Please do your math Sainath

By Ramanathan Subramanian

This is not the first time P Sainath has sermonized about the morality of government giveaways. As the patron saint of media ethics and rural-journalismadmits in his article, he has written about it earlier in 2009-10 as well. Yet, he laments, that little has changed for the better and it is perhaps getting worse. Well yes Mr.Sainath, things have not changed to your liking, because you are plain wrong.

Sainath compares social sector spending, most notably the farm-loan waivers and subsidies given to agriculturalists, with the tax-breaks given to corporate companies in India. He asks: if we can afford to give tax breaks to the ‘rich’ companies, why not provide subsidies to the ‘poor’ farmers?

Tax breaks and subsidies are not the same

Let’s get one theory straightened out first. The most glaring manipulation in his diatribe is comparing subsidies and tax breaks and treating them as equivalents.

A ‘tax-break’ is any legally-approved reduction in taxes which is to be paid to the state by an individual or company for generating income. In other words, the tax I pay to the government is essentially MY money and does not really belong to the government. I give it to the state for the services supposedly provided by the state and to support poor. Tax is an imposition on citizens, not a state’s right in the strictest sense.

A ‘subsidy’ is a financial contribution made by the state, from the tax-payers’ kitty, to certain individuals or groups to support their economic activity. So a subsidy is taxpayers’ money which is being given to certain individuals or groups for their personal benefit. Loan-waivers are subsidies. Rent-seekers of the socialist system, from corporate companies to farmer groups, take advantage of subsidies to further their financial motives.

Each one of us is morally within our rights to demand tax-breaks and legally evade taxes, and also question the government when it squanders our money away in the name of ‘subsidies’. As Sainath rightly points it out, the loan waivers “never touched the most needy of them anyway”.

So I wonder why he takes an issue with us for calling these subsidies wasteful while he conveys the same in a different way. Ideally, all tax breaks should be encouraged and all subsidies shunned, irrespective of whether they are directed at the rich or the poor. But we do not live in world of equal opportunities and we cannot see everything in black and white. Perhaps a PDS here or a NREGA there is just fine. But does that mean we get to preach about choices an individual should make with respect to his or her own money?

As an individual tax payer, I have no problem if government lets rich companies keep their money. If they are provided with free government land, bail-outs during market crashes or other such subsidies, that should certainly be contested and fought bitterly, reason why Sainath is right to point out how outrageous it is to let loan defaulters of public sector banks go scot-free. But if Sainath has a problem with those not paying enough taxes, then he should be directing his fury not at the corporates, but at the agriculture sector. We will get to that later.

Numbers misleading

Since I suffer from acute number-crunchitis, allow me some number-frothing as I amjonesing for my fix.Sainath has used the 2013-2014 data as the centrepiece in his article, but that is just an estimate. As agricultural income data is also not available for the latest year 2013-14, I am going to use 2012-13 data provided in the same budget-document, which are revised figures. The tax-break for corporates in 2013-14 was Rs.5.72 lakh crore, and it was Rs. 5.66 lakh crore for the previous year, not much of a difference. So Sainath’s argument remains the same.A disclaimer here: I am no expert economist. So I welcome any shaming on account of wrong accounting.

Sainath’s main complaint is this: Why should the rich and mighty get an oh-my-god-5-lakh-crore rupee tax break? Fair question, no? No. Here is why.

Firstly, the elephant in the room: of the Rs. 5.6 lakh crore ‘forgone’, only Rs. 68,000 crore is direct-tax, rest of it which adds up to more than Rs.4.5lakh crore is indirect taxes, meaning those ‘tax breaks’ were not pocketed by the companies, but were concessions to the consumers as they are the ones who would have been charged eventually. Of course, this helps businesses by driving up demand, but is that a giveaway to the companies?

The fun does not stop here. A major chunk of the Rs.68,000 crore direct-tax ‘revenue forgone’ in 2012-13(Table 5), around Rs. 38,0000 crore is ‘accelerated depreciation’. That simply means that the company will pay the tax in the future. It is an incentive no doubt, but it certainly is not a giveaway like Sainath would have us believe.So looks to me, if you wade through all the numbers, the ‘giveaway’ for companies eventually falls down to around Rs.30,000 crore for 2012-13.

Now just for fun, let’s assume that Rs.5.6 lakh crore is a solid figure. For the year 2012-13, the total profit before taxes for the 6,18,806 companies accounted for in the report (link provided by Sainath) is Rs. 10.87 lakh crore. Further, at an average tax rate of 22.44%, these companies, put together, paidRs. 2.43 lakh crore as tax. What Sainath wants instead is this: Of the Rs. 10.87 lakh crore rupee profit-before-taxes, they should cough-upRs. 8.09 lakh crore as tax (that’s payable tax of Rs. 2.43 lakh crore plus tax forgone amounting to Rs. 5.66 lakh crore). If Sainath had his way, corporates would be paying nearly 80% of their profit-before-taxes as tax, making their business unviable, or pass this tax on to consumers, hiking prices severely.

These arguments will hold true for the 2013-14 numbers or the previous years’ numbers too. You can imagine what will happen to his sham Rs.36 trillion-estimate.

Look who pays no taxes

Now, let us get back to the agriculture sector which Sainath loves. As I mentioned earlier, if he has a problem with those who don’t pay taxes, he should look up how much agriculturalists pay as tax in India.

Barring some sectors like tea plantations which are partially taxed, agriculture is fully exempted from taxes in India. In 2012-13, the national income from agriculture was around Rs. 14 lakh crore. Tax paid: 0. Assuming farmers should be asked to pay a paltry 10% of their income as taxes, as opposed to the average 20-25% paid by evil corporates, the yearly ‘revenue forgone’ for agriculture is Rs.1.4 lakh crores rupees. At 22.44% tax rate, the same would mount to Rs. 3.18 lakh crore. So look at it this way, companies make Rs. 10 lakh crore a year and give away Rs. 2.5 lakh crore as tax, but the agriculture sector makes Rs. 14 lakh crore a year and pays nothing? Will Sainath ever tell us about this? Add to this, farmers get subsidy for seeds, fertilizers, water and electricity. Quite a party, eh?

No it is not, and we all know that. The intention here is not to belittle the difficulty in being a farmer in India today. All of us empathize with poor farmers, and more people are dependent on agriculture than on companies, which is another reason why this comparison leads to false equivalence. Sainath loves slinging mud at ‘corporate India’ as though they are all a bunch of thieves. We would fall into the same category if we dismiss farmers as freeloaders. Do such silly comparisons with corporate India lead to any solutions? And is taxing the companies more a solution to the difficulties farmers face?

In spite of zero-taxes and high subsidies, agriculture’s contribution to Indian economy is falling every year. Agriculture is the most regulated sector in the country. From pricing of raw materials to controlling the sale of the product, there is government intervention every step of the way. Should the likes of Sainath not be championing the cause of empowering poor farmers by taking control of the market rather than getting them hooked to farm-loans which only destroy their lives even further?

The writer is a former journalist. He works with a think, and is a student of economics and policy research. All views are his own and do not represent the views of any organization he is associated with.

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