With ample help from his crisp kurta and Nehru jacket, Jayant Sinha looks like a politician. But the minister of state for finance speaks the language of an MBA from Harvard, which he is, and a consulting firm honcho, which he used to be. As the stock market zoomed on Tuesday, Sinha explained the uniqueness of the budget. Excerpts:
You must be tired of having to answer the same questions over and over again.
(Laughs) I get used to it. Do you want to start with provident fund, the burning issue of the day?
Okay, let’s get the PF issue out of the way. We have received a lot of complaints [about the proposal to tax PF]. Honestly, we were doing them a favour by keeping PF tax-free. If you had taken the same money and put it in a bank fixed deposit, you would first have to pay tax on it, and then pay tax on the interest. We want to keep provident fund and pension fund on the same page.
Some people say you could have made the National Pension Scheme tax-free.
People in India don’t want to pay taxes. In many societies, people recognise that you have to have a level of taxation for society to flourish. India’s top tax rate now is 35% for the super rich, which is very much on the low side. In the US, depending on the state, it is above 50%. Our tax to GDP ratio is 16-17%. China has 21-22%, while the US has 25%. The OECD average is 35%. That is why we are not able to provide the public services people need. We don’t have enough resources. The citizens have to decide the kind of society they want.
What can this budget do about that?
You have to step back from the noise and look at what we have done that’s truly historic. Public investment has taken a quantum leap, our work with social security architecture will give us the opportunity to eradicate poverty, and this budget transforms the tax eco-system. The manner in which tax authorities and tax payers interact and how disputes are adjudicated is being transformed. If people pay legitimate taxes, as they do around the world, everybody can have the quality of life they deserve.
Do you think more could have been done on reducing corporate tax?
We have to move gradually. We do not want to get into a situation in which we have a big fall in tax revenue.
It was meant to be a four-year plan to reduce corporate tax and phase out exemptions. Does this budget go a fourth of the way?
We do not have an empirical understanding of how tax revenues will change. We also have the GST coming in. Fiscal space is limited. We have the Pay Commission. The 3.5% fiscal deficit has real implications for all citizens. We have to do this in a thoughtful manner.
There are areas of stress other than rural: banks, corporate balance sheets.We are transforming public sector banks. All our actions are synchronised with the Reserve Bank of India (RBI).