BJP's poll manifesto promising to exempt income of up to Rs 3 lakh from income tax is likely to put a major dent on government's already strained revenue collection which has been twice revised on the lower side and is still struggling to meet the new estimates.
The saffron party's populist measure, if implemented, may take out 1 crore to 1.25 crore taxpayers out of the taxnet from a total of 3.25 crore. The implication, said a senior official of the Central Board of Direct Taxes (CBDT), in terms of tax forego would be anywhere between Rs 15,000 crore and Rs 25,000 crore.
BJP has proposed to raise the tax exemption limit for senior citizens to Rs 3.5 lakh. It has also promised exemption of income of all senior citizens by way of pension from taxation.
With the fiscal deficit already having increased to an unmanageable level of 6% of GDP to Rs 3.27 lakh crore as per the revised estimates announced by the government in the interim budget, the new populist declarations may surely impact many of the planned flagship schemes.
The expected tax giveaway of Rs 25,000 crore is equivalent to what the government spends on some of its flagship schemes such as the Sarva Shiksha Abhiyan (budgeted allocation of Rs 13000 crore in 2009-10), the Mid-Day Meal Scheme (Rs 8,000 crore) which is the mainstay for many poor children in some parts of the country, and the the rural sanitation programme (Rs 1,200 crore).
The BJP manifesto has also sought to dispense with clubbing of agricultural income with other sources of income for determining tax liability on other income.
The party promises to put in place a low tax, low interest regime "so that people have more money and their purchasing power increases, which in turn will serve as an impetus for the economy".
However, in the downturn, say finance ministry officials, a vibrant and thriving rural market is providing the much-needed cushion to the economy for beating the slowdown, thanks to the many infrastructure development and social sector schemes unveiled in the past one decade.
With the fiscal condition of the government already tight, any further revenue giveaway could result in the government ultimately diverting funds from its key flagship schemes to fund its populist measures.