IN HIS letter 'Tax without tears" (November 25) Inderjit Suri has raised relevant issues, but ironically the solutions suggested are 'ad hoc'. He says that tax slabs should not be created on whims. However, he fails to appreciate that the solution to the problem of change in monetary Emits for exemption etc in the IT Act cannot be brought about without any scientific basis. For example, the view that nil slab should be fixed at Rs 100,000 may not be acceptable to others who may think that the limit should be Rs 75,000 or more.
The solution to the problem is contained in the Long Term Fiscal Policy of 1985 in which para 5.6 reads: "It has been argued that in flation progressively increases the effective rate of taxation for given levels of real income and wealth through the process of 'bracket creep'. While there is a substance in this argument, a system of automatic adjustment of tax brackets may erode unduly the responsiveness of revenue to increase in incomes and assets value. Taking this into consideration, the Government will review the impact of inflation on effective rates of taxation once every two or three years. Adjustments will be made in tax brackets after taking into account the impact of inflation, the overall budgetary position and other relevant factors. "
It is unfortunate that instead of adhering to the suggestion given in LTFP, the government has been resorting to ad hoc changes in the Finance Act. Distortions are bound to occur by such methods of providing relief leading to demands of the nature. as made by Mr Suri..
T N Pandey, Nodia
Interest payment
THIS REFERS to your editorial 'Start with interest' (October 16). Starting with the proposition that'it is rare that precise numbers come to the aid of an argument', you have concluded that'the entire increase in the government's net taxi-evenue has gone towards meeting higher interest payments'. Both went up by Rs 27,000 crore, in the course of three years. However, if you look into the numbers closely you will find that the inference drawn by you is not correct.
To determine whether the increase in revenue went into interest payment what is relevant is the net increase in interest and not gross. A considerable part of the money borrowed by the Centre is lent too thers, onw hich it earns interest, Interest received by the Centre during these three years has gone upby about Rs 12,000 crore. In addition, dividends and profits received are also up by Rs 4,000 crore. Even if increasein dividendsand profitsis ignored, net increase in interest payment is only Rs 15,000 crore (Rs 27,000 crore - Rs 12,000 crore). Accordingly, only Rs 15,000 crore out of the revenue increase of Rs 27,000 crore can be treated as having gone to finance interest payment,.