Budget not just about raising, lowering tax: Finance secretary A B Pandey

The Budget should not be seen only as an exercise where you increase or decrease taxes, but also where you provide stability of rates, says Pandey

A day after Budget presentation, Finance Secretary A B Pandey tells Dilasha Seth and Indivjal Dhasmana that the proposals for spurring economic growth by increasing capex will be susccessful. He says a road map has been laid out for the government to exit areas that it should not be in. Edited excerpts:

The Budget has imposed tax on the provident fund contribution of employees above Rs 2.5 lakh a year. Was this called for?  

The Rs 2.5 lakh contribution means that these people are earning about Rs 20 lakh per annum. We came across people who were depositing crores of rupees. So, I think from the equity point of view it was necessary to remove this anomaly.

People were expecting income tax relief, but that did not materialise. What was the rationale?  

What you need to understand is that in India, of the 1.3 billion people, only 17 million actually pay taxes because our exemption limit is about Rs 5 lakh, which because of other deductions goes up to Rs 7-8 lakh. So, a large number of people are not required to pay any income tax. We needed to come up with a policy that benefits 1.3 billion people. We can do that by investing in the infrastructure space using capital spending, putting money in creating more jobs, public welfare programmes, health, etc. Therefore, the Budget should not be seen only as an exercise where you increase or decrease taxes, but also where you provide stability of rates, whether it is direct taxes or indirect taxes, and reduce compliance burden.

Then why are you rejigging Customs duty?

Customs duty depends on the international situation. Our approach is to tax the raw material at the lowest possible rates, then intermediate products at a higher rate, and finished goods. 

The Fifteenth Finance Commission has recommended rationalising GST slabs to just three — merit rate, standard rate, and demerit rate. It suggested merging of 12 per cent and 18 per cent slabs. 

When will that exercise begin?

The finance minister said in her Budget speech that in GST we have made some improvements and we are seeing the results. Now, we have to take these reforms further and we will work with the GST Council and certain anomalies in the form of inverted duty structure will be corrected. Besides, we can have a smaller number of rate slabs and rationalise rates. Some things were postponed because of the pandemic but can be taken up in the coming GST Council meetings. 

GST collection has been touching records on the back of increased enforcement. Will the momentum sustain?

It is not necessary that higher collection comes only by increasing taxes. In the last few months, GST has shown us that the collection can significantly improve without increasing any GST rates. 

Will the Budget’s Keynesian approach work? 

If you want to increase growth, you have to create an environment where investment takes place. Now, investment can be made through the public expenditure as well as the private expenditure. In these times, it will not be appropriate to depend only on private expenditure. Hence, the government’s spending also has to increase and has to be directed towards creation of productive assets and useful heads such as infrastructure and health. And that is precisely what has been implemented. Then, there are areas where the government doesn’t need to be. A clear path has been laid for this. 

 Did the Budget exercise account for the upside risks on account of another wave of Covid?

 In this situation, we should never let our guards down. We need to continue to take precautions.  Today, we are much better prepared as compared to last March, when we entered into a pandemic situation. Our precautions and preparedness should continue till this problem either goes away or subsides. 

The devolution to states has come down to 41 per cent, but will the agriculture infrastructure cess not be a loss to states?

It is not a question of anyone losing. The need of the time is that agriculture infrastructure should be given appropriate priority and for that purpose certain funds have to be earmarked. These funds are required, but we did not want to burden the consumer. The only option available to us was to readjust the existing duties on a small number of items.