Every few months India’s middle class finds itself fulminating at some policy decision or the other affecting their sense of propriety and prosperity. In contemporary politics, the narrative is largely bipolar. Policy decisions get vetted through the prism of affiliations, every decision is good or all decisions are bad. Frequently, reason and the voice of the middle class are rendered mute.
Like, this week the outrage was about an impending higher tax on use of foreign exchange, for travelling abroad, on international debit or credit card transactions, under the Liberalised Remittance Scheme cap of $250,000. Earlier, the rules specified that a 5 per cent tax would be charged. Under the new dispensation, operative from July 2023, the tax was hiked to a hefty 20 per cent. The government also binned the threshold of Rs 7 lakh for foreign exchange transactions other than tour packages. The levy was classified as Tax Collected at Source –essentially designed as liable unless proved otherwise.
Like, it is true that the rules provided for offsetting the tax at the end of the year against annual tax liability. It is equally true that compliance would impose an onerous task, involve many layers and documentation – imagine the task for a retired person, a senior citizen who doesn’t require filing returns, travelling to see his grandchildren, or a hapless citizen navigating the maze between the bank, the card company, the CA and the IT department to file their returns and claim refunds.
Like arguably, the fact is people are using monies from tax-paid savings. Effectively, the new rules imposed a 20 per cent consumption tax. Mohandas Pai, chartered accountant and start-up investor, summed up the sentiments. “Why should people pay in the first place just to claim a refund? In the interest of ease of doing Biz, and the honest taxpayer, 20% TCS needs to be withdrawn. If needed, impose a 2% tax. “We are not crooks!”
Like for a change, as events panned out, the outrage paid off. Sage counsel prevailed and the government issued a clarification. “Concerns have been raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalised Remittance Scheme (LRS) from July 1, 2023. To avoid any procedural ambiguity it has been decided that any payments by an individual using their international debit or credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.”
Like, there is a persistent fog over communication of intent driving policy. Consider the facts. India is the fastest growing large economy with a GDP of over $3.7 trillion. It beggars the mind that given the robust revenue collections aggregating interest-free cash flow could be an objective. This week, the RBI reported foreign exchange reserves of $599.53 billion – the current account balance has improved. Its airlines are queueing up and have ordered over 1,200 aircraft to meet demand. Growth drives the aspiration to travel. Could FAQs begin with the why?
Like, what is perplexing is the contradiction between the consistently repeated objective of ease of living and ease of business and the choice of process and mechanism for the intended outcome. For instance, for a regime promoting employment creators and self-employment, it has persisted in imposing an 18 per cent GST on professionals with little or no scope of offsetting the GST paid – the sum total of all the levies reveals the true level of tax.
Like, even as social media groups celebrated the withdrawal of TCS on forex use, the RBI announced the phased cancellation of the 2000-rupees notes. Hopefully, the arrangements will not be a replay of the past. While popular perceptions suggest politicians hoarding pre-poll cash will be trapped, history shows that post-demonetisation over 99.3 per cent of the Rs 15.41 lakh crore were successfully converted. The beast of corruption thrives in the den of opaque political funding.
Like, the middle class sigh of relief may be short-lived. Reports suggest that the government is focusing on big spenders – those going on extravagant foreign travels, paying high electricity bills, taking service of fertility clinics etc – to widen its tax base. The design of policy and intent, laudable as it may be, must be explained. Also, the target list should include pending litigation and arrears. In December 2022, the Comptroller and Auditor General in a section titled ‘Uncollected Demand’ revealed that total arrears of demand amounted to Rs 15.11 lakh crore of which Rs 14.85 lakh crore is classified as “difficult to recover”. Indeed there are over 4.85 lakh cases pending appeal involving over Rs 24.64 lakh crore.
Like, the middle class is not deemed a constituency worth attention even by political parties in search of headlines. The value of its electoral might is manifest in the manifestoes, which focus on those the politicos dub the “voting class” at the bottom of the income pyramid. The quid pro quo is votes for sops. The fulfilment of 2 crore guarantee cards issued by Congress will apparently cost Karnataka over Rs 50,000 crore. And other states are readying their freebies. The question the middle class must ask is who is gaining at whose cost?
Finally, it is inescapable that the middle class is trapped between rent reapers and sop seekers. Unless they speak up their state will persist and reflect Doolittle’s observation in George Bernard Shaw’s Pygmalion “I have to live for others and not for myself: that’s middle class morality.”
Shankkar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)