Economists, experts not in favour of tax hike

Proposed new taxation will affect both the rich and poor, they say

Politicians have already expressed their displeasure. Congress leader Siddaramaiah has said that tax revenue leakage should be plugged instead of burdening people with more taxes.

JD (S) leader H D Kumaraswamy has said there should be no increase of sales tax on petrol and diesel as it would push up the cost of living. The government must instead utilise the donations already collected from the public, he added.

Various economists and tax experts are of the opinion that the government’s decision to increase tax rates is not the solution though they were unanimous in their opinion that it is the duty of the government to help the people who are in distress. But there are ways to raise funds other than taxing the people further, they said.

Dr M R Narayana, Economics Professor, Institute for Social and Economic Change, Bangalore, said the proposed new taxations cannot have isolated impact on the rich people because there are indirect taxes on inputs and final consumption. So, it will affect both rich and poor, including those in the calamity-affected areas. Higher taxes on inputs and consumption will be disadvantageous to the state’s competitiveness in national and global markets. This is most unwelcome at this juncture.

Instead, the government may resort to fresh borrowings to be payable by general taxation in future. The borrowings may be from the Government of India and from the public at concessional rate of interest. Also, tax collection should be made effective with an aim to collect tax arrears by about Rs 6,600 crore. Austerity measures too should complement these efforts, Narayana suggested.

Planning necessary
Dr S Subramanya, former principal secretary, finance department said the last option before the government should be to resort to increase tax rates or impose cess. The government must now find out how much it may have to spend in the flood-hit areas so that it can be plan accordingly. “Without knowing this, it is difficult to raise funds either through tax or borrowings. Why not the government increase tax on IT companies? Why not increase excise rates? The government nets 60 pc of the total tax revenue from Bangalore. It should stimulate real estate so that the stamps and  registration department can perform better,” he said.

The former IAS officer is also of the view that the government may save a lot by cutting down or withdrawing budgetary support for civil works and projects, so that the same money could be diverted for relief works.

Increase excise rates
Well-known economist, Prof G Thimmaiah said the State cannot increase VAT as and when it desires because the rates are worked out at the empowered committee of the state ministers. “Instead of tampering with VAT rates, excise rates should be increased”, he opined.

At this point, two options that the government could consider  are –– going for borrowings and removing exemption on professional tax so that more number of people could be brought under the tax net.

S Venkataramani, Chairman, State Taxes Committee, Bangalore Chamber of Industry and Commerce (BCIC) pointed out that Karnataka is already a highly taxed state and any further increase would only encourage evasion or flight of trade. Instead, he said the government can launch a campaign to educate consumers to insist on bills for every purchase which would eventually help in more tax collection by the government. In addition, commercial taxes department should track down unregistered dealers.
The government can introduce a workable ‘Kara Samdhan Scheme’ for registered dealers up to the end of this year and evolve a proper scheme for collection of arrears and detect evasion, he said.