budget 2019: Budget Specials: Why Nehru presented a ‘pedestrian’ Budget in 1958

Economy


In 1958, India’s first prime minister Jawaharlal Nehru commenced his Budget speech with the following lines:

“According to custom, the Budget statement for the coming year has to be presented today. By an unexpected and unhappy chain of circumstances, the Finance Minister, who would normally have made this statement this afternoon, is no longer with us. This heavy duty has fallen upon me almost at the last moment.”

T T Krishnamachari resigned as finance minister of India in February 1958 after a one-man commission headed by former chief justice M C Chagla submitted his report in the infamous Mundhra scam.

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Nehru, a man of letters, would lean on his rhetorical flourishes to present the Budget for 1958, a document that dealt with numbers and accounting jargon.

Nehru called his Budget “pedestrian” as it was merely a continuation of the path taken by Krishnamachari in the Budget of 1957 in which he introduced “some novel taxes”, as Nehru called them.

In his speech Nehru said, “Last year, my distinguished predecessor in this office presented a Budget statement which, in some respects, was unusual and which involved substantial additions to taxation. Some novel taxes were introduced and an attempt was made to bring about gradually a reorientation of the tax structure of the country. I believed then, and I believe now, that this was the right direction for us to travel and that we should continue to pursue this path.”

The Budget of 1957 presented by Krishnamachari introduced two new taxes — wealth tax and expenditure tax. While justifying the need for imposing a wealth tax, Krishnamachari said, “It is recognised that income as defined by existing income tax laws and practice is not a sufficient measure of tax paying capacity and that the system of taxation on incomes has to be supplemented by taxation based on wealth.”

He said that the move to impose wealth tax “promises, over a period, to reduce the possibilities of tax evasion”.

The second tax introduced in that year’s Budget was expenditure tax. The rationale behind imposing a tax on expenditure was to curb excessive spending and promote savings.

While introducing the levy, Krishnamachari said, “It is, however, a tax which, given effective administrative arrangements, can be a potent instrument for restraining ostentatious expenditure and for promoting savings. In the present circumstances, I think all we can do is to make a small beginning. I propose to levy this tax only on individuals and Hindu Undivided Families…”

Nehru, in his Budget speech of 1958, didn’t tinker much with the broad taxation policy adopted by Krishnamachari in the previous year. However, he introduced ‘gift tax’ in direct taxation as a measure to curb avoidance and evasion.

While laying out the tax proposal, Nehru said, “The transfer of properties through gifts to one’s near relations or associates is one of the commonest forms of avoidance of not only the Estate Duty but also of Income-tax, Wealth Tax and even the Expenditure Tax. The only way of effectively checking this practice is to levy a tax on gifts. Such a tax is already being levied in other countries, for example, USA, Canada, Japan and Australia.”



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