Image Source: DTNext
With the election season around, we have started seeing lots of “Election Promises” floating around, which in the guise of impressing upon voters of the policy changes being planned by the contesting political parties, essentially seek to build and create a false hope at best, and exposes the daftness of the political leaders. This article seeks to bust certain myths about one such electoral promise, which has been announced by the DMK, the ruling Government in Tamil Nadu, which has, in the past, made all such ideas, without an iota of economic sensibility.
And this, coming from a party that set up a council of eminent economists across the world, if you can digest that “eminent tag” to a certain ex-RBI Governor and engaging a certain author who “demonstrated that the current dispensation” as among the most corrupt and biggest beneficiary of sand mafia, as a member/chairperson of State Planning Commission. With such a profile, it was only expected that the ruling dispensation would come out with proposals that are not just out of the world, but out of any reasonable logic. They have proposed that they will abolish the system of collection “Toll” (or the more proper nomenclature being “User Fee”) in all the National Highways in the State of Tamil Nadu.
Not just DMK, we have had multiple politicians set out on a war against the User Fee, and we even had one of DMK’s alliance partners, break the User Fee Plaza, after having asked to pay the toll charges. Why this anger against toll? Is it even justified? Ignoring the political noise around the levy and collection of tolls, let’s evaluate from a socio-economic standpoint and understand its necessity, and the alternative, and take a meaningful call on whether we need tolls or not.
To give a context, we need to be aware of and understand two sets of information – one, a fact about income tax rates; and two, a constant complaint about an imaginary misallocation of taxes being collected. Let’s discuss the latter point first.
A common refrain has been “Why my taxes should be used for constructing a bridge or a road in UP?”. This comes from the basic (mis)understanding (intentionally, I believe) that there is a direct nexus between the taxes contributed by, say the residents of Tamil Nadu, and its utilisation, say in the State of Uttar Pradesh. To support their argument, they also say that what’s the use of that road, which I will never use.
Fair point. We’ll revisit this after we get to know the first point.
Let’s now understand the facts about income tax rates. The total value of collections is not a fair basis for comparison of tax rates across longer time periods, and to this limited extent, I am using only the tax rates, as summarised in the table below: 
A casual reader can comprehend that the tax rates in India have gone down significantly over the past 3 decades. In fact, it has gone down by more than 1/3rd of the rate. If we stretch it even further to the 1980s, the reduction in tax rates is even more dramatic! I’ll let the readers google and get to be shocked at the tax rates in those periods. And I am ignoring the long periods of income tax exemptions for various sectors (infrastructure/hospitals/information technology exporters etc.) over this period.
This reduction in tax rates has been counterintuitive. Conventional wisdom suggests that a reduction in tax rate would mean a reduction in tax collection. However, it resulted in the exact opposite. The tax collection started growing at a pace quicker than the economy itself. The reasons are many, but let’s not digress.
In substance, today, the common man has been paying less proportion of his income as taxes as against what he would have been paying three decades back. But, he has also seen much better general infrastructure around him. From my personal experience, a journey from Trichy to Kumbakonam of around 100 km by road used to take more than 3 hours in the 1990s. Today people clock that distance in less than 2 hours. Thanks to much-improved roads, more number of bridges and roundabouts. This one hour may look like nothing, but once you multiply this by the number of people whose time on the road has gone down, you are looking at centuries of man-hours saved for productive utilisation.
And as a person using those roads, with a much lower tax-to-income ratio at a personal level, shouldn’t I be paying for the tolls? The answer is an absolute yes.
Let’s approach this from another side. Today, the roads are essentially funded/financed by the person who actually uses them, and not necessarily by the category who goes by the description “taxpayer”. The cost of constructing the highways is entirely on the company building those roads, and their compensation is the user fee that you and I pay for it. What this means is that I am paying for the roads that I use (by way of tolls), and I am not paying for the roads that I don’t use (either as a toll or as an income tax). This represents a shift in the fundamentals of tax policy! The change in economic approach to taxing the actual user, as against using a common pool to fund the roads, is not just sensible, but patently fair.
Now, assume for a moment, you don’t have to pay tolls, and the Government waives them all, how do you think you’d be getting good roads and essential public infrastructure? Using Government spending, obviously. And how do you think the Government will fund such public infrastructure? Either by borrowing (in true DMK Style) or by raising taxes (in true Congress Style). Either way, you lose. But you do win the opportunity to ask “that” question again – Why should my taxes be used for the development of some other State?
And I am not even discussing the adverse economic impact on your day-to-day life. That’s for another day.
G Saimukundhan is a Chartered Accountant.
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