The vast Indian urban middle class, which enthusiastically participated in the Anna Hazare movement against all pervasive corruption, perhaps should also take up an equally worthy cause, the one that affects them more intimately and directly.
Indirect taxes, especially of essential commodities, are said to be regressive as it targets all consumers without discrimination whereas direct taxes by their very nature can be healthily discriminatory with progressive rates of taxation extracting more and more out of successive slabs of income.
But in India as indeed in the US, numerous exemptionscreated either by design or accident and kid glove treatment to tax evaders have rendered even direct taxes regressive. Public trusts enjoy tax exemption, but often enure substantially for giving tax sanctuary to private interests, with altruistic causes for which the tax exemption is designed relegated to the background and serving as a fig leaf. The bulk of country's educational institutions and hospitals are public trusts whose benign founders help themselves, their families and hangers-on to a considerable tax free income, with their students and patients respectively paying through their noses.
And their cause has been helped by the long-held legal position that charity need not underlie a public trust so as to be eligible for tax exemption. Company promoters and industrialists, thanks to their immense lobbying power, have written for themselves a tax regime that leaves a substantial part of their income untouched by taxation despite some of them being Forbes dollar billionaires — no tax on dividend and no tax on long-term capital gains earned through the bourses either from their shareholdings. They for good measure might bristle with indignation at any suggestion of indulgence by saying that they after all pay a vicarious 15 per cent plus dividend distribution tax but that, come to think of it, is only half the tax they would have paid had the tax been on the recipient rather than on the payer.
Investment in farm houses beckons both the rich and the nouveau rich what with they conferring not only social status but also luxurious living with farming, the raison d' etre of the tax exemption for farm houses, conspicuous by its absence or at best a facade. And Foreign Institutional Investors (FIIs), the movers and shakers of the Indian bourses, never had it so good in any other country thanks mainly to an obnoxious tax treaty with Mauritius where all of them are invariably registered which says like the dog in the manger that India cannot tax the capital gains earned in India by residents of Mauritius and Mauritius simply cannot tax them because it does not have capital gains tax.
Many belonging to the middle class would tell you that bulk of the FII money is actually Indian black money stashed away abroad. The process, they would add for good measure, is called round tripping. The reason behind the feet dragging and dithering in scrapping this patently offensive treaty must be apparent against this backdrop.
No taxation without representation was the American war cry. In India there is representation all right, but only for the well-heeled with lobbying power who obviously take up cudgels only for themselves. The vast middle class in the event is left in the cold with nobody to champion their cause. Shouldn't they rebel against a regime that collects close to Rs 2 lakh from a salary income of Rs 10 lakh while the one with similar qualifications doing private practice cocks a snook at the taxman through means that are either blatant or covert? Shouldn't they rebel against a regime that leaves a vast amount of unearned income largely untaxed, with Securities Transactions Tax (STT) just being a slap on the wrists of market operators even while without doubt setting the governmental cash registers ringing happily? Shouldn't they rebel against a regime that lets lakhs of traders and merchants get away without tax or with an apology of a tax thanks to slack enforcement and absence of banking culture?
The Direct Taxes Code Bill, 2010 (the DTC) is a huge letdown especially against the background of its draft version that fluttered the dovecots of vested interests with its leitmotif income is incomeand therefore must be taxed uniformly. The DTC is a pale shadow of its draft version, nay a rehash of the existing law substantially. The middle class which rallied behind Anna Hazare against his crusade against corruption has greater stakes in raising its banner of revolt against this unjust tax regime that focuses just on sitting ducks — the salaried class and corporate sector, while leaving out others either out of inertia or ineptitude or both. Corruption strikes a chord, and resonates with the masses.
But taxation is considered too esoteric a subject to galvanize the masses into anger and action. Which is all the more reason why the middle class perhaps may have to raise the banner of revolt against the unjust tax regime. Of course if they choose to put their weight behind the revolt against tax tyranny, it would be so much better because in India things happen only when powerful lobbyists take up your causes or honest mass leaders with unimpeachable integrity get things done by holding the barrel of gun.
(The author is a Delhi-based chartered accountant.)
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