Opinion: Punjab’s professional tax move directionless, avoidable proposition
There is no denying that Punjab is starved of funds and its outstanding debt is further projected to shoot up from Rs 1.96 lakh crore in 2017-18 to Rs 2.11 lakh crore in 2018-19. But the decision to mobilise funds by squeezing income taxpayers cannot be justified.Updated: Mar 28, 2018 12:18 IST
In his second budget tabled in the Vidhan Sabha on Saturday, Punjab finance minister Manpreet Singh Badal primarily focused on fiscal consolidation, i.e. mobilising resources and cutting down the expenditure.
Even as the budget tried to please all the stakeholders ranging from farmers, industrialists and employees to students, it could have been done more convincingly.
In the scramble to gather resources to get cheaper loans from institutions like the Asian Development Bank (ADB), the finance minister proposed levying of a monthly tax of Rs 200 on each taxpayer, the modalities for which are being worked out.
There is no denying the fact that the state is already starved of funds and its outstanding debt is further projected to shoot up from Rs 1.96 lakh crore in 2017-18 to Rs 2.11 lakh crore in 2018-19. But the decision to mobilise funds by squeezing the income taxpayers cannot be justified at all.
Manpreet defended the proposal by pointing out the progressive states like Maharashtra, Gujarat, Karnataka and Tamil Nadu which are collecting the same tax for quite some time. However, while making comparison with these states, he ostensibly failed to notice the intrinsic worth of these states which actually facilitated the imposition of this tax. Besides having geographical advantage of being close to the sea, these states have been hubs of commerce and trade.
Whereas Maharashtra is home to Mumbai which is the country’s financial capital, gems and jewellery export from Surat and textile industry from Ahmadabad in Gujarat (whose 65% population lives in urban areas) significantly assisted the imposition of development tax.
Similarly, Bangalore has earned the reputation of India’s Silicon Valley besides the fact that Karnataka is the pioneer state accommodating leading automobile manufacturers.
Chennai in Tamil Nadu has earned the reputation of being the leading software-exporting city of India. Then how on earth can a city like Ludhiana — which lost its status of being the ‘Manchester of Punjab’ due to the off-putting industrial policies of successive state governments and the fact that it is not getting export orders anymore — compete with these cities?
Moreover, the state government remained a mute spectator when industries from Ludhiana, Jalandhar and Amritsar were moving to Himachal Pradesh, Jharkhand and Uttarakhand which offered them various tax sops. In service sector also, the state government has failed to pay salaries/pensions in time on innumerable occasions and even permanently appointed government employees are paid as much as temporary employees get in initial years of their appointment.
Amid this, the proposal to tax 37 lakh income taxpayers of the state over and above will only rub salt to their wounds.
Besides the unsuitable conditions, this tax is not in the right direction. This is because it is being levied only as a means to fill the government’s coffers rather than addressing the inequalities. To bridge the persisting inequalities, the government could have taxed high-end cars, LCDs/LEDs larger than 40 inches, refrigerators having more than 2,000-litre capacity and five-star hotel weddings.
Estimates show that every year almost 2 lakh new cars and sports utility vehicles (SUVs), excluding taxis, make their way to the Punjab roads.
Even if it is assumed that half of these vehicles are priced more than Rs 5 lakh and taxed Rs 15,000 each, the government still could have collected Rs 150 crore which is equivalent to the proposed amount to be collected through professional tax. Such a tax on cars would have discouraged the tendency to use personal vehicles and resulted in less pollution.
Also, the wedding market in India is growing at a rate of 20% and has got a boost with a decrease in taxes from 31.04% (when VAT was applicable) to 23.09% in the post-Goods and Service Tax (GST) period. Average banqueting charges at Rs 2,000 with 500 guests in a five-star hotel have resulted in lower expenditure (from Rs 13.10 lakh earlier to Rs 12.35 lakh), thus yielding savings of Rs 75,000. The finance minister could have planned to bring to the government’s kitty some of the amount from these savings. To load the income taxpayers with a professional tax is illogical.
Even if this tax gets to see light of the day, it is still not clear what will be the fate of those who are paying a nominal tax. Suppose a family has four taxpayers paying taxes at different rates (say Rs 50,000, Rs 20,000, Rs 10,000 and Rs 1,000 each) as per their incomes in the assessment year, they will be paying an additional tax of Rs 9,600 (2400x4) every year. Will it be logical to make the fourth person pay additional Rs 2,400, when his actual tax is computed only Rs 1,000 as per his income? If not, then this tax also does not qualify to be called as a professional tax due to its regressive nature.
Leave aside economic logic, the timing to impose this tax is wrong from moral viewpoint. In the recently announced Union budget, finance minister Arun Jaitley had increased the cess on income and corporate tax from 3% to 4% to provide healthcare alongside education to the needy. Those who can afford to juggle with the figures will manage to evade these taxes too, but honest taxpayers will always remain on their toes and will not get any respite. If the government goes ahead with this tax, then it will speak volumes about the Congress government’s lack of imagination. We are sure that the minister revisits the decision to impose this tax which majority of the taxpayers will see as unfair and discriminatory.
(While RS Bawa is vice-chancellor, Chandigarh University, Gharuan; Rajiv Khosla is head, University School of Business (CU))
First Published: Mar 28, 2018 12:16 IST