Salaried class is the biggest loser in Jaitley's Budget

Salaried class is once again left disappointed with the Budget presented by Union finance minister Arun Jaitley on February 29, 2016. No tax breaks, no concessions, no enhanced deductions, no parity with corporates/professionals (who are taxed on net income basis after deduction of all expenses), no respite from rising inflation for the past few months. On the contrary, things have become more expensive.

On account of Krishi Kalyan cess, cost of services they consume will increase ranging from our utility bills to dining out to watching movies in cineplexes to surfing on the internet.

Government has also introduced a tax not only on luxury cars but also smaller cars they drive. It is good for the environment but is the public transport of India of the standard of Singapore or Dubai that one can depend upon it?

Interest earned on 60 per cent of provident fund (PF) contributions after April 1, 2016 will now be taxed at the time of withdrawal (announcement that even principal will be taxed has been backtracked under pressure, but also shows the sheer contempt for the class of voters by the government). This step seems to be under pressure from corporate sector which for years has been demanding that PF should not be compulsory and made optional. If it is taxed, people will automatically move away from PF as a retirement plan.

So what was there in the Budget for the salaried class?

(i)    For people who do not get HRA, exemption has been increased under Section 80 GG from Rs 24,000 to Rs 60,000, which will lead to tax savings of Rs 36,000 annually. This is likely to benefit people in the 0 to Rs 5 lakh income bracket. Though they form majority of the taxpayers' base in India, their contribution accounts for only 10 per cent of the total income tax collections.

(ii)    First time home buyers will get an additional Rs 50,000 tax deduction for interest paid if new house is bought in 2016-17, provided loan is not more than Rs. 35 lakhs and property value is not more than Rs 50 lakhs.

a.    I just did a search on www.magicbricks.com for properties in Mumbai and Delhi at this price. Flats are available only in Mira Road / Kamothe (Mumbai) and Noida Extension (Delhi) for this price (they don't qualify even as sub-urban areas). So the bigger question is where are these Rs 50 lakh homes in metro cities?

b.    Additionally, equity contribution for this scheme is 30 per cent vs 20 per cent in case of other home loans, which is pretty high and makes it unattractive.

(iii)    An acknowledgement from the FM appreciating the role of taxpayer in nation development. Bas aur kya chahiye? (what else do they need)! As Kapil Sharma of Comedy Nights would put it, salaried class got "Babaji ka thullu" from this Budget.

Salaried taxpayers form the bulk of individual income tax collections

About 3.5 crore people pay income tax in India (less than 3 per cent of total population). Out of this, more than half, pay tax in the range of Rs 50-1,000 as income tax (almost nothing just filing for record purposes). This leaves truly speaking 1.5-1.75 crore of tax payers.

Most of these tax payers are educated salaried class who contribute part of their hard earned money for the development of the nation. They have no option because whatever they earn is tax deducted at source. And what have they got in return from the government and politicians across political spectrum? Total apathy year after year.

It seems like the salaried class has committed some sin in their previous lives/avatars, that's why they are forced to carry on burden of almost the entire individual tax collection target on their shoulders. While corporate taxes have been assumed to grow by 8.4 per cent in 2016-17 only (vs 12.6 per cent last year), personal income tax collections is expected to grow by 17 per cent in 2016-17 (vs 14 per cent last year). On what basis?

A salaried person pays income tax each month. No other category of tax payer - company or self-employed or businessman - is required to pay advance tax each month. In Singapore, you need to pay taxes within six months of close of the financial year.

Effective tax rates of companies like Reliance Industries and State Bank of India, which earn billions of dollars in profits, is sub 20 per cent levels. The effective tax rate is 25 per cent and above for people earning Rs 20 lakhs and above. How is this justified?

Disillusioned with electoral process, salaried class saw hope in Modi

All of the above led to huge disillusionment among this section of voters and they moved away from the electoral process. For long, many of them did not even exercise their right to vote and enjoyed the day off with their families on Election Day.

After many years, the educated salaried class returned to the elections fray in 2014. They saw hope in Narendra Modi, someone who could fight for their cause and voted in large numbers for BJP. They were attracted (among other things) by a PR exercise which created an impression that BJP is in favour of abolishment of income taxes and bringing instead a transaction tax which would bring tax parity. Modi won the elections deriding populist schemes of UPA - NREGA and Food Security Bill - which was lapped up by salaried taxpayers. They always feared that the schemes suffer from massive leakages not reaching the targeted audience.

His pro-development image meant economy would receive a big boost, stock market investments would reap huge dividends, companies would do well, more jobs would be created and "achche din" would arrive. In one of his election speeches, Modi even described the salaried class as the "biggest patriot" (sabse bada deshbhakt). The employee class expected a lot from him.

Is the salaried class' honeymoon with Modi over?

The proposal of abolishing income taxes has been put under the carpet, NREGA and Food Bill allocations increased and all the burden passed onto the salaried taxpayers. In turn, they have been asked to give up LPG subsidies in the name of helping for nation's cause. (By the way have all MPs/ MLAs of the country given up this subsidy, is there any information on this?)

Markets are back to pre-Modi era, corporate profitability is low and people are getting low hikes and bonuses. There are few jobs in the market so one cannot switch jobs as well so easily. The government has not also passed on the full benefit of low crude prices. They saw a saviour in Modi but the euphoria is slowly dying.

Salaried class isn't a vote-bank

The salaried class is being taken for granted by governments day in and day out as they don't represent a big chunk of voters, don't vote en bloc and some don't vote at all. Indian elections are all about vote-bank politics, which is based on religion - Hindus (further subdivided into castes), Muslims, Christians, Sikhs etc and/or class - poor, low, middle and rich.

If tax payers, want their voice to be heard and demand better say in way taxes are levied, collected and spent, then they have to unite into a vote-bank. As and when they unite and vote en bloc they become a vote-bank and then they will be taken seriously.

Salaried class can influence the outcome of 175-200 Lok Sabha seats

In India, there are predominantly 53 truly urban Lok Sabha constituencies, and this is where majority of the jobs are (source: Mint). Another 125-150 constituencies are semi-urban. Average of 15 lakhs votes are polled in any constituency. This makes the total voting population of these 53 seats as 8 crore voters. About 1.5-1.75 crore tax payers represent 20 per cent of the total votes. This is a huge block, capable enough of determining the winner in all these 53 seats. These 53 seats account for 10 per cent of Lok Sabha strength.

This would also have a ripple effect: many people (including spouses, parents, family, friends) could get influenced by this section. So, it also has the capability to impact marginally the results of other seats as well, namely the 125-150 other semi-urban seats.

No efforts by successive governments to increase tax base

Even after 68 years of Independence, no substantial steps have been taken to increase the tax net/base. Only 0.9 per cent agriculturists pay income tax. Just 1 per cent of the population of India accounts for 12.6 per cent of gross national income (source: Economic Survey 2016). Are all of them taxed? 1 per cent means 1.27 crore people while only 42,800 people in India declare income of over Rs 1 crore.

The government still depends upon salaried class to contribute tax to pay government salaries, subsidies, bills of various departments etc. and they have been squeezed by all governments. The efforts of the government should be to increase the tax net and not milk the cow in their hands (salaried class).

The finance minister each year speaks to a host of people - industrialists, bankers, economists, tax authorities - taking their inputs in finalising the Budget. Does anybody speak to the salaried tax payers, understand their problems? No. Why? Because they are not a vote-bank. Further, this group has no say in the way tax collected is spent. It's the tax-payers' money, it has to be spent with accountability and responsibility. Leakages have to be curbed and it should reach the intended beneficiary.

Conclusion

The educated salaried class has over the months spent endless hours debating topics like intolerance, nationalism, beef episode, Dalit suicide etc. Even if they would have spent a fraction of their time on forming a block and pressuring govt. to heed to their demands through social media, their demands would have been met or they might not have been affected as badly as they have been.

The salaried tax payer has for long been a guinea pig in the hands of successive governments for the lack of being seen as a vote-bank. Personal income tax accounts for 17 per cent of revenue receipts of the government of India, which is significant. This section of voters should not under estimate their strength and unite to forma pressure block. Only then will anybody listen to their demands.

It may even need to go the extra mile and give a call that they will vote for party which makes income tax free or takes care of their demands in ensuing Lok Sabha polls 2019. Only then can they expect something!

[Postscript: Vote-bank politics inspiration from Atanu Dey's Transforming India, Big Ideas for a Developed Nation.]