As he works on his next budget, here's a short letter to the finance minister with a plan that will make him an even larger legend with the middle class.
Dear Mr Chidambaram,
Ever since the annual budget presentation became a major media event, with of course you as the star, I have been desperately trying to offer on television a nugget or two of free wisdom on fiscal policy and earn my few seconds of fame. But, I have been unlucky so far. So, this year I decided to be the first off the block and offer you some free advice. I am a bit embarrassed to say this, but my real intention is to catch the attention of those television channels that, I hope, will carry me live for a second or two on your big day.
I am not going to pretend that I am an expert in public finance policy, though, if someone asks, I won't hesitate in giving my expert opinion. Anyway, you have many experts to consult on larger policy issues. So I will focus on only one area in which I have some experience and will also share with you some personal observations that maybe of use to you.
Sir, I am a tax payer. An honest one? Hmm
.. yes, but not that I would always prefer to be so - if I have a choice. I don't have a choice because you force my employer to collect your due from my meagre income every month. And once you have collected your share, I have no way to fool you and take back at least a part of it. Yes, you have granted us many tax breaks if we do this or if we do that. But, as you probably know, they don't add up to much.
Yes, I can claim more if I take a home loan. But, I am a bit scared of being indebted for the next 20 years of my life shorter duration loans won't buy me the minimum two-room space our small family needs in the city we live. For the last three years, I have been waiting for home prices to come down, and am still waiting. Yes, like most of those my age who grew up in a socialist environment, the ability to be patient is the most developed of my survival tools though very often the result is considerable personal injury in terms of lost opportunities.
Two years back you introduced this incredibly innovative tax called fringe benefit tax or FBT. But my employer is not as brilliant and benevolent as you are, and has cut almost all our so called fringe benefit that we enjoyed as perks because they add to his costs! Besides, my employer claims, the FBT returns are too messy and the tax consultant was charging a bomb for preparing the tax returns. I am not sure if my employer has heard your repeated statements that FBT will not add to employers' costs and that filing the return is a breeze. I will never blame you for my lost benefits, I fully appreciate your compulsion to add FBT to your many such innovations.
The other day I saw the new advertisement from your ministry on television the one which reminds us to pay advance tax so that important people like you can build this nation. Brilliant ad, I must say, with inspiring visuals. There is a scene showing a group of people, presumably honest tax payers, walking out of a building at the end of a hard day's work. I really didn't know you and your tax collectors thought so highly of tax payers. I could clearly see myself in that group and felt so proud about my humble contribution towards your government's nation building efforts. I had goose bumps, really!
Unfortunately, my pride and joy did not last long. When I looked closely, I couldn't find many of my wealthier acquaintances in that group of taxpayers. I could see all my office buddies, but couldn't find any of our company's vendors or some of the big property developers and dealers in our area.
To my surprise, I couldn't see our local grocer - who is actually a mini-retail chain owner with three stores in the area. This guy drives a Corolla when I have only a pink Zen Estillo, which my wife says is actually mauve in colour and I can't see the difference. He is only a few years older than I and lives in a four bedroom villa while I have to reluctantly shell out a fifth of my monthly net income as rent every month. Oh, did I mention that he is my land lord too?
A few months back, while collecting the rent receipts from him for claiming my HRA deduction, I happened to discuss income tax with our grocer-cum-landlord. The apartment is in his wife's name and the annual rent is around the basic exemption limit for women, so she doesn't pay any tax. But, given his thriving businesses, he must be shelling out a substantial amount to support nation building I wondered aloud. With a wry smile, he gave me a figure which was less than one-fourth of my annual tax outgo when he must be earning at least four times as much as I do, excluding his wife's rental income!
You may be interested in knowing about the most profitable business of our grocer-landlord. He happens to be the biggest 'unofficial' distributor of subsidised cooking gas in our area. Customers, who cannot get cooking gas from any of the oil companies controlled by your esteemed colleague Murli Deora, are always willing to pay a premium of Rs200 per cylinder. In our city, to get subsidised cooking gas, you need a ration card and a new ration card takes more than a year. Is it any surprise our grocer-landlord is doing good business in this city of migrant professionals?
I grew up in a small town which is not too far from the city I live in now. A school mate is now a grains and vegetables trader in my home town and he too has an 'unofficial' cooking gas agency. He is doing well as there is a perennial shortage of subsidised cooking gas in smaller towns. This friend of mine is even more 'tax-efficient' than our grocer-landlord. He has never paid a rupee as income tax and has never filed a return either.
Sir, I recently read in a newspaper column that taxpayers like me are your slaves for around three months of the year, because you take away our salaries for that period as taxes. Based on my limited knowledge of government finances, I presume your ministry uses part of the taxes we pay, for essential welfare programmes like cooking gas subsidy for the middle class. It is definitely not the government's fault that part of such subsidies go to people like our grocer-landlord and my small town friend. If that be the case, I wonder, isn't it true that people like me are not really your slaves but those of people like our grocer-landlord and my small trader friend?
As you were a great lawyer before this onerous responsibility of managing the nation's finances was thrust on you, you may say that I stretched that 'slave argument' a bit. Even if I did, don't you think the system is somewhat unfair to people like me? Please don't get me wrong, I have never felt bad about paying my taxes.
After all, my nation is not Iraq or Palestine where the lives of an entire generation or two have been destroyed. I have my rights and live in a safe environment where I have enough opportunities to earn an honest living and raise a family. For these blessings, I must pay my taxes. But, I do feel bad when I see so many who don't pay their share of taxes and are never asked to do so either.
You may argue that your army of tax collectors is not big enough to chase all the evaders. I understand that the majority of the more than 3 crore or so tax payers in this country fall in the lower middle class category, or those who earn less than Rs3 lakh a year. I presume most tax payers take advantage of the available deductions and so your revenues from this category are low. So, most of your men must be working on tax returns which brings the least revenue for you. I am sure you would agree that this is not a very efficient way of utilising your resources.
Sir, let me offer you a simple solution. In your next budget, increase the basic exemption limit for personal income tax to Rs3 lakh per year. This would instantly free up at least one-third of your overburdened tax sleuths. Let them hunt down those tax evaders who are less committed to nation building. They will be even more effective if you can announce an incentive plan, based on incremental tax collections, for your men.
Your communist friends, who strangely support cooking gas subsidies but not tax breaks for the middle class, may not like this plan. But you can afford to risk their displeasure as you are near the end of your term.
I know it is difficult for you to go after these tax-evading small business owners, who also happen to be the main source of funds for the local units of political parties. But, if you can do that, it will be a much more durable and desirable legacy for you to leave behind. Besides, you will never have to worry about your own political future. If you can pull off my plan, you will never lose an election from any of our big cities!
I hope that prospect will encourage you to consider my suggestion. Please also consider a quiet burial for the FBT; I really miss my fringe benefits, hastily withdrawn by my heartless employer.
PS: I am working on a Tamil couplet which you can quote in your budget speech, while announcing my proposal. I hope to send it to you sometime in February.