Arun Jaitley surprised me by delivering absolutely nothing in the fourth budget of his tenure as Union Finance Minister for taxpayers like me. Yet, what’s right with this year’s budget is a continuation of his earlier policies—Jan Dhan, Aadhar and Mobile and addressing India’s infrastructure needs. He did not tinker much with the income tax slabs and neither did he change the holding period of equity investments, which would then have had an impact on stock market investments.
For the first time I found any minister being sympathetic to us salaried taxpayers who by virtue of the income tax system; pay taxes before the salary comes into our accounts. Those in business, first spend the money, claim expenses on business and then settle to pay taxes. That is why; the income tax paid by many businessmen is minuscule. Many small business owners just file returns, and they manage to show their income as so low, that it barely ever crosses the basic tax bracket.
By acknowledging my contributions as a taxpayer in his budget speech, he definitely has managed a melodramatic connect. The masterstroke of demonetisation is yet to show any clear signs of how it will change the equations for tax evaders and cash hoarders. But, from what I hear, the big data companies engaged by the government to snoop into banking and financial transactions will definitely bring in more people under the tax net.
A paltry 3.7 crore individuals filed tax returns in 2015-16 and in the same year, the number of people showing income more than Rs 50 lakh in the entire country was only 1.72 lakh. Today, the PAN card has become more of an identity card. There is a small sentence in the PAN application which states that the applicant is seeking a PAN as s/he expects their income to be taxable. So, we have about 25 crore PAN cards allotted in the country and last year alone, 24 lakh new Demat accounts were opened.
But, somewhere, the number of people who have the money does not match the number of people who pay taxes. Just by fixing this equation a lot can be achieved. By stating a long known fact that we are largely a tax non-compliant society in the budget speech was a mockery of the honest taxpayer. Yet, I am happy, that at least he had the gumption to go on record and state it and show the grit to do something to bridge this gap.
By discouraging cash transactions with measures spelt out loud and clear in the budget speech, the FM has left a very narrow window for people to hold on to cash. What this means even for the businessman who earlier thought he was smart keeping cash and reporting less income—he will have hardly any means to follow the old formula. He could sit on the cash, but the barriers that have been put to curb the use of cash, leaves him with no incentive to hold the cash. So, either he will need to spend it as business expenses and claim the depreciation benefits or simply show the real income, which will be taxed accordingly.
A simple but effective way of making tax evasion look scary is the fines on cash transactions that have been stated and anyway, the digital footprint on financial transactions leaves little room for escape. All these actions should result in more taxpayers than tax evaders. This is the biggest take away from the budget, which should make taxpayers take pride in it.
(The writer is editor, Outlook Money)