Peoples Commission on Public Sector and Public Services has issued a statement on tax structure which the Finance Minister should look into. All over the world there are changes proposed in the tax system due to increasing inequality. In India the gap between the rich and poor is has increased as per various reports and 1% of the rich holds 40% of the wealth. Hence there is a great opportunity to tax the rich and reduce concessions given to them.
The People’s Commission has time and again pointed out that the government, instead of imprudently raising resources by selling CPSEs and monetising their assets, should rationalise the tax structure to raise additional fiscal resources for funding social sector schemes and strengthening social security.
Considering that the Union Budget for 2025-26 will be presented to the Parliament on February 1, certain measures are suggested here.
Rationalise the tax structure:
The existing tax structure which is over-reliant on indirect taxes, is grossly lop-sided, regressive, and asymmetrically oriented in favour of big businesses.
For example, according to Annexure 7 of the Receipts Budget for 2024-25 presented by the government in last February, the average effective tax rate for 678 companies earning more than Rs 500 Crores of profit before tax, with 82.5% of the total company profits, is only 20.43%, compared to 24.11% for companies earning profit before tax of less than Rs1 crore. In other words, the taxation system in India is heavily biased in favour of big businesses, to whom, in the guise of promoting an āinvestment-conducive environmentā, the governments, both at the Centre and in the States, have been giving tax sops and subsidies in different forms.Ā
The Budget for 2024-25 at a glance establishes that the share of government revenue from income tax (tax on individuals) at 19% is more than what corporates have contributed (17%). With the reduction of the foreign tax rate to 35% from the current rate of 40% in the proposed 2024-25 budget, this trend mirrors the September 2019 announcement when the government cut the base corporate tax for existing companies to 22% from 30%. Additionally, the tax rate for new manufacturing firms, incorporated after October 1, 2019, was reduced to 15% from 25%, resulting in a revenue loss of over ā¹1 lakh crore in 2020-21, which was offset by taxing the public.
A trajectory of last ten years shows that in absolute terms, corporate taxes have grown by only 2.3 times, from ā¹4.28 lakh crore to ā¹10.2 lakh crore. Similarly, GDP receipts have increased by approximately 2.3 times, from ā¹4.42 lakh crore in 2017-18 to ā¹10.6 lakh crore in 2024-25 BE. In contrast, income taxes have surged by 4.5 times, from ā¹2.5 lakh crore to ā¹11.8 lakh crore in the Budget Estimates (BE) for 2024-25. Interestingly, even the year-over-year percentage increase favors corporate taxpayers over individual income taxpayers.Ā
In contrast, the indirect tax paid by every citizen including the poor asĀ GST has grown by 2.56% between 201-18 and 2023-24. The amount has increased from 7.9Crores to 20.18 Crores. Upto Dec 2024 the amount collected is Rs.16.33 Crores and by year end it will far exceed the previous years collection.Ā
So we are taxing the common man more and enriching the richest. This has to be reversed.
In terms of percentage contribution to Gross Tax Revenue (GTR), the government has recently attempted to reduce the proportion of corporate taxes. The percentage of corporate taxes to GTR has decreased from 34.5% to 26.6%. On the other hand, the percentage of income taxes has increased from 20.8% to 30.9%. Corporate tax as a percentage of GDP has decreased from 3.4% to 3.1%. In contrast, income taxes have increased from 2.1% to 3.5%, indicating an upward trend in income tax contributions.
This has resulted in an increase in income inequities and concentration of wealth, in violation of Articles 38(2) and 39(c) [Directive Principles] of the Constitution.
In turn, such acute concentration of wealth in the hands of a few in the hands of a few oligarchs has allowed the latter to distort markets and manipulate prices to their advantage, at the cost of the people.
Given that the pandemic served to expose the inequities of our times, several countries in Latin America and also in Europe took steps towards wealth tax. Concentration of wealth has posed problems even in developed countries where the governments have been moving in the direction of taxing the super rich, whereas in India where social sector schemes and social security safeguards are starved of funds, the Centre and the States have been openly favouring big businesses by giving them land, water, electricity and other infrastructure facilities at concessional rates and granting them tax sops, which in turn have been placing such businesses in an unduly advantageous position to choke competition, exercise control over the markets to reinforce their dominance further. The government justified the slash in corporate taxes by saying it would encourage private investments. The recent drop in GDP figures once again demonstrate that this has not materialised.Ā Ā Ā
The reason for the political executive showering largesse on big businesses is the increasing dependence of political parties on corporate funding and the consequent strengthening of the nexus between political leaders and big businesses.
Whether it is from the point of view of raising additional fiscal resources or from the point of view of complying with the Directive Principles of the Constitution, the government should move in the direction of increasing the rates of tax on big businesses.Ā
The usual argument put forward by those who oppose such a move is that it will discourage investments. This is a somewhat fallacious argument as what the country needs is, not investment that increases concentration of wealth, but investment that promotes employment, reduces income inequities and concentration of wealth and promotes the overall public interest. Clearly the lie of ātrickle downā today stands exposed. High growth has not necessarily translated into better performance in human development index. Even as the Indian economy grew in recent years, the prevalence of anaemia among young children increased from 59% to 67%. And in Gujarat, the model state of neoliberalism, this goes up to as high as 80%. Our ranking in billionaire index may have improved but we have at the same time seen alarming figures in the hunger index. What we need is a demand driven bubble-up model of development which means investing in the people, and universalisation of basic rights.Ā
Privatisation of CPSEs and monetisation of their assets:
While the government is showering undue benefits on big businesses, on the false premise that thereĀ is need to raise fiscal resources for social sector funding, it has launched a full-scale privatisation of CPSEs and monetisation of their assets.Ā
Considering that private companies bidding for CPSEs and their assets raise borrowings from the same pool of savings at the macro-economic level from which the State can tap resources, it is fallacious to argue that selling CPSEs’ assets yield āadditionalā fiscal resources for the State. In fact, the State can raise resources from the market on much more advantageous terms and it is nothing but lack of application of mind to sell CPSEs for that purpose.
CPSEs play a pivotal role in promoting self-reliance in technology development, many of them playing a strategic role in safeguarding national security. Since CPSEs are subject to reservations forĀ SCs/STs/STs, they not only provide them with gainful employment opportunities but also they socially empower them. In addition, CPSEs can play a crucial role in promoting social policies envisaged in the Directive Principles as they operate not on the interest of profit maximisation, but on the principles of accessibility of resources, holistic development and affordability of services.
Move away from subsidies to profit earning private companies:
The present government has proposed PLI subsidies to the tune of Rs2 lakh Crores to be disbursed to companies over a timeframe of 5 years, ostensibly as an incentive for promoting production in certain strategic sectors. However, in most cases, PLI subsidies are open-ended, not specifically linked to employment generation and net domestic value addition, leading to their misuse. Indirectly, PLI subsidies tend place some companies at an advantage vis-a-vis their competitors, at the cost of the consuming sectors.Ā
For promoting the right kind of production of strategic items, what is urgently required is not such outright subsidies but a transparent, rule-based, stable business environment.
Therefore, the government should move away from the egregious scheme of subsidies and instead move in the direction of transparency in governance and enforcing the rule of law in an equitable manner.
Social security measures:
On the premise of scarcity of fiscal resources, in recent times, the government has progressively reduced budgetary allocations for food security, rural employment, welfare of SCs/STs etc., ignoring its Constitutional obligations.Ā
For example, the expenditure on food subsidy has declined from Rs 2,72,800 crores in 2022-23 to Rs2,12,330 crores in 2023-24, further reduced to Rs 2,05,250 crores in the 2024-25 Budget. There have been a similar scale-down of expenditure on MGNREGA, which has resulted in the average number of person-days from 192 in 2023-24 to 159 in 2024-25.Ā
The Corporates are also getting subsidy in the form of Interest rate on loans from banks. 449 corporates have been provided loans above Rs 100 crore each at the rate less than 5% while farmers, SHGs and MSMES pay more than 11%. This has to be stopped. Aloan ceiling of Rs10000 Crores to one corporate announced by RBI in 2017 should be implemented. The depositors should be paid fair interest for their deposits which is used by banks for lending.
The FM should consider an Integrated Rural Development Programme which reduced income inequality.
A rationalised tax structure coupled with reduced subsidies for private companies will yield additional fiscal resourcesĀ sufficient to enable the government to fund its social security schemes adequately.
All political parties MUST discuss and debate these issues so as to bring pressure on the ruling political executive to adopt the above measures and incorporate appropriate provisions in the 2025-26 Budget.
Thomas Franco is the former General Secretary of the All India Bank Officersā Confederation and a Steering Committee Member at the Global Labour University.
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