The NPF is a contributory pension scheme set up by statute in 1976 to provide a pension for private sector employees at retirement age. This measure was designed to put them on an equal footing with public sector employees who benefit from a contributory Civil Service pension.
The abolition of NPF contributions will thus deprive any first-time employee in the private sector after 1st September 2020 of the right to receive a funded pension, unlike his public sector counterpart – a blatant discrimination.
The Contribution Sociale Generalisee (CSG) Now Rebranded As Social Contribution Is A Tax
The CSG (now rebranded as a social contribution) is a tax, pure and simple, introduced to enable the government to fulfil its electoral promise of increasing the Basic Retirement Pension by Rs 4,500 in 2023. This is borne out by the Minister of Finance himself when he declared during the parliamentary debate on the Finance Bill 2020 that:
‘’La CSG est une charge qui nous permettra de récolter une partie des fonds nécessaires pour financer l’allocation accordée aux retraites ayant atteint l’âge de la retraite. Le montant restant sera financé par les recettes fiscales. ‘’
In France, where it originated from, the CSG is considered to be a tax. In Dalloz-actualite.fr, it is stipulated in an article on ‘Nature juridique de la contribution sociale généralisée’ that:
‘’le Conseil constitutionnel a jugé que cette contribution avait la nature d’un prélèvement fiscal entrant dans la catégorie des <<impositions de toute nature>> au sens de l’article 34 de la Constitution’’
On the website of the Ministry of Economy and Finance in France (Bercy Infos), it is stated that:
‘’la contribution sociale généralisée (CSG) et la contribution au remboursement de la dette sociale (CRDS) sont des taxes destinées à financer la protection sociale en France et a résorbé l’endettement de la sécurité sociale’’
Is The National Pension Fund (NPF) Or Rather The Basic Retirement Pension (BRP) That Is Unsustainable?
Like all private pension schemes, the NPF is facing an actuarial deficit because of diminishing yields on bonds and securities since the financial crisis of 2008 and increasing longevity of pensioners. Various corrective measures could have been taken to bring the fund back on an even keel, such as increasing the rates of contribution, uplifting the contribution threshold, pushing back retirement age,etc. .Abolishing NPF contributions is akin to cutting off the oxygen supply to a patient on artificial ventilation!
In fact, numerous professionals, and organisations (including the IMF) have been warning for quite a while that it is the system of BRP (universal old age pension) that cannot be sustained in the long run. With an ageing population, the number of beneficiaries of the BRP increases by around 12,000 each year, thereby putting a heavy strain on public finances. For financial year 2022-2023, an amount of Rs 29.4 billion is forecast to be disbursed for BRP (on the basis of the current monthly pension of Rs 9,000). As the government has pledged that pensioners over the age of 65 would be granted an increase of Rs 4,500 in BRP as from financial year 2023/2024,it is estimated that the state coffers will need to find an additional Rs 10 billion to Rs 12 billion in fiscal revenues every year to fund that 50% hike in BRP – hence, the stratagem devised by the Minister of Finance to abolish NPF contributions and replace them with a stealth tax known as CSG (now rebranded as a social contribution) which, even so, will not be remotely sufficient to meet the full cost of that increased BRP.
Private Sector Employees Are Worse Off Under CSG (Now Rebranded As A Social Contribution)
To extol the merits of CSG (now rebranded as a social contribution) over NPF, the authorities have persistently claimed that most private sector employees will be better off making contributions under CSG than under NPF. This is a misleading and erroneous argument. Whilst it is a fact that, for an employee earning a monthly salary of, for instance, Rs 30,000, his social contribution is now Rs 450 compared to his previous NPF contribution of Rs 597,it should be borne in mind that the nature of these two deductions from his salary is as different as chalk and cheese. The CSG (now rebranded as a social contribution) is a tax in disguise whereas NPF is a form of savings. He is thus worse off by Rs 450 every month!
Moreover, all private sector employees, who are not liable to income tax under the Pay As You Earn System, are now unknowingly paying income tax under the disguise of CSG (now rebranded as a social contribution)!
CSG (Now Rebranded As A Social Contribution) Is Unfair Against Private Sector Employees
- They have been deprived of an acquired right to contribute to a funded pension scheme
- Public sector employees are protected from CSG (now rebranded as a social contribution) in that their contributions are borne by the state, that is, taxpayers in general.
Private Sector Employers Are Burdened With Additional Payroll Costs
On top of PRGF contributions of 4.5%, private sector employers are now slapped with a payroll tax. The CSG will hit businesses, particularly in the financial and professional services sector, with a high proportion of staff with a monthly salary of more than Rs 40,000.
