JOIN USIt is in the period of increasing life expectancy that the government is planning to levy a tax on retirement savings. According to ‘the State of Elderly in India Report’, 2014, the population of elderly would increase by 270% by 2050. More over, though the Provident Fund Scheme has remained popular among the workers, the 67th NSS Survey states that 72% of the workforce in the informal sector is not eligible for any social security benefit.
The need of the hour is to revisit the social security schemes to extend to the 93% of workforce which is not confined to the organised sector. Fiscal consolidation through austerity measures such as imposing tax on social security benefits of the labour force would challenge human rights, especially in the context that the right to social security of every human being is recognised by Article 22 of the Universal Declaration of Human Rights, 1948.
Any kind of curtailment or restriction of social security through fiscal policies would act as a retrogressive measure against the principles of social justice. The International Covenant on Economic, Social and Cultural Rights recognises the right of everyone to social security, including social insurance (Article 9). The principle of ‘progressive realisation’ (Article 2.1) calls for the realisation of rights over time. But it never calls for withdrawal or restriction of social security by way of fiscal policies.
The Constitutional history of social security in India reminds us the contribution of B N Rao, constitutional advisor to the Constituent Assembly. The draft Constitution prepared by him included the right to work, right to education, right to maintain in old age and during sickness or loss of capacity to work and right to rest and leisure under the head ‘fundamental principles of state policy which later got converted into ‘Directive Principles of State Policy’. Though the ‘fundamental’ charm of enforceability is lost in the conversion, the scheme of social protection stood out in Article 41, 42 and 43 and in Item Nos. 23 and 24 of the concurrent list in the Constitution.
It is on this strong fundamental floor that the social security measures such as insurance, provident fund, old age pensions, workmen compensation etc have been provided through various statutory measures. The welfare state accepts the fact that social justice is the sine quo non for social and economic development of a nation. Lack of social protection invites risks of poverty and economic insecurity.
The Constitution makers had understood the importance of social security in fostering social and economic development for long term advantages such as access to health care, other social services and increasing human capabilities for better utilisation employment opportunities. This ensures productive relationships, decent work and inclusive growth as welfare state promotes.
Social protection measures recognise collective responsibilities against social risks in the life of a worker. The Social Security Minimum Standards Convention (No. 102), 1952 of ILO states that costs of benefits shall be borne out of collective contributions or taxes, avoiding hardship to poor workers or classes of persons protected (Article 71.1). It is against this principle that the state is planning to impose tax on the post-retire savings of the workers which would go against the social justice scheme in the Constitution.
The statutory measure under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, covers all establishments where 20 or more people are employed and both the employer and employee contributes equally at the rate of 10% of the basic wages, dearness allowance and retaining allowance towards the fund. This social protection measure is one of the largest in terms of its coverage and volume of assistance provided.
Accumulation plus interest at the time of retirement, resignation, death or partial withdrawal for home construction, marriage, illness, higher education etc. assists the workers to meet immediate expenses and ensures a lump sum amount for retirement life. It is this security and assurance which would be in jeopardy by clamping interest on withdrawals. This proposal is first reversal move in the history of social security regime for workers.
Global trendThe global trend after the financial depression, 2008, is that high-income countries are resorting to fiscal consolidation measures at the cost of social protection systems whereas middle income countries are extending social protection benefits. The ILO Social Protection Floors Recommendation (2012) No. 202 has emphasised the extension of social security as an economic and social necessity during this period of crisis.
The fiscal discipline by curtailing or clamping down on the benefits would be counterproductive and would lead to vulnerability of the needy. There is no clarity in the Indian situation about its adverse financial position that demands such a severe fiscal measure even towards social security schemes. It is interesting to note that this proposal was announced in the context of ‘World Social Protection Report 2014-15’ which states that many high income countries are contracting their social security systems while many developing and poorer countries are expanding them.
It is well recognised by the Constitution and statutes that social protection is a basic human right for decent living and it enhances social development by reducing poverty, exclusion and inequality and promotes economic development by balancing income security and incr-easing human productivity. The tax mea-sure in the current scenario would create inequity as it would impact workers in both the high wage island and small segment of protected casual workers equally. According to the Finance Ministry, there is huge corpus of Rs 9,000 crore lying unclaimed and idle with the Employees Provident Fund Organisation. Effective utilisation of available resources in feasible manner would be better than extending austerity measures to an active base. The government should also scrutinise policies relating to waiver of taxes and provision of subsidies to rich or firms, where it has weak economic rationale, to meet fiscal challenges.
(The writer is Assistant Professor of Law, National Law University, Delhi)