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SHRI RAJAGOPALíS SPEECH IN PARLIAMENT ON 28.4.2005 
REGARDING TAX SYSTEM 

ďMr. Chairman, Sir, thank you very much for giving me this opportunity to participate in this debate.


Since ages, from the time the human being, has come into existence, from Stone Age to this modem age, we have been moving on the path of development. The only difference is in the pace of development or in the pace of change. This UPA Government, which is pro-poor, downtrodden & weaker sections, is not only acting with a human face, but also with a human heart. That is the reason why we are trying to work out various methods or various means on how to raise resources to improve the basic things. In this connection, our Finance Minister rightly referred to what Saint Tiruvalluvar said:


ďPini Inmai Selvam Vilaivu Inbam Emam 
Ani Enba Nattirkku Iv Iyndhu"


He explained itís meaning, which is, "Health, wealth, produce, the happiness that is the result, and security, these five, the learned say, are the ornaments of a polity". These arc the most essential things for a human being for a better living. In order to achieve all these things, we need resources. Finance is only a tool or medium through which we measure the relative value of our effort and the result. It is through this that we try to increase the pace of reforms, give incentives to people to make more efforts and try to be result-oriented in a very competitive world.


If you look at the resources, we have both Direct Taxes and Indirect Taxes
Over a period of time, the revenue from both these taxes is going up. Earlier, Indirect Taxes were substantially higher than the Direct Taxes. Now, if you look at the Budget, Direct Taxes as well as Indirect Taxes are more or less generating equal revenue. The reason is that we are trying to bring about a check economy where people are more forthcoming to pay taxes. We are trying to bring about reforms in the tax structure. We are trying to reduce the tax rates, which are at their peak to ensure that people comply with their tax obligations in respect of Direct Taxes as well as Indirect Taxes. That is the reason why, today, in the Budget, they have proposed to collect more than Rs. 3,70,000 crore both from Direct Taxes as well as Indirect Taxes. 


That is substantially, 30 percent, higher than what we have got in the previous year. In the last few months, we have brought in the tax reforms. We have brought down the corporate tax from 35 per cent to 30 per cent. We have simplified the tax structure for individuals and raised limits of exemptions for individual taxpayers. In spite of these concessions, there has been a remarkable increase in the last few months in tax revenues when compared to the corresponding period last year.
At the same time, when it comes to customs and excise duties, we have reduced the peak rates of customs from 20 percent to 15 percent. We have reduced excise duty rates from 20 percent to 8 percent, 5 percent and 10 per cent in various sectors - be it textiles, be it steel, materials, pharmaceuticals, biotechnology, IT & Telecom equipment, drinking water equipment or anything. We have kept reducing the rates. This budget has substantially reduced all the taxes, both customs duty & excise duty, and also raised the limits of exemptions on income tax both for corporate sector and also for individuals.


In spite of all these reforms, in spite of these concessions, there has been a substantial increase in the revenues, to the extent of more than 30 percent. That is an increase of almost Rs. 60,000 crore. However, all these resources are not enough to meet all the requirements like providing drinking water to each and every family in each and every village of the country; providing employment to each and every educated youth; providing irrigation facilities to each and every inch of land available in the country; trying to educate every single child; and also trying to provide health facilities for each and every family in the country. These are the five basic needs of the human kind. This Government is trying to make sure to create the best of the facilities, trying to improve the living standards and living conditions of not only people living in the urban areas but also people living in villages.


Hon. Finance Minister has said that India is not poor but a substantial number of Indians are poor. The reason for that is, there are a lot of disparities between the rich and the poor in the country. There are a lot of disparities between the urban and rural areas. We need to bridge these gaps. We need to try and pool up our resources so that we can effectively use them for the betterment of people and also to create the best of the facilities in this country. In order to do that, we have to see as to how we can increase our resources, how we can reform our administration so that there are no leakages in it. We also have to try and see how this could be implemented and reached to the most needy people of the society.


As regards tax reform, there is a need and there is also a potential to increase our revenue substantially. A sum of Rs. 3,70,000 crore is not a big amount. The potential is much more, three times to four times more. It is not that there is no money in the country. The only thing is that we have to sec that people comply with the tax system.


In fact, if you look at the situation today, even tax evasion costs 15 percent. That means, people have a tendency to evade any rate above 15 percent. That is the reason why we have brought the rates down from 90 percent to 30 percent. I am sure in the coming days, if the revenues go up, our Finance Minister will try and further reduce the tax slabs, and also increase the exemption limits. That is because any exemption that has been given goes back into the system for purchasing equipment and household goods. In turn, indirect tax revenues increase in the form of excise duty & customs duty.


I would like to suggest a few very specific points to the Finance Minister. Today agriculture is exempted from income tax. But we need to understand that there is corporate agriculture that is going on in the country. There are many corporate houses, which own land and show substantial amount of income as agricultural income. There is nothing wrong in taxing them at a rate of five per cent to ten per cent. Because the cost of evasion is 15 percent, people tend to pay tax at a rate below 15 percent. I estimated as to how much is the revenue that we can get if we tax the agricultural income at five to ten per cent. I am sure we will get an amount not less than Rs. 10,000 crore for the state exchequer.


In the same way, look at IT where today the tax is 3.5 percent. What we are trying to do is, on the income, we are removing 90 percent and on the balance 10 percent, we are imposing a tax of 35 percent, including the surcharge. I think that should be increased to 10 percent because as I said anything below 15 percent, there is a tendency or requirement to fulfill because tax evasion costs not less than 15 percent. By doing that, we can get an additional revenue of at least Rs. 10,000 crore. I am not saying that we have to overburden them.


As a businessman, as an industrialist, I am telling you that none of the businessmen looks at the tax concessions when they start their business. It is only after he gets the profit, he looks at the income-tax, tax concessions and other tax benefits. It is not the incentive to start a business. Income-tax benefits or excise benefit or tax benefits are not an incentive for anybody to start a business. I never looked at any tax concessions when I started my business 20 years back.


At the time, we also have to look at the vacant lands available in urban areas. There are many people who have got resources to build houses but they do not have the land because the cost of land is 10 times to the actual cost of the building. In fact, development means consumption of steel and cement. Look at China. They consume more than 380 million tonnes of steel whereas India consumes only 30 million tonnes. When it conies to cement, China consume more than 1000 million or more than a billion tonnes of cement whereas in India we are consuming only 120 million tonnes of cement. That means, we have to see how to stimulate growth, how to stimulate the activity in the fields of construction, housing and infrastructure. We have to work out various methods as to how to bring in investment in all these sectors.


One of the proposals I would like to make is this. Why canít we look at or try to impose the wealth tax on property? It is only one per cent. There is a tendency to undervalue the property. I am talking about vacant land. I am not talking about buildings where already substantial development has taken place. I am talking of vacant lands. If you look at, actually assessing the value of land and impose 10 percent of wealth tax on all the vacant land in and around the urban areas and semi-urban areas, I am sure, we will get thousands of crores of revenue. In order to see that everybody complies, the income-tax officials should go out and say that if you do not agree to the value decided by he authorities then we will auction the property. That way, land will be available to everyone who can construct.
Another important thing today is a lot of people think that real estate growth or the value of real is development. I do not agree with that because real estate value is not productive. Real development has to take place in the vacant land so that cement and steel consumption increases and the Government gets a lot of indirect taxes by way of customs duty, excise duty and income-tax from industrialists so that this money can be used for providing drinking water, health, education, etc.
At the time, this Budget has been silent about disinvestments. I am not saying that you sell off these units to individuals. I am not saying that you sell off to TATAs or Reliance or any other top groups of companies in India. Why canít we disinvest to common public where we can say that nobody can have or hold more than 1,000 shares or 500 shares? I think my friend here would appreciate this because today economy of finance does not mean Left or Right. Economy of finance means forward versus backward; growth verses retardation. It is between past and future. It is no more Left or Right. All of us have to see that in of profit and loss, negative and positive. We need to ensure as to how we can effectively have more resources. The reason I am saying is over a period of time, it becomes a drain on the Exchequer by running most of the public sector companies because there is lack of decision making, inefficiency, complacency, lack of competitiveness, lack of accountability and lack of transparency. Slowly most of the public sector companies are becoming sick. So, what I am saying is the reason is not that lack of administration or good people, the reason is Government interference. Government holding and decision-making process which takes so much time. For example, in the Indian Airlines, if they have to purchase best of planes, it takes such a long time and in between there would be CBI inquiry and all sorts of inquiries. At the end, they cannot compete with the private airlines because either it should have a size or the speed. In fact, I am sorry to say that public sector companies arc losing the size and they can never come up to the speed with which the private sector is functioning. The reason is that public sector is not efficient. I am not saying that employees arc not efficient. The reason is that the Government holding and the bureaucratic control over which these companies function are under pressure to perform.
Why canít we disinvest in such a way that the holding is spread out and goes to the real public? Public sector does not mean Government, public sector means that the holding should lie with the public. There is no need for an intermediate medium for Government through which the holding can be controlled. Why can't the public or the small investors invest in the units like ONGC, IOC, HPCL BSNL or so? It could be the whole lot of public sector companies. This way, the public will directly control these companies and the decision-making will happen. The heads of the company are retained as long as they have faith of the people or of the shareholders. The moment he does not perform, he is removed. We have to be very clear about it when it comes to compliance. If we can do all things, we can get huge resources and the money can go to the real needy sector.


The Government has imposed 2% cess on education. The Budget allocation for education was Rs. 2000 crore in 2003 and this year the UPA Government has increased it to Rs. 7,150 crore. It is a remarkable increase of about Rs. 5,000 crore. The entire money that has been obtained out of the education cess has been allocated throughout the country. I can tell you that now crores of rupees are available in each district for the Sarva Siksha Abhiyan where they are building best of the infrastructure, best of the facilities and also recruiting teachers. The money is available and money is being put to better use.


As Shri Chidambaram has said, it is not only the outlays but also outcome that matters. Our Prime Minister has also said that it is not only the promise but also the governance that matters. That is why, we are looking at it. We are looking at the governance and trying to see that the allocation goes to the real the needy people. With these words, I say that we should ensure to bring more people into the tax net, try to increase the revenue and allot this to the needy people and needy regions.

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