Passing the budget in second attempt.

For a government consisting of partners in double-digit and forced to deal with a no nonsense IMF, the passing of the budget in second attempt is commendable. There are some improvements. Thanks to the IMF, the poor and the not-so-poor have been targeted for subsidies in these days of hardship. Again, thanks to the IMF, the regressive attempt to provide relief to every individual paying income tax has been reversed and a progressively rising burden introduced. In addition, high earners will pay super tax of 1-4%. There is an anomaly here of a person earning 50,000 rupees a month paying income tax and another making a little below eligible for targeted subsidy on petrol. Obviously, fixing thresholds is never easy. On the corporates, a super tax of 10% has been imposed raising the effective rate to around 40%.

It seems like a beginning to address the low and falling share of direct taxes. However, with the super tax declared as a temporary measure and insubstantial progress on shifting the withholding income taxes to normal income tax regime, fingers will remain crossed. It may be convenient for a government in a crisis mode to tax the already taxed more, but fiscal sustainability requires reform to expand the base. The biggest hole in the base is agricultural income. Not only that it is exempt from income tax, it is also an easy route to tax avoidance by showing non-agricultural income as agricultural income. But the government wants to protect some GDP growth by subsidising agricultural inputs. Traders are another large set of delinquents. A start is being promised by reaching them through electricity bills. Last, but not least, is the real estate business that has extended itself to the smallest of towns. The budget signals a transition from amnesty to taxation. One hopes these are not temporary measures like the super tax. Regardless, indirect...