by increasing the tax rates. One of the ways the government could have assuaged the apprehensions caused by demonetization is to offer the balm of low taxes. But neither Modi nor Jaitley seemed to be even entertaining the idea.

Do not be surprised then that the BJP-led NDA government looks more like the Congress governments of the 1950s, 1960s and 1970s, where the government tells everyone who is making money without bothering the government to offer him employment or social security that the ordinary person can earn only if he pays taxes upfront.

The nightmare is returning: Socialism is creeping back into government policy through the backdoor.