The two big events on 28^th February were the Oscar awards (well, they were telecast early morning on the 28^th in India) and the Union Budget. Both disappointed!

I thought that there was no way M$B would get the Best Picture award and was rooting for The Aviator, but the Academy disappointed me!

As for the Budget, well… I won’t say it was a disappointing performance. From what I’ve been hearing and reading, the Finance Minister, P Chidambaram did manage to stick to good economics for most of the part. But he has slipped in some seemingly innocuous things that may have seemed trivial when he spoke about them in his speech. However, as the fine print has become clearer, it has gradually dawned upon us that these irritants are not merely flies in the ointment as Madhu has pointed out in his excellent post.

Two things are causing me immense irritation…
1. The 0.1% withdrawal tax on amounts over Rs. 10,000
2. Fringe Benefits Tax

At the outset, the limit of Rs. 10,000 is ridiculous! PC is probably either living in the middle ages or has very little idea about the spending habits/power of the middle class. On top of that, he seems to be blissfully unaware of the fact that traders abhor cheques as a mode of payment. But then forget that! The real reason, as PC would have us believe, is that this step will help track black money by creating a tax trail. Come now Mr. Chidambaram… any money stored in a bank account is, for the lack of any other word, accountable… isn’t it??! In that sense, every withdrawal is documented and easy to track. Attaching a price on withdrawals has no other reason but to continue the harassment of honest tax payers and to fill up the government coffers via double taxation.

It is common sense to know that Black money is made and maintained outside of bank accounts. Moreover, as Madhu points out, Yeshwant Sinha’s steps of quoting PAN while opening an account or making cash deposits of over Rs. 50,000, goes a long way towards ensuring that minimal amount of black money enters into the banking channels in the first place. If that is so, taxing withdrawals is not only a sign of misplaced zeal but also a sign of asinine thought process… that is, if we grant the Finance Ministry the benefit of doubt on the allegation that they’ve gone in for this tax with the sole intention of fleecing the tax paying middle class… and of course, unnecessarily increasing the workload for bank employees!

If you wonder why I keep on referring to the middle class, then bear in mind that the middle class if the largest consumer of the consumer durables which seem to be flying off the shelves given the attractive pricing and financing options these days. And which shop keeper would accept a cheque when a common middle class guy goes out to buy a TV or a fridge?! Dealers love cash and for this reason, it will be the middle class that will be definitely and repeatedly hit by this ill thought-out withdrawal tax.

Moreover, the withdrawal tax is also applicable on two other transactions, encashing FDs and purchase of drafts/travellers’ cheques. Taxing FDs in this way will make them less attractive for holding money. But what I find the most illogical and downright foolish is the move to tax the purchase of drafts and travellers’ cheques. PC mentioned he would like to see a move towards a cheque based economy. So why for heaven’s sake has he tried to tax bankers’ cheques and travellers’ cheques?!!

Today I heard someone arguing that if we don’t protest when a private bank charges Rs. 100 for a draft as opposed to Rs. 11 by a nationalized bank, why are we protesting this 0.1% withdrawal tax?!! Well… thats a non-argument really! For one, when we go to a private bank, we pay for the service we get! Everyone knows what sort of service, or the lack of it, we get in a nationalized bank! Moreover, in case of drafts, we have a choice of rejecting a bank that charges more in favour of another that charges less i.e we have a freedom which we may or may not exercise. In the case of the withdrawal tax, we have no choice but to pay up with nothing in return. In that sense, its a small restriction on the freedoms we should be enjoying! And that’s ironic because in the last paragraph of the budget speech, PC talks about expanding the economic freedoms that we enjoy…

One of India’s proudest sons, Dr Amartya Sen, argues in his book ‘Development as Freedom’ that development is a process of expanding the real freedoms that people enjoy. He says, ‘Growth of GNP or of individual incomes can, of course, be very important as means to expanding the freedoms enjoyed by the members of the society…

Mark that one down as one of the ever increasing ironies in the Indian political circus!

In any case, people will find ways to circumvent the withdrawal tax speedbump. If I have to withdraw more than Rs. 10,000 in a single day, I will make out a bearer cheque for the amount in the name of someone, say my dad… and he’ll get the amount for me from the bank. This means I don’t pay the withdrawal tax but still have cash with me when I go shopping. For people who prefer not to use cheques, one possible way is to open multiple accounts and withdraw “tax-free-withdrawal-limit minus 1” from each account!

*sigh*

My rant on Fringe Benefits Tax coming up soon…