Mr Jaitley; So much for tax simplification and fiscal consolidation - Outside View by Arvind Chari

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Mr Jaitley; So much for tax simplification and fiscal consolidation
Jul 9, 2014

I am sure you are tired and bored of reading all the 'experts' suggestions on what Jaitley's budget should contain. Almost all of them would have suggested

A)  Cutting Subsidies    B)  Fiscal Consolidation and  C)  Tax Rationalization

All pertinent points and much needed from a policy perspective. The table below summarizes why they say so. India's tax revenues as a % of GDP are amongst the lowest in the world. Take this data for eg: Less than 40 million Indians filed Income Tax Returns. Agricultural income is not taxed and with it so are all the income from the 'farm houses' on the outskirts of Delhi. Average tax of corporates is 22% as against the stated 30%.

Fiscal Numbers as a % of GDPFY12FY13
Direct Tax Revenue5.40%5.50%
Indirect Tax Revenue4.40%4.70%
Total Gross Tax Revenue9.80%10.20%
   
Subsidies (food; fertilizer and fuel)2.30%2.40%
Fiscal Deficit5.70%4.90%

So, this has been the general commentary on India's fiscal situation. Lower economic growth has led to lower tax growth. And at the same time rising 'wasteful' subsidies has ensured that the fiscal deficit as a % of GDP has increased to the 5% mark. And so the suggestion; cut subsidies; reduce the fiscal deficit.

The table below shows that total tax foregone by the central government is almost as high as the fiscal deficit itself. i.e this is the amount of tax actually due to the government which was not paid due to the exemptions that the government provides.

What if as per the suggestion of the 'experts'; the government rationalizes and thus removes all tax exemptions provided to individuals and corporates on direct and indirect taxes; it could rid us of the entire fiscal deficit. If subsidies are bad; then the 'tax subsidy; enjoyed primarily by India Inc also needs to be looked at in the overall effort to reduce the fiscal deficit. Why burden only the middle class and poor?

Tax Foregone by Indian Government
as a % of GDPFY12FY13
Direct Tax Foregone (Corporate and Personal Income Tax)1.10%1.10%
Indirect Tax foregone (Excise & Customs)4.80%4.60%
Fiscal Deficit5.70%4.90%

So much for tax simplification and rationalization. Heard any 'expert' talk of this?

Arvind Chari is Head Fixed Income & Alternatives at Quantum Advisors Pvt Ltd and advises two India dedicated off-shore India fixed income funds. Arvind was previously the fund manager for the Quantum Liquid Fund and the Quantum Equity Fund of Funds at Quantum Asset Management Company Pvt Ltd.

Disclaimer:

The views expressed in the Article are the personal views of the author, Arvind Chari and not views of Quantum Advisors Private Limited (QAS). QAS may or may not have the same view and does not endorse this view. The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Information sourced from third parties cannot be guaranteed or was not independently verified. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date.

Equitymaster requests your view! Post a comment on "Mr Jaitley; So much for tax simplification and fiscal consolidation". Click here!

  

More Views on News

HDFC Announces Quarterly Results (3QFY21); Net Profit Down 65.1% (Quarterly Result Update)

Feb 3, 2021 | Updated on Feb 3, 2021

For the quarter ended December 2020, HDFC has posted a net profit of Rs 29 bn (down 65.1% YoY). Sales on the other hand came in at Rs 116 bn (down 42.2% YoY). Read on for a complete analysis of HDFC's quarterly results.

BAJAJ FINSERV Announces Quarterly Results (2QFY21); Net Profit Down 20.0% (Quarterly Result Update)

Nov 26, 2020 | Updated on Nov 26, 2020

For the quarter ended September 2020, BAJAJ FINSERV has posted a net profit of Rs 16 bn (down 20.0% YoY). Sales on the other hand came in at Rs 150 bn (up 5.8% YoY). Read on for a complete analysis of BAJAJ FINSERV's quarterly results.

GEOJIT FINANCIAL SERVICES 2019-20 Annual Report Analysis (Annual Result Update)

Sep 3, 2020 | Updated on Sep 3, 2020

Here's an analysis of the annual report of GEOJIT FINANCIAL SERVICES for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of GEOJIT FINANCIAL SERVICES. Also includes updates on the valuation of GEOJIT FINANCIAL SERVICES.

Indian Railway Finance Corporation IPO: Should You Apply? (IPO)

Jan 18, 2021

Monopolistic railway financer with impeccable asset quality.

CAMS IPO: Should You Apply? (IPO)

Sep 18, 2020

Does the company having 70% market share of the mutual fund registrar business have sound prospects?

More Views on News

Most Popular

A Critical Update on the Market (Fast Profits Daily)

Mar 30, 2021

In this video, I'll tell you why I am recommending caution in the market at this time.

My Recent Recommendation Will Profit from the Global Supply Chain Crisis (Profit Hunter)

Mar 31, 2021

A tiny chemical company, started in the Licence Raj era, is a great example of a new wealth creating opportunity.

My Stock Trading Strategy (Fast Profits Daily)

Mar 31, 2021

In this video I'll show you exactly how I go about picking stocks for trading.

What You Need to Find Hundred Baggers (Profit Hunter)

Mar 30, 2021

100 baggers of the last decade share this common trait. Here's how to use it to nail future multibaggers.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS