Tax exemptions should have been cut when economy was booming: Gurumurthy
March, 08th 2013
With the economy booming between 2004 and 2008, the average growth rate more than nine per cent, tax collections good, inflation and deficit low, it was the best time for the Finance Minister to have done away with various tax exemptions and wiped away the fiscal deficit, said S. Gurumurthy, well-known corporate advisor and chartered accountant.
Analysing the Union Budget 2013 for students of various city colleges under the aegis of the BL Club and presented by Corporation Bank at the MOP Vaishnav College here, Gurumurthy said that the Finance Minister had claimed in 2007-end that there was a tax to GDP ratio of 11.9, the highest ever in the history of India.
Reeling off a welter of statistics, Gurumurthy said that in 2005-06 corporate profits were Rs 4 lakh crore. In 2006-07 it rose to Rs 5.6 lakh crore and in 2007-08 it zoomed to Rs 7 lakh crore.
“So, corporate profits were shooting up and as a proportion of GDP it was 11.5, 12.9, 14.3 per cent respectively (in those years). Every year corporate profits were jumping over the growth of the economy itself. At that time, he could have taxed the corporates more and brought more money into the economy.”
Instead, Gurumurthy pointed out, the tax exemptions were at Rs 1.6 lakh crore in 2004-05. “This should have gone down; when the economy is doing well, you withdraw the exemptions, but here the loss of revenue due to exemptions rose to Rs 2.9 lakh crore the next year.”
In 2008 the financial crisis hit like a tsunami, he elaborated, and the result is that the Government had to give exemptions and exclusions over and above what was in place to give a stimulus to the economy. The effect of that was Rs 4.15 lakh crore in taxes foregone for 2010-11 and Rs 5.34 lakh crore in 2011-12 is the revenue sacrificed, he explained. The tax foregone is more than 70 per cent of the tax collected.
Referring to the huge import of gold and its strain on the forex reserves, Gurumurthy said that Indians are not going to stop buying gold just because a higher import duty is imposed.
“I asked many friends of mine who are women economists; they advise not to buy gold but then go to a jeweller and buy gold themselves. When I point out the contradiction, they say that is economics and this is life. Life is economics; you can’t frame an economic theory that is divorced from day-to-day life and consumption and savings patterns.”
Handling of the gold issue should have an indigenous solution and approach he said. “It should be culturally compatible and which will have a good economic impact, all this requires original thinking,” he added.
Gurumurthy said instead of promoting savings in banks, the Budget looks to promote investment in the stock markets. In 1991, Rs 2 lakh crore was the public deposits in banks. Today it is Rs 60 lakh crore, which as a proportion of GDP was earlier 34 per cent and has now doubled to 68 per cent.
“Our investment in stock markets is three per cent; rest of the money gets into banks, real estate, so the Government is trying to promote stock markets but people are not moving to markets but instead going to the banks,” he explained.