HYDERABAD: The new personal Income Tax (I-T) regime is unlikely to be beneficial and could affect household savings that are already on a slippery slope, according to former finance minister P Chidambaram.
The centre is expected to forego about Rs 40,000 crore in FY21 on account of the new and lower tax rates introduced in Budget 2020, but Chidambaram believes that the gains were unlikely to be big. “Even assuming most taxpayers opt for the new tax regime (with low rates and fewer exemptions), Rs 40,000 crore is the maximum benefit as per government estimates.
But given the total I-T collections are about Rs 13 lakh crore and with India’s GDP of $2.7 trillion, the Rs 40,000 crore will make no big difference,” he said. Speaking at an event here on Saturday, Chidambaram observed that tax exemptions incentivize savings and if the latest tax structure takes away the benefits of exemptions, household savings could come under pressure.
“Household savings are already falling and will go down further,” he noted. According to him, having two tax structures — one with traditional exemptions and one with fewer deductions — wasn’t a wise move and though taxpayers are allowed to switch from old to new rates and back if they wish, it only clutter to the system. As for the proposal to list insurance behemoth LIC, Chidambaram said he was ‘deeply suspicious of their (government) motive.’
“There’s no clarity if LIC will be listed or if they want to disinvest, because they are different actions altogether,” he said. While at it, Chidambaram also cautioned about the government’s Rs 2.1 lakh crore disinvestment target for FY21. For FY20, the disinvestment target was set at Rs 1.05 lakh crore, but only Rs 18,000 crore has been collected so far. Yet, the ministry estimates disinvestment proceeds of Rs 65,000 crore this fiscal.
“I don’t know how they are going to achieve this. I wish luck,” he said. Stating that the government has shifted ‘by stealth’ the $5 trillion target envisaged in 2024 earlier to 2025 in the Economic Survey 2020, Chidambaram said the target, be it in real or nominal terms, was unlikely to be met going by current growth trends. Reeling off numbers, he said tax collections on all fronts including corporate, customs and excise duties were below estimates and though unemployment was high at over 6.5 per cent, the Budget did nothing to improve jobs and revive rural wages and thereby consumption.
Say mea culpa and ask for advice: PC Reiterating that the economy was in the ICU with several high-frequency indicators flashing red, Chidambaram said the government should simply admit the wrongs and ask former FM and PM Manmohan Singh for advice on turning around the economy
“The economy, much like now, was in a bad shape in 1991, when growth was practically zero. We proposed to correct mistakes...but that candour is completely absent now. The finance minister is reluctant to admit the economy is in bad shape. This government lives in denial,” he said adding, “The least the government can do is to say mea culpa and can ask Manmohan Singh for advice.”