They say that art depicts
realities of life. It must be true. A simple perusal of popular cinema over the
last 50 years would indicate how much our sensibilities have changed. A ‘Mother
India’ was expected not only to disown her wayward son, but even kill him, if
honour demanded so. Our movies have since evolved and it is not uncommon to see
parents defending the indefensible any longer, e.g., the father defending
thefts committed by his daughter in ‘Hansi to Fansi’
While there will be valid
arguments made that art not merely depicts but also influences life, it will be
difficult to dispute the perception that overall, Indians have been more
individualistic, more materialistic, more self-confident and more accepting of
shortcomings of who they identify as their own.
A parent defending crimes of
his/her child does not seem very outlandish when we see individuals vehemently
defending their favorite leaders and political parties for those acts which hardly
have any justification, leave alone merit. And to this end, no false logic is
weak enough, no argument not contrived enough, no verbal contortions not
painful enough to argue even when there is no argument. Cases in points could
be the infamous ‘zero-loss’ scams of UPA 2, AAP’s support for Khalistanis or
the many many U-turns of the Modi Sarkar.
Modi Sarkar’s recent move of
taxing EPF on withdrawal drew similar reactions. While most of hardcore Modi
supporters did seem benumbed by this blow on the day it was announced, it did
not take long for them to rally in support of this ill-conceived and
ill-intended move.
Arguments forwarded by
Modi-Bhakts or rather Mo-ley (Modi-Jaitely) Bhakts range from the hilarious to
the ridiculous. While some stubbornly cling to the statement of Hasmukh Adhia
(overruled the same day by the MoS Finance and Jaitely), that only interest on
EPF would be taxed (just why), some have invented quite outlandish arguments
around how Indians want to pay no taxes, or how the middle class can afford to
pay this tax or even how people have no business to get ‘high’ interest on EPF
at all.
One tweet on my timeline did
catch attention for what I thought was an outrageous comment. One worthy
claimed that ‘basically ppl dont want 2 invest in equity mrkts coz thy r
getting 8% w/o any sweat..y shud govt pay 8% at al’
The tweeter then found place
on SwarajyaMag
and he parroted his line on how Indians have been spoilt by ‘high’ interest
rates and that the EPF tax would force them to take responsibility for their
own retirement!
Had the reader not been an
average salary earning, tax paying individual, he would have been excused for
believing (basis the article and of course, the pronouncements of our Honorable
Ministers of Finance) that till now, it is the Indian Government which has been
taking ‘care’ of all its retired citizens.
To say that the way Government
has tied itself in knots trying to defend, rationalize and explain its decision
to tax EPF was ridiculous, will be an understatement. From announcing that Tax
is on entire corpus, then clarifying that it is on interest, then further
clarifying that it is on entire corpus, then re-clarifying that it does not
apply to people below a certain threshold salary, then claiming that it is
meant to prevent ‘conspicuous consumption’, that it will impact a very small
segment of society, and in the same breath claiming that it will help the
entire population come under pension, no possible excuse / variant was left
untouched, that too, all in 1 day!
Following is my critique to
the various arguments in favour of taxing EPF
1. Touching
only 60-70 lakhs people –
a. By
Govt’s own figures, only
3.5 Crore people pay direct taxes, a bulk of them in the lowest tax slab. On
the other hand, people in the 1 Crore plus bracket are only 42,800/-. It simply
means that the very same population which contributes most significantly to
Individual Income Tax is getting further squeezed
b. What is
more disputable is the Government’s claim that 3 crores employees earn less
than 15,000/- per month and would not be impacted by the taxation. This
argument is with serious flaws. Just how is this figure of Rs 15,000/-
determined? Would it mean an employee who starts at Rs 15,000/- per month or if
he draws Rs 15,000/- at any time in his life? Since increments, if nothing
else, on account of inflation, are bound to happen, just how many employees
would continue to be ‘unaffected’ by the tax?
Once increments happen, how would tax treatment
be done? On the entire corpus? Or on the post increase salary? What of the
cases where the person’s salary reduces (working only part time on account of
some reason or simply because of a worse paying job). There may be times when a
person is not working. Would zero contribution of that period be used to
average out the calculations?
In the year of withdrawal, (at current levels)
the proceeds would almost always be in the highest tax slab. Just how will it
not be taxed?
2. People
who are impacted do not ‘deserve’ EPF and can pay the tax – If we would not be
wrong in assuming that the Government encourages people to move up in their
life, it would not be disputed that other than having basic food grains and
just about enough to cover one’s self, an average human being wants to have
education, a house, a better quality of life for his/her progeny. All this
costs money. The more the Government takes, the less an individual would have
to spend. If capacity to pay is the question, of course, anything more than
what is absolutely critical to survival (or not even that) ‘can’ be paid to the
Government. An even more basic question is just how is ‘capacity’ defined? As
per our Governments, people earning even Rs 32/47 a day are above poverty line. No
wonder it believes that people earning, say Rs 1000 per day are rich and can
afford to pay tax on, or even the entire amount which keeps them ‘above’ the Govt
defined poverty levels.
3. Indians
do not like to pay taxes – Mr Jayant Sinha, just which citizenry ‘likes’ to pay
taxes? Even in your promised land, the US, lowering/rationalization of taxes is
a carrot US politicians promise to the electorate (not unlike the promises your
party had made before winning power), so just what makes Indian reluctance to
pay tax so peculiar? Still, most of the salaried classes pay taxes regularly
and you people, rather than making the untaxed sections come under tax bracket,
take the easiest way out of hounding, squeezing and crushing a hapless,
scattered minority, people who are neither a vote bank, nor capable of coming
on streets and holding violent protests!
· Indirect taxes are borne and paid for by every
Indian, even the poorest of the poor.
·
As per Census 2011, 62.5% of our population is
in productive age group of 15-59. In absence of a clear data point, let us
assume that people in age-groups 15-22, 23-30, 31-37, 38-44, 45-52 and 52-59,
all are equally distributed in their total share of 62.5%. That would mean each
group having (62.5/7 = 8.9%) share in the total population. Given the low rate
of people becoming full time earning members before 21-22, the productive
(potential tax paying age-group) falls down to 53.6%. In 2012, the GoI claimed
that 21.9% of its population is below the official poverty line. That means this
proportion of people can be removed from the potential tax-payer bracket, i.e.,
(53.6 x 21.9% = 11.7%) That leaves us with potential tax payer bracket of 41.9%.
Of our female workforce, barely 10% would be in adequate income earning roles,
further reducing the potential tax paying workforce to (41.9% - (41.9 x 0.45) =
23%) of the population. Removing 3% for residents of States which don’t have
Income Tax (e.g. J&K), and people whose earning capacity is limited on
account of any disability, we are left with barely 20% of population as having
capacity to pay tax. Of this, we must remember (inspite of the Government) that
people just above or even much above the so-called poverty line will hardly
have any taxable income). In addition, the Government exclude farmers and have
virtually no control over the trader, professionals, and artisans. So, if
finally only 2.9% pay taxes, just what is the surprise?
Government’s act of taxing these people more is
simply a punishment to those people for being tax payers in the first place.
Now the more ridiculous claims
‘
4. Developing
a pensioned society – Mr Jaitley claimed that the population impacted would be
low and in the same breath he claimed that this will make India a pensioned
society! Readers are advised to use their own intellect to decipher which of
these claims may be true as both simply cannot be true together!
Even assuming that the Govt. wants Indians to
invest in pension funds, the thing to do is to make pension funds attractive,
not by forcing people against their will, by taking away their nest eggs. Contribution
to PF is in any case mandatory. Just how can the Government further force tax
on it? For many people, tax on corpus would be double taxation as given the
provisions of section 80C, the forced investment in PF does not earn them any deduction.
The sinister truth behind this move could be
Government’s intent to force people to invest in Equity. Last year, the Finance
Ministry forced the browbeaten EPF Board to invest partially in the stock
market. With the current move of ‘not taxing’ proceeds if they are investment
in annuity, the Government is forcing people to invest in a volatile market,
where rather than any consistent logic, ‘sentiments’ and power-players rule the
roost. Given that the Government has no role in supporting the middle class for
food, medicines and shelter if they fall on bad times, the middle classes are
naturally averse to betting their money in schemes/instruments which they don’t
understand. And even if the stock market were heaven, just what business would the
Government have to force people into it?
Annuities are in any case, a sub-optimal
investment decision in many ways. Improve them. If they are good, people will
automatically invest in them.
5. Discourage
conspicuous consumption – Come on Mr Jaitley. Are we back in the Indira Gandhi
regime? Is withdrawing from PF for children, for house, or for any other
requirement ‘conspicuous consumption’? And even if it were, just how is it
Government’s concern to control it? As tweeted by Anand Rananathan on Twitter, such words sound even more outlandish coming
from an extremely successful lawyer with declared assets of over a 100 Crores
and a fleet of luxury cars with signature number plates! Even leaving that
apart, just when did the philosophy of this control take rebirth?
Before General Elections 2014,
the BJP promised tax reforms, even promising to assess if Income Tax could be
eliminated. In 2014 budget, the Finance Minister claimed to be in deep sorrow
on account of his inability to raise Income Tax Slabs (as was promised) and rationalize exemptions
(as per inflation). Quite a turn in 2 years that forget those promises, the
intent now is mercenary. What makes the Government’s move to crush middle class
tax-payers even more loathsome is its amnesty scheme to legalise 'Black Money',
for a penalty of mere 15%. Quite a benefit to those who do not pay taxes as the
penalty otherwise for concealment of income could be upto 300% plus interest.
Some of us might remember that
when service tax was introduced, it was a mere 5%, and that too on very limited
number of services. Today, the rate (with cess) is at 15% and we are at the
cusp of a negative list. Though the GST support brigade may not realise it, once
the GST passes, the service tax rate is likely to be at least 18%, if not more.
Likewise, silently accepting
the taxation of 60% of corpus, or even the interest component, or even after
exclusion of those earning below 15,000 per month is not acceptable at all.
Nothing prevents Governments from using a small opening to progressively
increase and consume whatever is left. The tax rate may be 30% today. It could
be anything later.
Just why has Modi Government
undertaken this move?
It is well understood that the
so-called-outsider is bending over backwards for integration in the Lutyens
elite as ‘one of our own’. It is even more understood that BJP Governments
would do anything to appease those who despise its very existence. It is taken
as a fact of everyday life that the BJP has little use for its supporters after
they have voted for it. Still, it is mind-boggling that the BJP can display so
much contempt for its supporters, be it Hindutva, Land Bill, Ecology, Black
Money, Corruption, Reforms, Taxation, etc? Have we become the new Muslims that
come whatever may, we will only vote for the BJP?
