Clamorworld Exclusive: Krishi Kalyan Cess From Today,Burden For Middle Class Increases

 

It’s June first and yet another cess gets introduced to the service tax that you pay almost anywhere. After the Swachch Bharat Cess, the Environment Cess, there is now the Krishi Kalyan Cess that comes into action today and is set to increase the overall service tax to 15% for the average Indian who is already overburdened by a myriad of other taxes.

While the thought behind generating the Krishi Kalyan Cess is no doubt constructive, the idea to add to the Middle Class Indian’s monthly budget might be debatable. While playing the role of a benevolent and caring Government for the agricultural community, I am not sure how it makes sense to add more to the woes  to the already burdened middle class.

The net income tax assesses in India is surprisingly less than 3% of its population. When compared with developed countries the difference and disparity becomes quite clear. On an average the tax base covers around 40% of the population in most developed countries. While a change does happen slowly, efforts to broaden the tax base in India leaves a lot of room for improvement and even more questions to be answered. While in 2005-2006 the rate of penetration in terms of the total number of income tax assesses was 2.45%, it has increased to a paltry 2.75% by 2012 and currently is bordering close to 3%. So therefore as per this data from the Tax Administration Reforms Commission, this 2014 data highlights that there hasn’t even been a full 1% increase in the total number of tax payers in these ten years.

Not only is this a gaping discrepancy. Surprisingly the bulk of the tax, nearly 90%, is paid by those earning upto Rs 5 Lakh or lesser. For the income slab of Rs 20 Lakh or more, their total contribution to income tax is just 1%. This thereby implies that 5% of the country’s tax-paying population is actually burdened with 75% of the tax revenue that the Government is earning.

Therefore instead of adding more of these indirect taxes to the common man’s platter, the Government needs to take some long-term and immediate measures to broaden the tax net and relive the whole medley of cess that is levied on a middle class Indian’s daily expense from eating out to buying clothes and even houses and almost anything they pay for. Effort also needs to be made to bring that part of the farming community under the tax net which is in focus for driving pajeros, building huge houses and enjoying subsidised water and electricity facilities under the blanket arrangement for farmers.

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