Countdown to Budget: ‘Taxes must be rationalised’

A major focus area in the current budget needs to be in taxation of the salaried class. The current rate structure catapults wage earners into the top slab at a level of Rs 10 lakhs, which is approximately $1400, the same level as per capita GDP (in PPP terms). 

In no other country does income levels at per capita GDP attracts the highest tax slab. Over the years, gradual whittling away at exemptions and simple bracket inflation has squeezed wage earning tax payers. 

Without an incentive for domestic consumption, economic growth cannot be sustained, and nor should we expect to see any industrial investment unless there is an uptick in demand.   

Currently, the higher tax bracket wage earners suffer from a combined tax incidence of 50 -60% taking indirect taxes into account, which is one of the highest incidences of taxation anywhere. This needs to be rationalised and the discussions about inflation indexation to tax rates seriously considered. 

Any short to medium-term turnaround in growth must be consumption-driven and the finance minister needs to find ways to increase disposable income across a wider spectrum of wage earners. 

The multiplier effect of higher domestic consumption by the tax paying salaried class cannot be ignored in an economy where most of the employment and income generation happens in the informal service sector. 

Rising costs in all spheres have pushed the salaried class like me to anticipate a rise in basic exemption limit/ deduction numbers for individuals in the Budget 2018. Post-GST, DeMon and with no favourable amendment in the past budgets, this is only a bare minimum expectation! On the corporate taxation front, promises were made to reduce the rates, with withdrawal of benefits during the 2015 budget. This financial year, it comes to effect. So, there isn’t much of odds in favour for further cut. As a finance professional at a corporate, GST announcements take precedence. Being the first GST-budget, with obvious rate cut expectations, procedural aspects are something to watch out for. And lo! the rail budget is also part of the main budget, and as a Chennaiite, I pray there’s no hike in ticket costs!  With vote on count, tax reform agenda on paper, I wish budget 2018 does a happy balance of both!