What to expect from the new government
In a few days, the biggest democratic exercise in the world will determine the fate of the incumbent Narendra Modi government. No matter the next ruling dispensation, your money deserves a government that manages finances well. Your money is affected by the inflation and interest rates in the economy. You want your government to generate sufficient tax revenue to pay for adequate expenditure on infrastructure. While generating sufficient tax revenue, you want the new government to be fair to you as a taxpayer.
Taxing times
From the election campaign, you could pick up economic noises. The present government, led by Prime Minister Narendra Modi, promises more of the same for managing government finances and capital expenditure on infrastructure in the economy. They believe that investing in infrastructure could trigger economic activity and enhance productivity in the long term. On the other hand, the opposition parties want to give more money to the hands of people experiencing poverty to boost rural and urban consumption.
All political parties are very clear about the fact that India is not a tax haven state. The opposition parties have spoken of redistribution of wealth from the rich to the poor. That means there would be little hope for lower taxes for those already paying them. However, the new government has much to consider in rationalising the existing tax system.
The goods and services tax (GST) monthly collection is at a record high for April 2024. The government is collecting the expenditure tax from everyone. It means no matter your income, you pay GST on everything you consume. That was the case before GST implementation, too. You paid a multitude of central, state and local body taxes.
GST has combined everything and created a more straightforward administrative system. That has resulted in an efficient and high collection of indirect taxes. The government needs to bring down peak GST rates as revenue grows to give relief to the ordinary people.
On the income tax issue, it is a tricky situation. Significantly, few people in the country pay taxes. It is a truth that does not require any specific data. At the same time, the economic inequality in the country continues to remain elevated. Depending on the data you look at, there could be a possibility of a marginal decline in it. However, a paper by Thomas Piketty, a Nobel Laureate and three of his other colleagues argues that the inequality in India is rooted in the caste system.
A quarter of the upper caste people control more than half of the country’s wealth. They said that about 1% of people control nearly 40% of the nation’s wealth. They recommend a path for redistribution of wealth and estate. These experts recommend an annual wealth tax and an inheritance tax to tackle inequality in India. They will apply only above a high exemption threshold of R10 crore worth of net wealth.
While no political party has endorsed these recommendations, it shows a mirror to the new government that would assume office in June 2024. It also shows us that we must be ready to pay more taxes in the future as we generate wealth by managing our finances. The new government must take taxpayers into confidence by creating more transparency than ever in tax collection and utilisation. The government can allocate the money mobilised through new taxes to boost social infrastructure spending on education and healthcare.
What it means to you
The debate over the rich and the poor will influence policymaking in the future.
As an individual, you must accept that you would pay more tax as you grow rich. You can prepare for that by regularly saving and investing. Good financial habits must start early in your career so that you can take a rational view of government finances.
You need a government that builds social and physical infrastructure. However, you also need them to have enough money to do so. If the government does not have enough money, it will borrow more and stoke inflation. That is counter-productive from your personal finance standpoint.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)