Taxing the Poor

It was once famously said that the executive (government) is nothing but a committee to manage the affairs of the ruling class in any society. The Narendra Modi-led Bharatiya Janata Party government is a fine example of this truth. The open and brazen way in which it has worked to the advantage of India’s powerful corporate sector has few parallels in the world.

In the name of spurring ‘growth’ and ‘employment’ the Modi government has decisively reduced taxes levied on big business while increasing the burden on common people through direct and indirect taxation. It has also reduced customs duties (tax on imports) to encourage entry of foreign products into the country, thus damaging domestic industry, especially the medium and small-scale sectors.

Income tax collections increased from Rs 2.6 lakh crore in 2014-2015 when Modi came to power, to Rs 5.6 lakh crore—a rise of 117%. In the same period, corporation tax levied on corporates increased only by 28%, from Rs 4.3 lakh crore to Rs 5.5 lakh crore.

The share of corporate tax in gross tax revenue has shrunk from 34.5% in 2014-15 to 24.7% in 2021-22. Customs revenue has shrunk even more drastically, from 15% to just 6%, over the same period. But income tax revenue has increased from 20.8% to 25.3%.

Ironically, the government sought to portray this as some kind of employment boosting step. Their bizarre reasoning was that tax concessions would lead to increased investment by corporates and that, in turn, would lead to more jobs. As developments have shown, nothing of the sort has happened. There was no job growth in 2019, and then, in 2020, the pandemic hit India, which was met by an ill-conceived lockdown that lasted in various forms for several months, destroying the economy further.

Strangely, the corporate sector has emerged all the better from the devastation of the pandemic and lockdowns!

Besides the tax cuts, the corporate sector has also benefitted from a slew of other executive measures, which include concessions and rebates of various types that add up to over Rs 6 lakh crore for just the recent few years (data available in the Budget papers), loan write-offs from banks, gobbling up of smaller industry by larger ones through the operation of the Insolvency and Bankruptcy Code (IBC) at basement prices, relaxation in company law to ease penalties for various defaults, etc.

In addition, the Modi government has also shown extreme alacrity in the sale of public sector units (for much reduced costs) again to the same corporate sector. The recent sale of Air India to the Tata group is a case in point where all the debt (Rs 46,000 crore) is left behind for the government to settle, while the Tatas walk off by paying just Rs 27,500 crore for the airline.

The Modi government is financing this largesse by transferring resources from the poor to itself, either by spending cuts or through various types of taxation.

In order to save money, crucial spending needed for, say, food grains distribution or cooking gas subsidy has been curtailed. Government warehouses are full of record grain stocks yet the government is unwilling to distribute it beyond its legal commitment—just to save money.

The case of ever increasing petro product prices is a clear example of obstinate indirect taxation.. Cooking gas prices have risen by over Rs 300 in just the past one year, even as the subsidy given by the government was stopped in 2019.

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Frontier
Vol. 54, No. 22, Nov 28 - Dec 4, 2021