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[op-ed snap] Revolution and regression: Union Budget 2018

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Note4students

Mains Paper 3: Economy | Government Budgeting

From UPSC perspective, the following things are important:

Prelims level: Capital gains tax

Mains level: The article talks about some positive and some negative points of the budget.


News

Some important parts of the budget

  1. The budget contains a highly-laudable introduction of health insurance
  2. It will cost somewhere around Rs 20,000 crore a year
  3. The increase in minimum support prices for farmers to 1.5 times the cost of production (the cost as estimated by the Commission for Agricultural Costs and Prices)
  4. One estimate of the cost of this increase is the Rs 29,000-crore increase in the food subsidy budget for 2018-19

Governments are spending freely

  1. We all thought that the states were in big debt, that they were constrained from having a fiscal deficit (FD) no more than 3 per cent of GDP, but they are spending freely, and providing income to the poor
  2. And the central government is doing the same, a transfer to poor farmers, and transfer to the poorest 100 million families in the form of healthcare

Condition of fiscal deficit

  1. The FD estimate for 2017/18 was reported as 3.5 per cent of GDP, handily slipping the original target of 3.2 per cent
  2. In 2017-18, Central government will be receiving GST revenues only for 11 months, instead of 12 months. This will have a fiscal effect
  3. The 3.5 per cent FD estimate meant that, given expenditures, total revenues had slipped by about Rs 65,000 crore

What was the revolution and the regression in the budget?

  1. Revolution: High tax revenues, sensible redistribution to the poor and other schemes announced in the budget
  2. Regression: It was the introduction of a 10 per cent tax on long-term capital gains
  3. The long tern capital gains tax was ill-advised

The way forward

  1. The Modi government needs to be congratulated for helping transform the fiscal landscape, and making tax revenue a non-problem
  2. The government can now think up efficient ways of transferring this income to the poor
  3. This is happening — so why the introduction of yet another tax(capital gains), something even the RBI governor has rightly complained about?

Back2basics

Capital Gains Tax

  1. A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was greater than the amount realized on the sale
  2. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property
  3. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations
  4. For equities, an example of a popular and liquid asset, national and state legislation often has a large array of fiscal obligations that must be respected regarding capital gains
  5. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market
  6. However, these fiscal obligations may vary from jurisdiction to jurisdiction
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