Idea Of ZERO Tax

Zero taxes: Good idea whose time has not come-NITI Central

Over the long run, disinvestment proceeds, auction of scarce resources could provide room for further abolishment of taxes (corporate and indirect tax).

Arun Jaitley is all set to present Modi Government’s first budget. Everybody is glued to news of this super Budget and is waiting anxiously to know what it has in store for him. There are a lot of expectations from the Budget and India’s economic revival is dependent upon measures taken in the Budget.

Subramanian Swamy has been a vociferous supporter of abolishing all forms of taxes. For a country which has been running a current and fiscal deficit for years, is it possible? Let us try to analyse.

The total receipts of Central Government from taxes were $139.3 billion in FY14 (after excluding the state’s share). Income Tax (corporate + individual) accounts for 78.4 per cent and taxes on commodities / services (excise duty, sales tax, service tax) account for 18.1 per cent of total receipts of Government of India (GoI). Taxes form a significant portion of the total receipts of $177.6 billion as detailed below.

Government of India incurred a total expenditure of $265.1 billion, subsidies accounted for 16 per cent, interest 24 per cent, Defence 13 per cent, Central five-year plans 23 per cent and Central assistance to 8 per cent.

Fiscal deficit was $87.4 billion in FY14. This was financed by market loans. If all taxes are abolished, by the looks of it, fiscal deficit will shoot up significantly.

Subsidies should be removed immediately. This will reduce expenditure by $42.6 billion. On the receipts side, this will create room for reduction of similar amounts.

Incidentally, gross individual income taxes were $40.3 billion in FY14. So the good news is that individual income taxes can be abolished easily. Reduction in receipts can be compensated by reducing expenditure (subsidies) of similar amount keeping Budgetary position intact.

Significant money can be raised through disinvestment of public sector units (PSUs). The point is that GoI should have maximum shareholding of 51 per cent in these companies. There are 46 listed Central PSUs, 28 PSU Banks and 11 companies where Central and/or State Governments and/or Government Companies and/or Government Financial Institutions have the single largest shareholding.

Disinvestment in 17 listed PSUs including Hindustan Zinc at today’s rates can fetch $53.4 billion. However, this is a one-off exercise and will not generate recurring income. GoI has to put in a detailed plan and put some PSUs on the block (17) each year and should target reaching 51 per cent stake in all of them in the next five years.

Other areas where money can be raised are privatisation of Railways, Air India, MTNL / BSNL etc. It is very difficult to ascertain how much will be raised through this as all the above companies are making losses. But all of them own huge resources (routes – AI, spectrum – BSNL / MTNL, monopoly – Railways), and should enjoy decent valuations. On top of it is auction of scarce resources like spectrum, coal / iron ore blocks etc. which boost GoI receipts.

So can all forms of taxes be abolished? The answer is yes. Can it be abolished immediately? No. Individual income taxes can be scrapped immediately. The shortfall in receipts can be compensated by removing all subsidies. Over the long run, disinvestment proceeds, auction of scarce resources could provide room for further abolishment of taxes (corporate and indirect tax).

Link NITI Central