In this part, we shall see how taxation policy is being used by the government to legalise the loot of the poor, to enable the rich to become richer.

Taxes are broadly divided into two categories – indirect taxes and direct taxes.

Indirect taxes are paid by people every time they purchase any good or use a service. Indirect taxes include import duties, excise duty, service tax and Value Added Tax (VAT) or Sales Tax. Almost all goods imported into the country are subjected to an import duty. Import duty collection for 2006-07 was Rs 81,800 crore, despite steady reduction of import duties to comply with WTO requirements. Every good manufactured in the country is subjected to excise duty when it leaves the place of manufacture; the excise duty collection during 2006-07 was as much as Rs 1,17,300 crore. Import duty and excise duty are built into the price of the good we buy so we do not know the amount of custom and excise duty we are indirectly paying.

A large number of services like telephone, electricity, banking, etc. used by people are subjected to service tax; the collection of service tax, a recent tax, had grown to nearly Rs. 38,200 crore by 2006-07. Similarly every time we purchase a good we pay VAT or sales tax. Import duty, excise duty and service tax are collected by the Union Government; VAT is collected by the state governments. The total collection of VAT by the state governments on purchases made was around Rs 1,40,000 crore. The total indirect taxes collected from people were thus around Rs 3,77,000 crore in 2006-07.

Direct taxes in our country are income tax, paid by individuals on their earnings, and corporate tax, paid by companies on their profits. For 2006-07, the total income tax collected was Rs 82,500 crore and corporate tax collection was Rs 1,46,500 crore. Thus the total direct tax collection was Rs 2,30,000 crore in 2006-07.

From the nature of the indirect taxes it is obvious that both rich and poor pay the same amount of tax on any good bought or service used whereas direct tax is related to the income level of the tax payer. Indirect taxes make up the major part of the tax collection at 63% of the total tax collection of around Rs. 6,00,000 crore in our country. So, the major part of the tax collection comes from the poor and not the rich of the country.

Present tax rate on income of individuals gives an impression that rich pay one third of their income as tax. However, there are a plethora of exemptions from tax provided to rich which lets them get away with very low tax payment.

Income from dividend paid by the companies does not attract any tax. Dividend is the share of the profit of the company paid to its shareholders. Dividend income was exempted from the tax by arguing that it will benefit lakhs of small shareholders. The real beneficiaries of this tax exemption are, however, a few hundred families who are promoters of the companies and who on an average hold nearly half the shareholding of all the companies put together. These include the country’s richest families – Ambanis, Sunil Mittal, Azim Premji, etc. Mukesh Ambani earned tax-free dividend income of around Rs 870 crore and Azim Premji of Wipro earned around Rs 700 crore during 2006-07. The total dividend distributed by corporate India during 2006-07 is not likely to be less than Rs 50,000 crore. This is the amount of income earned by the bourgeoisie without paying any tax. Similarly, dividend income on investments in most mutual funds is tax-free, therefore mutual funds have become a favourite of big bourgeoisie for investment.

The largesse to shareholding bourgeoisie does not stop here; they are not required to pay any long term capital gains tax either on sale of shares. Capital gains is the difference between the sale and purchase price of a share. Capital gain on shares sold after one year are considered ‘long term’ and so any profit thus made does not attract any tax. Shareholders have earned thousands of crores of tax-free profit by buying and selling of shares. Here, too, the biggest gainers from this concession are big bourgeoisie and Indian and foreign finance capital institutions.

Any income out of agriculture is tax free ostensibly to help farmers. This concession is also used by the rich by showing a part of their income as agricultural income by building farmhouses in the countryside.

The avenues used by most people of the country to keep their hard-earned savings are banks and post office. Paltry interest earned on bank savings is, however, fully taxed. Any tax exemption which benefits working people have limits imposed on them. VRS, as such, is a cruel blow to an individual. After a lot of struggle, people are able to extract a respectable compensation in some cases, but they have to pay taxes on it if it exceeds Rs 5 lacs.

If people maintain two books of accounts – one for paying tax and another for personal use – they will be called cheats and fined for doing so. But, the laws of the bourgeois state legally allow this cheating by any company registered in the country. Companies are allowed to keep aside a certain amount of money out of their earnings every year so that they can replace their assets when the life of assets is over. This is referred to as depreciation allowance. The profit of the company is calculated after deducting the depreciation amount. The laws governing the operations of companies in the country allow lower depreciation amount to be deducted to work out the profit for distribution among owners of a company but allow larger depreciation amount to be deducted to work out profit for paying the tax, particularly in the early years of the life of the asset. The laws thus allow two profit accounts to be maintained by a company – higher profit for distributing larger share of profit among the shareholders and another lower profit for paying tax to the state and that is legal!

The country’s foreign exchange reserves have been growing so rapidly that the government is struggling to find ways to use them. Yet, tax concessions to companies to encourage them to export larger and larger share of their production and thereby earn foreign exchange continue. Profits earned out of export of goods and services out of the country are not taxed at all. The biggest beneficiaries of this concession are Ambani’s Reliance Petroleum, Tata’s Consultancy Services, Premji’s Wipro, Raju’s Satyam, Adani, Infosys, ITC, Unilever, etc.

So the class character of the present state is fully evident – tax concessions to big bourgeoisie but the working class must pay full tax on whatever little they earn. Proletariat pays a larger share of its income as tax than bourgeoisie.

Finances of a capitalist state are planned and run for the benefit of the capitalist class it represents. Union Budget is a process of legitimizing the loot and deciding which group of bourgeoisie gets what share of the loot. People should not be fooled by any other claims made by the ruling parties and their left supporters about the Budget.