P Sainath on Corporate Bailout #Rs. 36.5 trillion #Budget 2014

The revenues foregone in 2013-14 could fund the rural jobs scheme for three decades or the PDS for four and a half years.

By P. Sainath,

It was business as usual in 2013-14. Business with a capital B. This year’s budget document says we gave away another Rs. 5.32 lakh crores to the corporate needy and the under-nourished rich in that year.  Well, it says Rs. 5.72 lakh crores  but I’m  leaving out the Rs. 40 K crore foregone on personal income tax since that write-off benefits a wider group of people. The rest is mostly about a feeding frenzy at the corporate trough. And, of course, that of other well-off people. The major write-offs come in direct corporate income tax, customs and excise duties.

revenue-forgone-2014

If you think sparing the super-rich  taxes and duties worth Rs. 5.32 lakh crores  is  a trifle excessive, think again.  The amount we’ve written off for them since 2005-06 under the very same heads is well over Rs. 36.5  lakh crore.  (A sixth of that in just corporate income tax). That’s  Rs. 36500000000000 wiped  off for the big boys in nine years.

With  Rs. 36.5 trillion  –   for that is what it is  –   you could:

  • Fund the Mahatma Gandhi National Rural Employment Guarantee Scheme for around 105 years, at present levels.  That’s more than any human being could expect to live. And a hell of a lot more than any agricultural labourer would. You could, in fact,  run the MNREGS on that sum, across the working lives of  two generations of such labourers. The current allocation for the scheme is around Rs. 34,000 crore.
  • Fund the Public Distribution System for 31 years. (current allocation Rs. 1,15,000 crores).

By the way, if these revenues had been realized, around 30 per cent of their value would have devolved to the states. So their fiscal health is affected by the Centre’s massive corporate karza maafi.

Even just the amount foregone in 2013-14 can fund the rural jobs scheme for three decades. Or the PDS for  four and a half years. It is also over four times the ‘losses’ of the Oil Marketing Companies by way of  so-called ‘under-recoveries’ in 2012-13.

Look at some of the exemptions under customs duty.  There’s a neat Rs. 48,635 crore written off on ‘Diamonds and Gold.’ Hardly aam aadmi or aam aurat items. And more than what we spend on rural jobs.  Fact: concessions on diamonds and gold over the past 36 months total Rs. 1.6 trillion.  (A lot more than we’ll spend on the PDS in the coming year).  In the latest figures, it accounts for 16 per cent of the total revenue foregone.

The break-up of the budget’s revenue foregone figure of Rs. 5.72 lakh crore for 2013-14 is interesting.  Of this, Rs. 76,116 crore was written off on just direct corporate income tax.  More than twice that sum (Rs.1,95,679 crore)  was foregone on Excise Duty. And well over three times the sum was sacrificed in Customs Duty (Rs. 2,60,714 crores).

This, of course, has been going on for many years in the ‘reforms’ period. But the budget only started carrying the data on revenue foregone around 2006-07. Hence the Rs. 36.5 trillion write-off figure. It would be higher had we the data for earlier years. (All of this, by the way, falls within the UPA period). And the trend in this direction only grows. As the budget document itself recognizes, “the total revenue foregone from central taxes is showing an upward trend. “

It sure is. The amount written off in 2013-14 shows an increase of 132 per cent compared to the same concessions in 2005-06.

Corporate karza maafi is a growth industry, and an efficient one.

Courtesy: http://psainath.org/

  • Dilip Banerjee

    Whenever the yearly Central Budget is placed, we the commoners find ourselves busy with gain/loss in Personal Income Tax level and prices of which commodity would be going up to hurt me. Other aspects, we leave to so called Economic Experts to simplify for us. The Trade Union leaders do not have the expertise and we suffer. During my office days, a senior official of the Company told me ‘buy a newspaper that gives the full budget speech – with preview and review’. Those were days of print and rdio media only. But, ever after I had tested my knowledge of understanding the aspects.
    What a common man can do? I can only say what your Company and for that matter the Govt gives you by one hand, they take away number of times more than that, by other hand. AND yo can’t call it “STEALING”!

  • C S JACOB

    Although one is an admirer of Mr Sainath, one is afraid that his analysis on the Taxes Foregone was incorrect and misleading. According to him the taxes foregone of Rs 5 72 000 crores in the year 2013-14 and Rs 36 lakh crores during the past nine years, represent the benefit derived by the corporate sector. To call the tax foregone a write off by the govt, as he has done, was totally false. This needs some explanations.

    The income tax foregone in the year 2013-14 Rs 76116 crores:

    This represents the tax incentives and rebates given to the assessees for undertaking certain activities, according to the provisions of the IT Act. For example, accelerated depreciation allowed for certain infrastructure industries, expenditure on R&D expenses, investment in backward areas, in power, in oil and gas, SEZ, export oriented units, donation to charities and so on. By no stretch of imagination could they be termed as write offs as Mr Sainath has called.
    While the prescribed tax rates for corporate bodies was 32.44 percent because of the various tax incentives and deductions available, the effective tax rate was 22.44 percent only. For PSUs it was 21.49 percent and for the private sector 22.78 percent.
    If for argument sake, all incentives and tax rebates were withdrawn and tax rate reduced from 32.44 to 22.44 percent, the tax foregone would be zero. So the best way to put it was that as against the declared rate of say 32 percent, the corporate sector ended up paying at the rate of 22 percent only; some paying at a rate higher and some lower. So it was for the policy makers to consider whether the effective rate should be increased either by withdrawing some of the incentives or by increasing the prescribed rate. But no way could it be called a write off or loss to the govt, as they represented incentives given for specific purposes.

    Excise duty foregone in 2013-14 Rs 195,679 cr:

    Excise duty is a pass through for the manufacturing industries; normally they were not affected from the lower or higher duties, as the duty was added to the selling price. For excisable goods, the Act prescribes the rates applicable called Tariff rates. However for various reasons the actual rates charged were lower than the tariff rates. The excise duty foregone represents the difference between the tariff rates and the actual rates charged on the total volume of goods produced. By not charging the tariff rate that was always higher, the benefit was given to the consumers and not to the producers. The duty foregone also includes the exemptions applicable to industries in hill states like J&K, Himachal, Uttrakand, North East etc from payment of duty. This was a benefit given with the objective of developing the backward regions. The tax foregone also includes the duty not charged on goods exported. None of these were a largess to the industries as Mr Sainath has made out.

    Customs duty foregone in 2013-14 Rs 260,714 cr:

    This was similar to the excise duty forgone in respect of imported goods, being the difference between the tariff rate and actual rates charged on goods imported. It also includes duty waived/refunded in respect of imported goods used for export production.

    If the goods were charged at the tariff rates, all items would have become more expensive and consumers would have had to pay Rs 457000 crore by way of additional excise and customs duties in the year 2013-14, together with their cascading effect on the retail prices. Therefore to call them a benefit given to the corporate sector was highly misleading and sensationalising the issue.

  • Sajan

    @CS Jacob — While one tries to find some virtue in your arguments, the alacrity with which you gloss over issues like the Rs. 48,635 crore write off on ‘Diamonds and Gold’ suggests that you merely shilling for corporate interests. As Sainath points out, concessions on diamonds & gold over the past 36 months is Rs.1.6 trillion (or is that a ‘false’ figure as well?).

    And this, as Sainath adds, is hardly meant for the aam admi or aurat. I’ll wager that not one in ten items that is set to become cheaper after this budget is used by the poor — cosmetics, hosiery, leggings, skinny jeans, swim suits, computers and laptops, precious and semi-precious stones, to name just a few. I don’t know which planet you inhabit, but even as a middle class Indian, I assure you that cheaper “skinny jeans” is not high on my list of must-haves. The idea that altruistic diamond dealers wangle these massive concessions purely out of the goodness of their hearts, so as to pass on the benefits to the poor, struggling diamond consuming masses, may sit well with your blinkered world view, but it’s tendentious nonsense for the rest of us.

  • C S JACOB

    Sir, With due respect to you and Mr Sainath, to call the taxes forgone in the last eight years amounting to Rs 36.5 trillion, as corporate bailout is gross misrepresentation of facts. This was not in the category of loans amounting to Rs 200000 crores taken by corporate bodies reported to have been written off as NPAs by the banks.
    In case of income tax foregone, it represented the value of the incentives/tax relief given to the assessees, for investments made, business undertaken or expenditure incurred in specific areas, which the govt, in the public interest, wanted promote. In the absence of such incentives the activities in those areas would have been lower. Consequently, states like J&K, HP, North East etc would have remained more backward and the generation of power, exports etc would have been at lower levels. One could however, question whether the benefits were commensurate with the tax foregone. One could also say that the effective tax rate for the corporate sector at 22 percent of the profit, to be low. Perhaps there was a case for removing some of the incentives which have not served their purposes. But without examining the individual incentives and their benefits, to say they tantamount to corporate bailout was highly misleading.
    In respect to Excise and Customs duties foregone, the context was entirely different and the corporate sector derived no direct benefit as they were passed on to the customers. Anyone could observe that whenever there was a change in the duty of commodities from gold, cigarettes or edible oil, their selling prices were also changed in order to reflect the increase or decrease in the duty.
    The Tariff Rates were those approved by the parliament beyond which the govt was not allowed to increase the Applied Rate of duties. But the govt was empowered to give exemptions wherever deemed necessary. So the tariff rate was just an enabling provision to increase it when necessary; what mattered was the notified rates applicable.
    Now coming to the amount of Rs 48635 cr shown as duty foregone against diamond and gold, it was on account of duty exempted on rough diamond/semi precious stones and gold, imported for re-export, after processing. No country levies duties on the inputs for export production, as otherwise its goods would not be competitive in the international market. India is the world’s largest diamond cutting and polishing centre, providing employment to over a million artisans. More than 50 percent of the world’s rough diamonds by value and 90 percent by volume were cut and polished in India; so also, 90 % of the global diamond industry workforce was in India. In the year 2013-14 the Gems and Jewellery exports amounted to $ 42 billion or Rs 252200 crores. The amount of customs duty foregone, therefore represents basically, the duty exemption given for the inputs for exports as stated above. The tariff rate applicable to gold and diamonds imported for domestic consumption was levied 10 percent.
    This applies to crude oil as well. While the crude used for domestic consumption attracted a customs duty of 5 percent that used for exports was exempt from payment of duty. The duty foregone in 2013-14 was Rs 77851cr. Where does the benefit to corporate sector come in here? The actual collection of excise duty in the year 2013-14 was Rs 179538 cr as against the excise duty forgone of Rs 195,679 cr. Likewise the customs duty collected for that year was Rs 175056 cr and that foregone at Rs 260,714 cr. So are you suggesting that the rates of excise and customs duties ought to have been more than doubled in order to bring down the tax foregone to zero? What would have happened to prices payable by the Aam Admi in that event?