In defence of EPF tax: Govt not afraid of taking on moneybags | union-budget$budget-analysis | Hindustan Times
Today in New Delhi, India
Jul 28, 2017-Friday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

In defence of EPF tax: Govt not afraid of taking on moneybags

Union minister Arun Jaitley says there is a limit to which an economy can afford exemptions. It appears that under the current economic climate, if we Indians want the government to take care of roads, pollution, public transport, and other things, we have to be open to paying taxes.

union budget Updated: Mar 02, 2016 13:05 IST
Suveen Sinha
The government needs money to relieve the stress in the rural sector, it needs money for the pay commission award and the one-rank-one-pension principle, and it has to invest in infrastructure projects because the private sector won’t.
The government needs money to relieve the stress in the rural sector, it needs money for the pay commission award and the one-rank-one-pension principle, and it has to invest in infrastructure projects because the private sector won’t. (HT Photo)

It’s probably down to what junior finance minister Jayant Sinha calls Indians’ reluctance to pay taxes. Though they still want to retain the right to complain about how little the government does for its citizens.

As finance minister Arun Jaitley told Hindustan Times on Monday, there is a limit to which an economy can afford exemptions. The government needs money to relieve the stress in the rural sector, it needs money for the pay commission award and the ‘one rank one pension’ principle, and it has to invest in infrastructure projects because the private sector won’t. At the same time, the fiscal deficit targets have to be met lest the rabble rousers overseas should jump at a deviation and denounce India.

Something’s got to give. And the tax on PF is one of the smaller things. But, given the furore, let’s look at it first.

Read: After backlash, govt hints at rollback of tax on EPF withdrawals

Why tax PF? Economists would put forth the economic wisdom of bringing all retirement schemes on a par, as this newspaper’s editorial does today. Since the National Pension Scheme is taxable, though only partially, so should be the PF. If the new tax on PF drives money into pension funds, so much better for long-term investments.

But why not tax PF? It’s money on which you do not pay tax when it comes. It’s money you can take out and spend on whatever you want, be it jewellery or a car. If you don’t want to pay the tax, don’t blow up this money, invest it in annuity schemes.

Read: How can govt justify taxing EPF when corporates get huge exemptions?

Some of the vitriol released during the last two days talks about the critical role of the PF money in getting one’s daughter married. The daughters can be married even after paying a little bit of tax, especially now that the government seems to be charging only the interest component, not the principal.

Secondly, the solution to this marrying the daughter challenge lies in social change, not economic. Why does no one get wrinkles over marrying the son? Discard the bride’s-father-pays principle and it will go much farther than not paying taxes on PF.

It’s not that the government is targeting the middle class. The Budget increases the income tax for those earning more than Rs 1 crore, and the tax on dividend of more than Rs 10 lakh. These are bold steps that say the government is not afraid of taking on the moneybags, though they have the power to beat down the Sensex and muddy the waters.

As Sinha says, as a people we have to decide what kind of a society we want. If we want the government to take care of roads, pollution, public transport, and other things, we have to be open to paying taxes. It can’t do that very well now because there’s not enough money to go by. We don’t want the government to abdicate these areas and make do with private or individual means. Now, that will be truly anti-middle class.

Read: Jaitley yet to decide on taxing your PF: Everything you need to know

Jaitley’s proposal to tax EPF is wrong, morally and in principle