India's Revenue Policy - Making the Rich Richer

8/10/2019 India's Revenue Policy - Making the Rich Richer

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Revenue foregone, but not forgiven

March 5, 2011, 6:42 PM ISTRukmini Shrinivasan |Development Dialogue |India |TOI

Since 2006, the Union government has been publishing a Statement of Revenue Foregoneas part of the union budget documents. In the interest of greater transparency, this document

lists the special tax exemptions and concessions given to individuals and corporates and

calculates the revenue lost or foregone by the central government as a result of these.

This figure, which rose to over Rs 510,000 crore last year, has now become a much used

number frequently described as a corporate giveaway, so it may be useful to take a closer

look at the numbers to see whom these `gifts are really going to.

Take a look atthis years statement.

Tax type Revenue Foregone in 2010-

11 (in Rs. Crore)

Total tax collection in 2010-11

(in Rs. Crore)

Corporate Income Tax 88,263 296,377

Personal Income Tax 50,658 149,066

Excise Duty 198,291 133,300

Customs Duty 174,418 131,800

Total 511,630 710,543

(Source: Budget Documents 2011-12)

Looks pretty bad, right? Lets start with the second entry, the smallest one, because thatseasiest to tackle. The single largest component of personal income taxexemptions is the

exemptions given on account of investments made by tax-payers, followed by revenue

foregone on account of the higher exemption limit for women and senior citizens. Taken

together, that makes personal income tax revenue foregone fairly well justified.

Now lets get to the first entry, corporate income tax. The largest component is

exemptions granted under accelerated depreciation, followed by several smaller

exemptions including for SEZs, for companies that set up in backward areas, those that are

engaged in generating power etc.
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The argument here is that many companies do not fulfil the conditions that they were

granted exemptions under; for example, although SEZs are meant to bring investment and

employment to rural areas, many of Maharashtras biggest SEZs have been cleared to be

set up in Mumbai itself. This is a valid point, but until we know what proportion of these

exemptions have been granted to corporates who bypassed the rules, its not accurate tocharacterize the entire sum as a giveaway.

Now we come to the indirect taxes, excise and customs duty. The smaller part of

excise exemptions is accounted for by states like Himachal Pradesh, Uttaranchal and

Gujarat (Kutch region only) which have waived excise duty as an incentive. The larger part

comes from central exemptions have been higher for the last two years as a stimulus to

industry following the global recession.

Customs duty exemptions, i.e. exemptions on duty that is charged on imports, which formthe single largest component of all revenue foregone, is perhaps where our sights should

finally be trained. The top five categories of goods with the largest customs duty

exemptions in 2010-11 were (in descending order): precious stones and jewellery, mineral

fuels and oils, animal or vegetable fats, machinery and electrical machinery. It s the first

one in this listRs 48,798 crore exemption on customs duty for imported jewellery in one

year alonethat I find truly objectionable, considering that its almost the size of our entire

annual food subsidy.

Ultimately, the problem to me is one of rhetoric. For instance, I personally believe that

there should be universal access to subsidized food in a country where 40% of children

are malnourished.However, Im not sure that attacking the revenue foregone figure is

a good way of explaining where the money for a universal Public Distribution System will

come from, since not all of this money can be dismissed as gifts to the rich. Where this

money will come from, then, should be the subject of honest debate.

Gold, Diamonds & Large Corporations; Indias Biggest

Tax BeneficiariesRohit Sinha, June 25, 2013

Highlights

* India gave away tax breaks or exemptions worth Rs 533,582 crore ($97 billion) or nearly

67% of tax collections in 2011-12

* While small companies had an effective tax rate of 26.26%, large companies enjoyed an

effective tax rate of 21.67%

* Revenue foregone under excise duty was greater than the actual collections in 2011-12
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Did you know that India gave away tax breaks or exemptions worth Rs 533,582 crore ($97

billion) or nearly 67% of tax collections in 2011-12.

Thats according to the Statement of Revenue Foregone, a part of the Union Budget

documents presented for the first time in the 2006-07 Union Budget, and a regular practiceever since.

This is not to say all such breaks are good or bad, merely to highlight what the specifics are

and for those who want to ask; what specifically can we afford and not ?

Revenue foregone also tells you about the Governments policy stance and how

concessions/relaxations/exemptions are conferred upon preferred tax payers. Such tax

breaks could also be termed hidden subsidies, since they could be in the form of

exemptions, special tax rates, deductions on taxable income, rebates and tax deferment ortax credits.

How Much Can We Forgo To India Inc?P. SAINATH

A corporate world which has on average received Rs 7 crore every hour (or Rs 168 croreevery day) in write-offs on just direct corporate income tax alone. And that for nine yearsrunning. (Longer, but we only have data for those nine years.)

And thats if we look only at corporate income tax. Cast your gaze across write -offs oncustoms and excise duties and the amount quadruples. The provisional figure written offfor the corporate needy and the and the belly-aching better off is Rs 5,72,923 crore. Or Rs5.32 lakh-crore if you leave out something like personal income tax, which covers arelatively wider group of people.

Its close to three times the amount said to have been lost in the 2G scam. About four timeswhat the oil marketing companies claim to have lost in so-called under-recoveries in2012-13. Almost five times what this years budget earmarks for the public distribution

system. And over 15 times whats been allocated for the MNREGS. Its the biggestgiveaway, an unending free lunch thats renewed every year. Gee, its legal, too. It is

government policy. Its in the Union Budget. And it is the largest conceivable transfer of

wealth and resources to the wealthy and the corporate world that the media almost neverlook at.

Its tucked away at the very rear of the budget document. A seemingly innocuous annexure.

Its title, though, is disarmingly honest. Statement of Revenue Foregone.(see:http://indiabudget.nic.in/ub2014-15/statrevfor/annex12.pdf)There are those who point outthat this should more correctly read forgone and not foregone. The former actually des-cribes the process of relinquishing or abstaining from something. In this case, fromcollecting taxes that are legitimately due. The budget document says revenue foregone.However, the write-offs are anything but semantic.
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So it totalled Rs 5.32 lakh-crore in 2013-14. But budgets only started carrying that annexurea few years ago, and we only have the data from 2005-06 to 2013-14. In those nine years,the corporate karza maafiamounted to Rs 36.5 lakh-crore. That, in case you like the soundof the word, is Rs 36.5 trillion. (Okay, so for the record, these were all UPA years. But letssee next year if the NDA proves even slightly different).

For those stricken by number-crunchitis: that works out, on average, to Rs 1,110 crore everydayfor nine years. Thats one hell of a free lunch. Sure, there are elements that benefitwider groups. Like personal income tax concessions (which is why theyre excluded from

the calculations here across those nine years). But do look at some of the big items.

In more than one year since 2005-06, the item hogging the biggest write-offs in customsduty was gold, diamonds & jewellery. Not quite the province of the aam aadmior aamaurat. In 2013-14, the amount was Rs 48,635 crore. That was more than the amount written-off on machinery. Greater than what was written off on vegetables, fruits, cereals and

vegetable oils. In 36 months between 2011-14, duty write-offs on gold, diamonds andjewellery totalled Rs 1.67 lakh crore.

Yet, the concern is over a one-time loan waiver to millions and millions of farmers (whichnever touched the most needy of them). Or food subsidy worth less than ten rupees a day

per person below the poverty line in the hungriest nation on earth. Not over giveaways tothe corporate world and the better off that cross 1,100 crore a day on average in nine years.There is hand-wringing over a rural employment guarantee programme that, at its very best,cannot give Rs 15,000 in an entire year to a family of five. Not over corporate karza

maafi that works out across those nine years to Rs 1.28 lakh per second.
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He claims that there will be enormous spill-over benefits to small and mediumenterprises, but that has not been so evident in the recent past. It is far more likely that

direct benefits to MSMEs would have had more impact on investment and thereforeproduction and productivity, while costing much less for the exchequer.

These concessions have other implications as well. During the 2000s, when corporateprofits were soaring, tax concessions in different forms provided to the corporate sectoramounted to well above one per cent of GDP. And corporate tax rebates are only one formin which the corporate sector is favoured, as the controversies over spectrum sale, coal

blocks and even gas pricing suggest.

All this has reduced the fiscal space available for some much required public spending.Even the sum estimated by the Parliamentary Standing Committee on Food Security asneeded to support its recommendation for universal provision in 2011-12 was less than one-fourth of the taxes foregone through various concessions in that year. Anyone with a sense

of social priorities should, in the circumstances, recognise that the argument that the moneyis not available is without much basis. What is lacking is the will to mobilise the surplusand allocate it to where it is needed most.

So it is surprising, to say the least, that the Finance Minister has chosen to provide a furthertax concession only to giant companies to coax them to increase their spending.

We could have used that Rs 36.5 trillion a bit differently. You see, with that sum, you could:

Fund the Mahatma Gandhi National Rural Employment Guarantee Scheme for

some 105 years, at present levels. That is a hell of a lot more than any agriculturallabourer would expect to live. You could, in fact, run the MNREGS on that sum,across the working lives of two generations of such labourers. Current allocation forthe scheme is around Rs 34,000 crore.

Fund PDS for 31 years (current allocation Rs 1,15,000 crore).

By the way, if these revenues had been realised, around 30 per cent of their value wouldhave devolved to the states. So their fiscal health is affected by the Centres massivecorporate karza maafi. Even just the amount foregone in 2013-14 can fund the rural jobsscheme for three decades. Or the PDS for four-and-a-half years.

Heres a media full of market televangelists who preach every night about the need to trimsubsidies. Why not start with those above? Well, because so many media outlets are partof corporations locked in the feeding frenzy at the subsidy trough. But to return briefly tothe semantics of loot and grab (versus crumbs off the table). Give the poor and hungryassistance worth less than Rs 10 a day to help them have just a tad more foodthats asubsidy. Give trillions of rupees to the richthats an incentive or at best a deduction.Even the otherwise frank Statement of Revenue Foregone titles many giveaways

as incentive/deduction or, at best concessions.


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Its not as if governments or officialdom are unaware of how regressive all this is. The

2009-10 budget said in so many words: The amount of revenue foregone continues toincrease year after year. As a percentage of aggregate tax collection, revenue foregoneremains high and shows an increasing trend as far as corporate income tax is consideredfor the financial year 2008-09. In case of indirect taxes, the trend shows a significant

increase for the financial years 2009-10 due to a reduction in customs and excise duties.Therefore, to reverse this trend, an expansion in tax base is called for.

I wrote about this at the time. And the language and tone changed from the next year. Nomore calls for reversal. I wonder why? Yet, the budget still notes a rising trend in plutocrat

plunder. Even this year, it notes: The total revenue foregone from central taxes is showingan upward trend. Now remember, the same class of subsidy beneficiaries loot public

sector banks of countless thousands of crores. By the time this piece is out, the All-IndiaBank Employees Association will have revealed the names of wanton defaulters whocurrently owe the banks tens of thousands of crores. These are names governments have

refused to reveal even to Parliament on the plea of the RBI Act and banking secrecy.

Who says industry has been doing badly? The amounts recorded as written-off in theStatement of Revenue Foregonefor 2013-14 are 132 per cent higher than they were in 2005-06. (Even with the budget document gently, sometimes silently, clucking its tongue at thetrend). Corporate karza maafiis a growth industry. And an efficient one.

(Magsaysay Award-winner Palagummi Sainath is the countrys foremost chronicler of the travails offarmers. A shorter version of this piece appeared on his blog,www.psainath.org)

In an earlier version of this article, because of a typo, the years 2005-06 to 2013-14 were referred to as'NDA years'. This was corrected online to 'UPA years.'-- Sunday, July 20, 2014.
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