Nirmala Sitharaman's infrastructure push need not be a pipe-dream: Here's how

The government should be happy that they are still buying civilization by investing in infrastructure bonds instead of paying their full taxes.

Budget 2020 : Build infrastructure first, private investments including Foreign Direct Investments (FDI) would automatically follow is not an audacious or far-fetched dream. China did it with a great deal of success. Finance Minister Nirmala Sitharaman obviously wants to emulate the Chinese model without actually saying so when a few days ago she outlined her government’s plan to launch a massive Rs 102 trillion infrastructure development plan. Skeptics wonder if it is feasible as it would be a quantum jump over the present average of about Rs 8 trillion infrastructure investments per annum.

A combination of public private partnership (PPP), Swiss Challenge Model (SCM) and intelligent tax incentives for investments in infrastructure bonds can realize her dream and break the lack-of-investments-lack-of-employment-opportunities logjam or vicious cycle. This article focuses exclusively on infrastructure bonds as a tax reduction tool. It has been tried in the past but not on a large enough scale. The government must be prepared to enter into a compact with the taxpayers so that they can discharge a large sliver of their tax liability by way of investments in infrastructure bonds.

The above model tax incentive matrix should apply secularly to all types of taxpayers be they individuals, firms or companies subject to the condition that their Total Income (taxable income) should not go below 50% of the Gross Total Income after deducting other qualifying amounts under Chapter VI-A.

Let us consider a hypothetical case of a senior citizen.

Gross Total Income: Rs 10,000,000

Section 80C deduction: Rs 150,000

Section 80TTB deduction on bank interest: Rs 50,000

Total income prior to infrastructure bonds: Rs9,800,000

He has indeed been made to sweat it out. If you tote up the first column, he has been made to invest Rs 77.60 lac so as to be able to knock off Rs 49 lac from his taxable income.

At a time when savings rate has come down, the above incentive would not only shore it up but also improve tax compliance because people while resenting paying tax, which in their perception goes down the drain, don’t mind the vicarious tax of blocking their money in infrastructure bonds. They don’t even mind investing for the next generation. What is galling for them is the prospect of paying tax, period. Not many people share the noble sentiments of Justice Holmes — I like to pay my taxes; with them I buy civilization.