NEW DELHI: This being the last budget before election, finance minister

P Chidambaram

decided to take a leaf out of the

Warren Buffett

rule book by whacking the wealthy with a rich tax, though he said it was only for the period of a year. The American billionaire has often pointed out that he pays a lower average tax rate than his secretary.

While imposing the 10% tax surcharge on those with incomes above Rs 1 crore, the finance minister invoked the Azim Premji ‘giving away’ spirit. However, though he did leave the rich a little less rich, it wasn’t as if he was distributing largesse to other taxpayers.Most will have to pay at the old rate though the small taxpayers — those whose income is between Rs 2 lakh and Rs 5 lakh — get relief through a tax credit of up to Rs 2,000. This will benefit 1.8 crore people. Falling in the ambit of the rich tax will be 42,800 large tax payers.Chidambaram kept the tax rates of the three slabs unchanged: 10% for income between Rs 2 lakh and Rs 5 lakh, 20% on income between Rs 5 lakh and Rs 10 lakh, and 30% on income above Rs 10 lakh. In fact, he gave tax credit of Rs 2,000 on the first slab to mitigate the effect of inflation on the exemption limit, which was increased to Rs 2,00,000 from Rs 1,90,000 in the last budget. To keep the effective exemption limit at Rs 2,00,000, it should have been raised to Rs 2,20,000 if the inflation rate is taken at 10%.However, since that would have benefited all taxpayers, he chose the tax credit route for the lower slab. In his budget speech, he said, “Assuming an inflation rate of 10% and a notional rise in the threshold exemption from Rs 2,00,000 to Rs 2,20,000, I propose to provide a tax credit of Rs 2,000 to every person who has a total income up to Rs 5 lakh.’’In this, if one has an income of Rs 2.10 lakh, his existing basic tax liability would have been Rs 1,000. This will become zero now. As the majority of taxpayers in the country are in the income slab of Rs 2 lakh and Rs 5 lakh, the total revenue loss due to the tax credit of Rs 2,000 will be 3,600 crore. Chidambaram argued that fiscal consolidation cannot be effected only by cutting expenditure. “When I need to raise resources, who can I go to except those who are relatively well placed in society?’’ he said.Hence, the decision to levy a surcharge of 10% of total tax liability on those whose incomes are above Rs 1 crore.Interestingly, there are only 42,800 persons in the country who admit to having a taxable income of over Rs 1 crore per year. In a country of 80 crore voters, Chidambaram can well afford to antagonise this small number to raise additional revenue. For the crorepati club, the surcharge of 10% leads to an increase in the tax rates of all the slabs. The rate including the 3% education cess on lowest slab of income between Rs 2 lakh and 5 lakh becomes 11.33% instead of 10.30%, between Rs 5 lakh and Rs 10 lakh it becomes 22.66% instead of 20.60% and 33.99% on income above Rs 10 lakh, which otherwise attract tax at the rate of 30.90%. This leads to a substantial increase in the tax liability.Union Budget 2013Budget news 2013Economic Survey