DC Debate: Incentives and tax exemptions for corporates are also subsidies'

PM must incentivise the poor too: Vijay Jawandhia

People get loans to buy washing machines, cars and other goods in order to boost consumption and help industry. Why the same scheme is not applied to the farmers to buy essentials like foodgrains?

The private sector takes advantage of all the incentives. For example, why is the reduction of excise duties on luxury goods necessary? If a person can pay Rs 4 lakh for a car, why can’t s/he pay a few thousand rupees more? While it is argued that car is now an essential commodity, this is not true as barely seven per cent of Indians own cars.

The economic incentives given to the excise industry is anti-poor and against the aam aadmi because they are paying for it through indirect taxes. Instead of taxing the rich and increasing the revenues and helping the poor, the successive governments have been taxing the poor and helping the rich.

Under the new economic policy, taxes are continuously reduced under the fig leaf of incentives whilst providing healthcare and education to the poor are called subsidies.

Why should incentives not be given to the poor to educate themselves and get better medical facilities? The time has come to rethink and tax all luxury goods heavily as it was done in the ’70s and ’80s before economic liberalisation. Is economic liberalisation only for the rich?

The industry thinks that it is born for incentives. Take the extravagant recommendations of the Seventh Pay Commission which will put a burden of Rs 1 lakh crore on the Narendra Modi government.

The sharp hike in salaries of Central government employees is likely to trigger demand for affordable homes and consumer durables such as cars, two-wheelers and other electronic items.

The so-called captains of the industry call it an incentive as it will help them sell their products to government employees while the fact is that it would be subsidising them indirectly.

Mr Modi has rightly brought into focus this misuse of words like incentives and subsidies. However, if he is serious he must change his policies immediately, or he will be perpetuating this injustice to the unorganised sector.

It will be interesting to see whether his government will accept the Pay Commission recommendations. Perhaps, Mr Modi is aware that the pay panel has recommended Rs 18,000 per month as minimum wage which comes to Rs 600 per day. A farm labourer gets a minimum wage of Rs 165 per day.

Taking Mr Modi’s observations further, people get loans to buy washing machines, cars and other goods in order to boost consumption and help industry. Why the same scheme is not applied to the farmers to buy essentials like foodgrains for yearly consumption after the harvest season? It would create a market for agricultural commodities.

If the government did not give loans for purchase of white goods, one wonders what would happen to the industry? The government through its pro-industry policies is creating two Indias — one like the US with purchasing power and the other like Africa where they give rice for Rs 1-2 per kg.

How can there be exclusive growth under such policies? When Mr Modi talks of these anomalies, he must address these loss of Rs 62,000 crore in the forthcoming Union Budget.

Vijay Jawandhia is a farmers’ leader and activist from Wardha, Vidarbha

Exemptions  tackle ups and downs - Sunil Kanoria

To treat all the exemptions as wasteful or revenue leakages would not be a fair assessment. The so-called ‘revenue foregone’ concept is generalised and all exemptions can’t be treated as revenue foregone.

In his previous Budget, Union finance minister Arun Jaitley announced the government’s intent to bring down the corporate tax rates to 25 per cent from 30 per cent. However, the joy came about with a caveat.

Lowering of the tax threshold for the Indian corporates, with the avowed objective of bringing it down to the Association of Southeast Asian Nations level, was to be accompanied by removal of tax exemptions.

If all exemptions enjoyed by different industry and company segments are factored in, the effective rate is estimated to be less than 25 per cent.

So, if the corporate tax is brought down to 25 per cent from 30 per cent in four years and exemptions are done away with, the firms will end up paying more to the exchequer and the government will walk away with the credit of aligning the tax rates to the Asean level.

It is a fact that exemptions given in an indiscriminate manner distort the taxation regime. However, to argue for complete exemptions across the board will be moving to the other extreme.

In a tumultuous world of business, especially at present times, the corporate firms have to face sharp ups and downs, requiring different policy interventions, including changes in the tax treatment. At a given point of time, exporters may require some tax breaks.

Likewise, different regions of the country may require different tax treatment if investment has to be promoted in economically backward states. The tax at the same rates across different regions may not always be advisable.

Same holds true with the companies operating in carved out areas like the special economic zones, or in specific verticals, considered to be more important from the point of bringing equity.

For instance, companies operating in and manufacturing solar power equipment may be requiring a different tax treatment.

Moreover, if India wants to be a favourite destination of foreign direct investment then the tax rates have to be competitive enough. Thus, slashing corporate tax to 25 per cent along with removal of exemptions would amount to giving with one hand and taking with the other.

Assocham is all for pruning of the exemptions like better targeting of subsidies so that the tax administration becomes easier and disputes are brought to the minimum. However, to treat all the exemptions as wasteful or revenue leakages would not be a fair assessment.

The so-called “revenue foregone” concept is quite generalised and all the exemptions cannot be treated as revenue foregone. And even if there is “revenue foregone”, the consequent benefits could far outweigh the costs.

For example, if some concessions are given to the corporate engaged in the area of healthcare, water treatment or irrigation projects, the benefits will certainly be much more than the loss.

Thus, even if the tax exemptions and incentives have to be removed, they should not be done in one go.

Let there be a fair assessment of the existing exemptions which can be rationalised in a phased manner so that the corporates do not feel the shock. Let there be smoothening of the process with equity.

Sunil Kanoria is the president of Assocham