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Taxing corporates

BY ANY YARDSTICK the proposal to levy an additional surcharge on company profits to finance calamity relief is misconceived and must be withdrawn.

The main objection is that it violates an established principle of tax policy that taxable entities are entitled to expect from the Government stability of the tax regime, or at least that the sanctity of the annual Budget-making exercise is preserved an d what it means for the resource mobilisation effort of the Centre. If corporate business plans are to have any meaning and if their commitments to shareholders are to have any sanctity, it is essential that this is so.

Viewed thus, this mop-up towards the fag end of the year is most unfortunate. This is not to suggest that the principle of abjuring intra-year imposts is inviolable. For there can be emergencies whose occurrence or magnitude can hardly be forecast, such as the heavy influx of refugees from East Pakistan in 1971. But no such contingency has arisen to justify the present levy. The country has always had to contend with drought or flood in some part or other at one time or another. But never has the magnit ude spelt fiscal doom within a short span of time. The 1988 drought, one of the severest in recent times, certainly offers a benchmark on what can be expected in such situations. The conventional mechanisms available to fight these calamities, and which have stood the country in good stead, would well have sufficed this time too, without having to resort to such emergency measures of resource mobilisation. And for all the opprobrium the Government would undoubtedly earn for throwing fiscal principles ou t of the window, the pay-off is negligible. For, the surcharge is expected to raise no more than Rs 300-350 crore additionally. For a Government, with a non-Plan annual outlay of Rs 250,000 crore, to claim that a contingent outgo of a few hundred crore r upees requires emergency fiscal measures with less than three months to go for the presentation of the Budget is, to say the least, preposterous.

The argument that the measure was forced on the Government because of a recommendation of the Eleventh Finance Commission, too, is not tenable. No doubt, the Commission did recommend the setting up of a fund for calamity relief. But two points need to be made: One, the Commission was clearly exceeding its mandate. It was merely required to suggest the proportion of Central revenues that would devolve on the States. It could be extended to include special assistance for certain contingencies, such as dro ught or floods. But it is no part of the Commission's mandate to suggest ways by which the Centre could raise resources for specific acts of devolution to the States.

The decision to levy additional imposts to finance a certain transfer mandated by the Commission is rightly within the purview of the elected representatives of Parliament. In the circumstances, the Centre would have been well within its rights to reject the suggestion. In any case, the Commission merely suggested a surcharge on some Central tax. By no stretch of imagination can this be taken to mean a sanction to impose a surcharge on corporate profits, as the Finance Minister appears to have implied i n his speech in Parliament while introducing the Bill. Neither the principles of public finance nor the circumstances justify the impost. The Government would be well advised to withdraw the Bill even at this stage.