Arun Jaitley defends surcharge levy, says rich must pay more

New Delhi: Finance Minister Arun Jaitley Friday justified levy of 10 percent surcharge on rich saying the resources in a largely non-tax compliant society will have to come from the more affluent.

Reading out tax-payer data, he said excluding salaried class, there are only 20 lakh people who voluntarily declare their income of over Rs 5 lakh in a year.

"In a non-tax compliant society, the state needs resources and the resources will have to come from the more affluent as far as the tax structure is concerned. There is a social equity also behind this," he said at a post-Budget interaction with the industry chambers here.

He had in his Budget for 2017-18 proposed a levy of 10 percent surcharge, on top of the peak rate of tax, on individuals with income between Rs 50 lakh and Rs 1 crore annually. He retained the 15 percent surcharge on those having over Rs 1-crore annual income.

At the same time, he halved to 5 percent the basic tax rate for those earning between Rs 2.5 lakh and Rs 5 lakh income.

"The taxation approach is also absolutely clear. Our steps against shadow economy would continue and that's why we put a cap of Rs 3 lakh on cash transactions," he said.

With the implementation of Goods and Service Tax (GST), the scope for generation of black money itself will become more difficult.

"Hopefully, with the steps that the Department of Revenue has taken and the demonetisation, I think it is significantly going to change the pattern of spending behaviour as far as consumers are concerned," he said.

Jaitley said normally budgets are known for imposing higher taxation. But except for imposing surcharge on individual with income between Rs 50 lakh and Rs 1 crore, in the Budget for 2017-18, "there is an equity in the wealthy paying more".

"I have also in the Budget document consciously given some data to indicate how much of a non-compliant society we are," he said, adding the effort of the government is to make the society more tax-compliant.

"If we keep those 56 lakh salaried assessees out, the voluntary tax payers above Rs 5 lakh (income), which includes the whole body of business people, traders, professionals, lawyers, doctors, you will find there are only 20 lakh people in the country who declare voluntarily an income over Rs 5 lakh. It is something which is absolutely incredible. And therefore, the fact is that more and more people have to be incentivised to get into the tax net," he said.

Jaitley also said the revenue department is making use of

technology to minimise interaction between assessee and tax officer.

He said post demonetisation the tax department has identified 18 lakh people to whom the tax department is sending e-communication seeking clarification.

"A lot of changes are happening with the use of technology. I am conscious of the fact that it's the same set of people, some in your fraternity who don't pay taxes and some in that fraternity who exploit that situation. So the DNA is really the same," Jaitley said.

To make MSMEs more viable and to encourage LLPs to migrate to company format, Jaitley had in the Budget reduced the income tax for smaller companies with annual turnover up to Rs 50 crore to 25 percent.

As per the data of assessment year 2015-16, there are 6.94 lakh companies filing returns, out of which 6.67 lakh companies fall in this category. Hence 96 percent companies will get the benefit of this lower taxation.

Asked about the corporate tax reduction, Jaitley said data analysis by Department of Revenue clearly shows that this (MSME) is a segment which is still paying over 30 percent, if you include surcharge.

"The average of the big boys who hasn't got the benefit of this is already paying 25 percent. Therefore, there is a rationale without phasing out the exemption we will restrict at the present moment this reduction to those who were effectively and de facto paying 30 percent and above and not those who were paying 25 percent or less," he said.

Asked if there would be further cuts in interest rates, Jaitley said the banks have transmitted a large part of policy rate cut.

"Post demonetisation they did take a significant step also. They were behind the curve till demonetisation, but post demonetisation, I think they have covered up substantially," he said.

With regard to capital infusion in PSU banks, Jaitley said the Budget has already provided for Rs 10,000 crore capital in 2017-18. "If more is needed we will support the banking system," Jaitley said.