The Hindu Business Line : All said, some done

DR VIJAY KELKAR recommended the wholesale junking of tax sops for the corporate sector with the simultaneous lowering of the corporate tax rate to 30 per cent. The recommendation has been junked.

Dr Kelkar recommended withdrawal of tax rebate for individuals besides withdrawing tax shelters for long-term capital gains (LTCG) with a concomitant increase in the tax-free limit. The recommendation has been junked — rebates have been retained and the tax rates remain unaltered.

Dr Kelkar recommended abolition of tax on dividend. It has been accepted all right but the tax has returned in another avatar.

Dr Kelkar recommended abolition of standard deduction to the salaried class and especially cavilled against its extension to the well-heeled executives whose expenses were practically taken care of by their employers, thus rendering such deduction redundant. But the Finance Minister, Mr Jaswant Singh, has not only not abolished standard deduction but also extended it to the well-heeled as well in a throw back to the position obtaining two years ago. The only suggestion of the Kelkar panel he has wholeheartedly, if irrationally, accepted is the abolition of tax on LTCG from shares. Yet, the Finance Minister has paid fulsome praise on the Kelkar panel. Electoral compulsions might have been at the back of such wholesale rejection of a panel's report, but the backhanded compliment certainly would have irked Dr Kelkar more than the fact of the rejection itself.

Now that it is the distribution tax's turn to hold centerstage and supplant tax on recipients of dividend, one thought that the regime of Minimum Alternative Tax (MAT) would be given the quietus. But the expectation has been belied. In all fairness, having extracted a price from dividend-paying companies, the Government should have scrapped MAT because the provocation for MAT was the nose-in-the-air nonchalance of a section of the corporate sector that rewarded its shareholders all right but thumbed its nose at the taxman. At any rate the flip-flop of the Government in owning and disowning the alternative regimes of dividend taxation has flabbergasted even the common investor.

Clearly, the Government has been wanting to have the cake and eat it too. It is aware that dividend is doubly taxed but is at the same time reluctant to lose revenue which sparing the dividend income altogether from the clutches of tax, as suggested by Dr Kelkar, amounts to. In the event, it has reduced successive Budgets to a farce by its flip-flop. If it is really concerned about double taxation, it has to do either of the two — spare shareholders from tax or allow dividend as expenditure to the corporate sector just as interest on borrowings is.

What has surprised many is the alacrity with which the Finance Minister has lapped up the Kelkar panel advice on LTCG from shares. This is one suggestion he should have been chary of given the weak premise on which it is founded — double taxation. The Finance Minster has been rather naïve in falling for the Kelkar panel argument in this regard.

In the event, he has allowed himself to be swayed by the bogey of double taxation where none exists while stubbornly refusing to be swayed by the genuine plea for abolition of double taxation of dividends.

The proposal to introduce scrutiny assessment on random sample basis may have the merit of replacing malicious subjectivity with mechanical objectivity.

But even a well-intentioned move could backfire. A computer, unless suitably instructed, could leave out big the fish and choose to haul small taxpayers over the coals.

One hopes sufficient safeguards are built into the move.

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