June 1st - a day of mourning for the Middle Class In India

An ordinary Indian in the south of the country eagerly awaits June 1^st ,for it’s the date when the south west monsoon lands in its lap.  But in recent years, they along with those across the rest of the country who pay direct and indirect taxes, a comparatively rare breed, dread the day, for its a day when the taxes proposed in the union budget at the fag end of February kick in, and these seem to rise with every passing year.

From this day forward, the service tax, which is now applicable on most services, will be 15%, up from 12.36% when this government took over office two years ago. First raised to 14% then to 14.5% for a Swacch Bharat, which still seems a distant dream, and now 15% with a 0.5% Krishi Kalyan Cess added for farmer welfare in the wake of the drought conditions prevailing across India.  ‘Acche din’ for the government seems to come around every year on this date. Next year the excuse will probably be the implementation of the 7^th Pay Commission recommendations! Incidentally neither this nor previous governments at the center have done anything constructive for the farmers, in terms of irrigation, supply chain, insurance, or for that matter, cropping information and inputs.

By raising taxes every year successive governments meet their fiscal targets. But what about the common man’s fiscal targets? The middle class consumer, remains bewildered -  After paying a hefty service tax, he hardly gets any services in return, for most of funds are used for schemes and services reserved for the economically and demographically marginalized, to enhance vote banks.  

All services that the middle class have come to enjoy because of their availability, and entertainment value, from Pizzas to movies will cost that much more.  The other day, friends of mine ordered 4 Pizzas from a famous eatery. The Taxes equaled the cost of one Pizza!. While the Pizza Bill was 2696, the total bill was Rs: 3188, the balance was taxes almost, if not equal to the cost of a Pizza itself. If one were to convert the Pizza into a pie chart, it would have presented a pretty picture to the Tax man!

But that’s not all that June 1^st has to offer the citizen. It rains taxes, not water on this day!

The cash purchase of goods and services over Rs 2 lakh will also attract 1% tax deducted at source – While the controversy over taxing purchase of jewelry in cash has been set at rest, with the government giving into the jewelers lobby, and cancelling its earlier notification on the subject, payment in cash for buying goods and services worth more than Rs 2 lakh with the exception of jewelry will attract 1 per cent tax collected at source (TCS) from today. The existing TCS (since July 1, 2012) of 1 per cent on cash purchase of over Rs: 5 lakh of jewelry and over Rs: 2 lakh of bullion will continue.

Traders will have to pay Higher Securities Transaction Tax (STT)  of 0.05% (up from 0.017%on options. While this may not in itself be hard on the pocket of stock traders, when combined with the additional 0.5% Krishi Kalyan Cess levied on Brokerage and Transaction charges, it might become significant in the hands of the trader.

And finally, vehicle enthusiasts, have to pay an additional 1% (Collected at source) on Vehicles costing over Rs: 10 lakh.  Most decently endowed vehicles come in this class, and this could be a dampener for a short while till people give in to their temptations for a little more.  The icing on the cake is the hike in Petrol and Diesel prices, when the international prices of crude are at an all-time low. ONGC and the Oil Companies have made a massive profit, and pay their employees far more than most companies can afford to do, all at taxpayer’s expense, for production / conversion costs are added into the prices.

The Government’s view, is that the middle class, can well afford this minor inconvenience for the greater good, just as the jam does for the sake of the two slices of bread in a sandwich!