JULY 6th is around the corner and everyone is anxiously awaiting Budget 2009. With global economies in a bad shape and the specter of a full blown economic recession refusing to fade away, everyone is hoping that announcements made in the Budget don’t further upset the applecart in anyway.

Hopes and wishes
On the one hand, it is Mr. Pranab Mukherjee’s first full budget in his new role as the Finance Minister and he would most certainly want to bring about a feel good effect for the taxpayer. However, given that the combined central and state fiscal deficit is upwards of 10 per cent, the headroom that he has is extremely limited. And it must be said that the FM’s task is not an enviable one. He can’t possibly please everyone. We would obviously like personal income taxes to be reduced and tax exemptions to increase. Domestic manufacturers would hope for a lowering of tariffs and indirect taxes. Importers clamour for a cut in customs duties. The international community would like to see a continuation of the structural reform process, betterment of the fiscal situation and opening up of trade barriers. Each constituency has its own agenda and the question that confronts the FM is which constituency to satisfy and which one to ignore.

Well, for starters, Mr. Mukherjee would do well to pay special attention to the salaried class. It is unfathomable why governments, one after another, turn a blind eye to this significant constituency. In fact, it is this constituency that prepays its taxes to the government month in month out through the system of TDS. It is said that a good government should treat its citizens as customers. In which case, the salaried should form the list of the most important customers – those who not only pay up but prepay their dues year after year. So, if there are five things that Mr. Mukherjee can do to this year to bring a smile his customer’s face these would be –

1. Reinstate standard deduction. The discontinuance of standard deduction is blatantly discriminatory towards salaried employees. Homeowners/landlords get a 30 per cent standard deduction. Businessmen can set-off every expense that they incur to earn income. Then why treat the salaried differently?
2. Transport allowance deduction has remained at an absurd level of Rs 800 per month. This is almost insulting to the taxpayer. There is an urgent case for tripling the limit to Rs 2,400 per month in the very least.
3. Given spiraling property prices, the ceiling on interest deduction of Rs 1.50 lakh is once again not in touch with reality.
4. All perks, almost without exception are taxable. Those that aren’t have been brought under the ambit of Fringe Benefit Tax (FBT). As FBT is payable by the employer, in effect those perks too have ipso facto either disappeared or are counted as a part of the employee’s pay package (cost to the employer). Those that have remained are structured in such a way that it is ultimately the employee who bears the FBT. Since the collections from FBT have not been spectacular to begin with, there is an urgent case to dilute or even discontinue FBT.
5. Finally, there is the issue of deduction for medical expenses. Spiraling health care costs are a reality and there is no system of government sponsored health plans. In such circumstances, having a paltry limit of Rs 15,000 in which the employee is expected to cater to the medical expenses of his entire family borders on the farcical.

This is as far as the specific constituency of the salaried class is concerned. However, there are other issues that affect taxpayers in general.

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Illustration: Vaibhav Shirke  

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e-mail: Sandeep Shanbhag

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