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What taxpayers have the right to know... - Views on News from Equitymaster
 
 
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  • Feb 23, 2007

    What taxpayers have the right to know...

    'Budget' as defined in the Oxford dictionary is "an estimate, often itemized, of expected income and expense for a given period in the future." Every economic activity needs to be budgeted for, be it unstated and implicit like that of a household or stated and explicit like in the case of a company. As the size and complexity of operations increase, it becomes all the more necessary for an economic entity to structure, implement and review a budget. A nation-state is the most evolved form of an economic entity, and therefore needs a more 'refined' budget - one that not only accounts for the receipts and payments but also gives an insight into the capital budgeting. We in India certainly need one.

    Union Budget days over the past couple of years have been witness to much speculation, debate, analysis and interpretations. It seems to evince interest from the housewives, salaried, businessmen, retirees and tax consultants alike. The 'interest' is, however, often associated with levy of taxes (or exemption thereof) and not its deployment.

    While statistics with regard to GDP growth, revenue deficit, fiscal deficit, FRBM and the likes are widely quoted in pink papers and business journals, how much capital is being deployed in nation-building activities is seldom delved into. We are also told by economists and experts as to how viscous a burgeoning fiscal deficit (at the Centre and state levels) can be for the economy. But no one ever tells us if the funds in exchequer are being utilised in the most effective way so as to minimise such imbalances. Surely, we as citizens and taxpayers of the country have a right to know this. Infact, to make the point clear, a perfectly balanced revenue budget may have zero funds deployed for long-term investment in the country's infrastructure.

    A lack of appreciation of the nation's capital needs has almost derailed the economy. While the 'concerned authorities' remain obsessed with the revenue books, ignorance with regard to capital investments has led India up the path of minimum investment in the country's infrastructure, with an abysmal figure of close to 3.5% of the GDP for about three decades. Debate and discussion on a publicly declared capital investment budget may have averted this serious under-investment.

    Here we need to point out that we are by no means undermining the revenue budget. There is no denial of the fact that revenue and capital budgets are obviously inter-related just as a profit and loss account and balance sheet are. Surpluses and allocations from the revenue budget go towards capital (infrastructure) investments. Similarly, the servicing of long-term capital features in the revenue budget. If the planned infrastructure outlay in the next five years is US$ 350 bn (Source: IDFC), then the capital investment budget can enlighten the taxpayer as to the ways and means of achieving the same though the tax revenues. While this will not only help the taxpayers appreciate the rationale for the levy but may in some ways also deter the evasion of taxes. Also, recognising this reality through a capital budgeting process will indeed throw up some challenging issues. Issues relating to the quantum of planned infrastructure investment, their feasibility, the target duration of the projects, progress made on earlier projects and the sources of finance will be open to public debate and scrutiny.

    What is further interesting is the fact that the debate here, unlike the usual ones, will be a more informed one. A good capital budgeting process would lead to far greater participation and consensus on key issues of nation building. More often than not it can prove to be a strong indicator of the ruling government's performance.

    While we as taxpayers crib every time a new is levied and at the same time pride ourselves on being one of the lowest taxed nations, the very purpose of collecting the taxes is sidelined. Its time that the 'Right to Information Act' is well exercised by the honest tax-paying Indian citizen to ask the FM some interesting questions!

     

     

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