One hopes that it is still not late for the finance minister (FM) to consider the following proposals as he finalises the Budget:
- Flat tax: The FM can leave a permanent stamp of his personality on the Indian Budget by introducing the flat tax, i.e, a rate common to all income tax payers without any income slabs. In an earlier article in Business Standard, I have dwelt on its merits. All specific exemptions and deductions may be removed. The general exemption limit and the rate may be suitably fixed.
- Wealth tax: Budget 2009-2010 raised the wealth tax exemption limit from Rs 15 lakh to Rs 30 lakh with financial assets remaining outside its purview. Surprisingly none, not even the Left, raised any objection. In a poor country where there are not only rupee billionaires but dollar ones too, the need is to bring financial assets into the tax net. The Forbes list of billionaires for 2007 said India ended Japan’s 20-year reign as home to Asia’s most number of richest people. India had a total of 36 billionaires with a combined wealth of $191 billion. The richest individual in the country had a wealth of Rs 250,000 crore.
- Dividend tax: It is unconscionable that promoters of big companies reaping huge dividends need not pay tax. The loss to the exchequer can easily be calculated. In 2006-07, the promoters of TCS alone received dividends of Rs 1,038.75 crore. An exemption limit could be fixed, keeping in mind the interests of middle-class investors and the need to cultivate the equity cult among them.
- Capital gains tax: The tax can be reimposed on long-term capital gains with an exemption that is not high and with continued benefit of indexation to inflation. The Mauritius route can be closed. The government is already reported to be having negotiations with the government of that country in this connection.
A related matter that can be covered in the FM’s speech is the appointment of a high-powered commission to propose the replacement of the Reserve Bank of India Act, 1934 with new legislation, taking into account all the recent developments in central banking theory and practice. The central bank is observing its platinum jubilee and it is time to have an expert look at its working in its totality unlike the piecemeal jobs done in the past by committees appointed for other purposes.
A Seshan, on email
