May , 2018
Punjab’s professional tax: an avoidable impulsive proposition
13:01 pm

R S Bawa and Rajiv Khosla

Recently, Punjab’s Finance Minister, Manpreet Badal presented his second Budget, which primarily focused on fiscal consolidation, i.e., mobilising resources and cutting down expenditure. Although the Budget tried to please all the stakeholders, it remains to be seen whether it can do so convincingly. In the mad race to amass resources to get cheaper loans from institutions like Asian Development Bank, Badal proposed a new tax of Rs 200 per month on each tax payer and the modalities of this new tax are presently being worked upon. The state is already fund-starved and the outstanding debt is further projected to shoot up from Rs 1.96 lakh crore in 2017-18 to Rs 2.11 lakh crore in 2018-19. However, this direction of mobilizing funds by squeezing the tax payers cannot be justified.

Badal defended this proposal by pointing out that progressive states like Maharashtra, Gujarat, Karnataka, and Tamil Nadu, are collecting similar taxes. However, while carrying out the comparison with these states, the Punjab Finance Minister ostensibly failed to notice the intrinsic worth of these states, which actually facilitated the imposition of this tax. Besides having locational advantage of being close to the sea (except Karnataka), capital cities of these states remain the nucleus of Indian commercialisation. Maharashtra houses Mumbai, which is the financial capital of India. Similarly, gems and jewellery exports from Surat and textile industry from Ahmedabad along with 65% population in urban areas in Gujarat significantly assisted the imposition of this development tax. Likewise, Bangalore has earned the reputation of being the Silicon Valley of India. In addition, Karnataka is one of the leaders in automobile manufacturing. Tamil Nadu is also a highly industrialised state and its capital Chennai has earned the reputation of being the leading software exporting city of India.

Against these cities, stands Ludhiana, which has lost its status of being the ‘Manchester of Punjab’ due to terminated export orders and off-putting industrial policies of successive state governments. Further, the state government merely remained a mute spectator when industries from Ludhiana, Jalandhar, and Amritsar were lost to Himachal Pradesh, Jharkhand, and Uttarakhand, which offered better tax benefits. Punjab is also failing in facilitating its service sector. The state government is failing to pay salaries/pensions in time and even permanently appointed government servants are paid equivalent to temporary employees in initial years of their appointment. Given the circumstances in Punjab, the proposal to levy yet another tax seems absurd and obtuse.

Apart from the incompatible conditions, the direction of this tax is also defective. It seems that this professional tax is being levied only as a means to fill the coffers of the state government. This tax remains blind in addressing the inequalities in the state’s economy.

To bridge the persisting inequalities, the government could have taxed the items being consumed by the affluent classes. Estimates show that every year almost two lakh new cars and jeeps (excluding taxis) make their way onto Punjab roads. Even if it is assumed that half of these vehicles are priced more than Rs 5 lakh and accordingly, if the government taxed Rs 15000 for each, it could have amassed around Rs150 crore which is equivalent to the proposed amount to be collected through this new professional tax. Such a tax on cars would have triggered discouragement to use personal vehicles and profited the environment. 

The wedding market in India is growing at a rate of 20% and has got a boost with a decrease in taxes from 31.04% (when VAT was applicable) to 23.09% in the post GST period. Now, with average banqueting charges at a rate of Rs 2000 with 500 guests in a five star hotel are resulting in lower expenditure (from Rs 13.10 lakh earlier to Rs12.35 lakh), thereby yielding savings of around Rs 75000. Punjab
government could have strategised to bring to its kitty some of the amount from these savings.

Even if this tax gets to see the light of day, it is unclear what will be the fate of those tax payers who are paying a nominal tax. Suppose a family has four tax payers paying taxes at different rates of Rs 50000, Rs 20000, Rs 10000 and `1000 as per their incomes in the assessment year. Apparently, now this family will be paying an additional tax of Rs 9600 (2400 x 4) per year. Will it be logical to make the fourth person pay an additional Rs 2400, when his actual tax is computed to be only Rs1000 as per his income? This tax also does not qualify to be called as a professional tax due to its regressive nature.

Leaving aside economic logic, it is morally wrong to impose this tax. In the recently announced Union Budget, Arun Jaitley had increased the cess on income and corporate tax from 3% to 4% to provide healthcare alongside education to the needy. Those who can afford to juggle with the figures will manage to evade these taxes but honest tax payers will always remain in their grip and won’t get any respite from such desperate moves. Despite the raison d’être, if the Punjab Finance Minister goes ahead with this tax, then it will speak volumes about the paralysed thinking process of the present Punjab government.

- Dr. R.S.Bawa is the Vice Chancellor of Chandigarh University and Dr. Rajiv Khosla is the Head of the University School of Business, Chandigarh University.

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