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Finance Minister, Shri Arun Jaitley resigned and migrated to Australia.

Jaitley against burdening salaried, middle class with more taxes

PTI  New Delhi, November 22, 2014
First Published: 17:24 IST(22/11/2014) | Last Updated: 18:01 IST(22/11/2014)
Finance minister Arun Jaitley on Saturday said that he does not favour burdening the salaried and middle-class with more taxes but would go after the evaders in widening the net.
In fact, he would encourage more money being put in the pockets of tax payers that will lead to spending and collection of more indirect taxes.
"This widening of the tax base. What does it mean? ...I pay the same indirect tax as my attendant. Our volume of consumption may be different. So everybody is paying indirect taxes.
"And literally almost half your taxes are indirect taxes today. He pays excise, he pays customs duty, he pays service tax. Now as far as income tax is concerned, to bring those who evade tax is widening the tax net, I am all for it," the minister said in an interaction with PTI journalists at PTI headquarters.
He was replying to a question on whether his budget would look at widening the tax base to maximise revenue.
Jaitley, who will be presenting his first full fledged budget in February, said that in his last budget he had increased the tax exemption limit from Rs. 2 lakh to Rs. 2.5 lakh and would even raise it further if he had more money.
"After all what are we talking about Rs. 2.5 lakh today means, taking all the deductions which we have given, somebody up to Rs. 3.5-4 lakh does not have to pay tax. So we have reached the situation broadly.
"One earning Rs. 35,000-40,000 per month, if the person puts some money for savings, (he) won't have to pay tax. But people falling in this bracket say that they don't save anything with salary of Rs. 35,000-40,000 (with) the present cost of living, the transport cost, the fees of children and so on," Jaitley said.
Therefore, the minister said, he was against reducing the exemptions to widen the tax net. "Then that's not my approach," he added.
"So I am quite willing, if I had my way and I had more money in my pocket, I would like to expand. But today the revenue position is challenging. Last time I gave several concessions, which were actually beyond my means.
"But it's all fine to bring those who evade tax under the tax net. But to bring this vulnerable section into the tax net, that can't be the policy today. In fact if you put additional money in their pockets and allow them to spend, then I collect correspondingly more indirect taxes so I will rather encourage more economic activity."
On black money within the country, he said: "It is huge quantity and more easily traceable. Because you go to real estate, you go to land, you go to mining, you go to jewellery, you go to luxury goods, you will find the domestic (black money). You go to educational institutions, you will find it there. Therefore to trace out the buyers and the recipients is also easy."

  • Some of these items are long-term mechanisms, particularly human and
    physical capital formation. Most of these empirical studies focus on the
    long-term effects, over a period of five years or more, but many
    investigate short-term dynamics as well. The evidence for short-term,
    demand-side effects of tax policy is less robust and less compelling,
    perhaps owing to the difficulty of disentangling short-term factors and
    matching events. However, there is some evidence that longer-term,
    supply-side effects occur sooner than previously thought, such as within
    the first few years of a policy change.
    In any case, the lesson from the studies conducted is that long-term
    economic growth is to a significant degree a function of tax policy. Our
    current economic doldrums are the result of many factors, but having
    the highest corporate rate in the industrialized world does not help.
    Nor does the prospect of higher taxes on shareholders and workers. If we
    intend to spur investment, we should lower taxes on the earnings of
    capital. If we intend to increase employment, we should lower taxes on
    workers and the businesses that hire them.

  • These results support the Neo-classical view that income and wealth must
    first be produced and then consumed, meaning that taxes on the factors
    of production, i.e., capital and labor, are particularly disruptive of
    wealth creation. Corporate and shareholder taxes reduce the incentive to
    invest and to build capital. Less investment means fewer productive
    workers and correspondingly lower wages. Taxes on income and wages
    reduce the incentive to work. Progressive income taxes, where higher
    income is taxed at higher rates, reduce the returns to education, since
    high incomes are associated with high levels of education, and so reduce
    the incentive to build human capital. Progressive taxation also reduces
    investment, risk taking, and entrepreneurial activity since a
    disproportionately large share of these activities is done by high
    income earners.[4]

  • So what does the academic literature say about the empirical
    relationship between taxes and economic growth? While there are a
    variety of methods and data sources, the results consistently point to
    significant negative effects of taxes on economic growth even after
    controlling for various other factors such as government spending,
    business cycle conditions, and monetary policy. In this review of the
    literature, I find twenty-six such studies going back to 1983, and all
    but three of those studies, and every study in the last fifteen years,
    find a negative effect of taxes on growth. Of those studies that
    distinguish between types of taxes, corporate income taxes are found to
    be most harmful, followed by personal income taxes, consumption taxes
    and property taxes.

  • For instance, the Congressional Research Service (CRS) has found support
    for the theory that taxes have no effect on economic growth by looking
    at the U.S. experience since World War II and the dramatic variation in
    the statutory top marginal rate on individual income.[1] They find the fastest economic growth occurred in the 1950s when the top rate was more than ninety percent.[2]
    However, their study ignores the most basic problems with this sort of
    statistical analysis, including: the variation in the tax base to which
    the individual income tax applies; the variation in other taxes,
    particularly the corporate tax; the short-term versus long-term effects
    of tax policy; and reverse causality, whereby economic growth affects
    tax rates. These problems are all well known in the academic literature
    and have been dealt with in various ways, making the CRS study
    unpublishable in any peer-reviewed academic journal.[3]
    What Is the Evidence on Taxes and Growth?

    December 18, 2012
    William McBride
    (PDF) Special Report No. 207: What Is the Evidence on Taxes and Growth?
    The idea that taxes affect economic growth has become politically
    contentious and the subject of much debate in the press and among
    advocacy groups. That is in part because there are competing theories
    about what drives economic growth. Some subscribe to Keynesian,
    demand-side factors, others Neo-classical, supply-side factors, while
    yet others subscribe to some mixture of the two or something entirely
    unique. The facts, historical and geographical variation in key
    parameters for example, should shed light on the debate. However, the
    economy is sufficiently complex that virtually any theory can find some
    support in the data.

  • A man of his responsibility, being finance minister and all, ought not be explaining his tax policy to a reporter. I know all about direct and indirect taxes. I also know tax forgivance to a certain section of society. Taxes are spread all over that must be paid, whether you like it or not. Pity that readers has to learn from the last man of the earth, Mr Arun Jaitley.
    Saving BJP constituency is the goal. Why talk about taxes now? Budget is not due till next February? State elections. That's why. Nasty politicians, nasty strategy and their vulgar description of citizen's duty (not) to pay due tax.
    I would fire him for his damned silly little talk-talk.
    ...and I am Sid Harth

    Source: HT

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