The partial rollback of revenue-earning measures proposed in the 2011-12 Budget — through the withdrawal of the five per cent medical services tax, halving of customs duty on imported auto parts in completely knocked-down conditions (CKD), and a small reduction in duties on readymade garments — has generally been well received, although the welcome is muted. Particularly in respect of the tax on air-conditioned hospitals and healthcare facilities, the demand for withdrawal seemed quite widespread (though such facilities are rarely availed of by the poor), and finance minister Pranab Mukherjee has deferred to a broad sentiment in Parliament and elsewhere.

In any case, with Assembly elections in four states and the Union territory of Puducherry due next month, no finance minister could have been entirely immune to a degree of political calculation, and the proposed tax on healthcare had come to be derisively described as the “misery tax”. Mr Mukherjee noted while announcing its withdrawal that he had originally conceived of the measure not as a revenue-earner but in the context of the proposed goods and services tax (GST) due to come into force next year.
In the case of branded garments, manufacturers tend to hike up costs by 40 per cent and more only for the brand name. So the finance minister taking 10 per cent of this ramp-up should hardly have mattered. There are no compelling reasons why he cannot take his “cut” from channels that offer the opportunity for such high profitmaking without being apologetic, while protecting the small-scale sector. Similarly, halving the duty on CKD auto parts primarily for luxury carmakers was, strictly speaking, not warranted. The measure did not impact most ordinary people, and there cannot be much traction to be gained through its reduction in the context of the coming elections. This change can thus only be reasonably understood as a gesture of positive symbolism, keeping in mind the sentiments of the investing classes — who are luxury car buyers. It is worth remembering that after Mr Mukherjee announced the customs duty hike in the Budget, luxury car makers had reportedly proposed raising prices by `2 lakhs. They had few doubts that the market could bear such a hike. In the event, there appeared no particular reason for the FM to turn queasy on this count.
Mr Mukherjee has warned that if exemptions are sought on a range of items, this would make a mockery of the GST and the direct tax code (DTC). Perhaps the finance ministry needs to do its homework more diligently so that the right people, and appropriate sectors, are targeted for relief. Embarrassing rollbacks would then become unnecessary. While these rollbacks provide some drama, the government seems to miss the big picture regarding the aggregate burden of indirect taxes on the poor. In India this stands at 50 per cent, compared to 17-20 per cent in the OECD countries (Western Europe), which are among the 34 richest nations in the world. The poor — the so-called aam aadmi — have to bear the burden of excise, sales tax, customs duty and several other local taxes. It is these which urgently need to be brought down. Hopefully, this will happen with proper monitoring when the GST and DTC come into force. The finance ministry should also concentrate more on the black holes of direct taxes in the form of umpteen exemptions, for instance the location-based ones. This could net the much-needed revenue for social welfare and other schemes intended to raise the lot of ordinary people.