Saturday, August 29

Waxing Tax

Earlier this month, the Government of India placed a paper on a new Direct Taxation Code in the public domain for discussion. Such progressive procedure is as uncommon as it is laudable in a nation where administrative opaqueness has often been used to create latitude for backroom manouvering. In fact, the play in influence-peddling is believed so potent and widespread (it is difficult to ignore this in the have-it-flaunt-it culture of our Capital) that subterfuge of this kind is not merely accepted but expected. Drawing inspiration from the fortunes of sundry such power-broking carpetbaggers, if no other reason, it is incumbent on us to celebrate this wiki approach to policy formulation.

The jury, of course, is still out as to the merits of the actual proposal. It certainly deserves minute scrutiny and my current inability to appreciate its finer print is far too real for me to hazard any early judgement. Yet, it must be recorded that it heralds the resurrection of one eminently logical economic shibboleth hitherto consigned to the dustbin: The premise of lower incidence promoting higher compliance had been anathema to North Block mandarins for years and finally seems coming of age. A second toast to the Finance Minister!

Unfortunately, not much of the succeeding discourse on the tax code may be available for ready view in the medium term. The promise in this citizen friendly reform however gives one the confidence to ponder the fate of another far-reaching change - the GST. Similar streamlining of tax administration has already been accomplished by almost every self respecting economy of benchmark size and scale. The Indian effort has, lamentably, fallen into a quasi-political quagmire. Given the federal nature of the country's revenue system, GST can only come by via legislation, including constitutional amendments, to junk existing laws as also create the common dual (State and Central) framework it perforce requires.

Building universal consensus on the GST, though, has led to endless debate over its management mechanism, including creation of appropriate infrastructure, and on sharing of its spoils. Equally, it may be simplistic to expect that the fact of different political formations being in power in key States and the Centre, and the much-voiced 'loss' to the former (plus concomitant demands for compensation) is merely a coincidence. It is, more likely, a refined filibustering tactic.

It does appear therefore that the question of whether or not a nationwide GST is actually needed is a moot one. Much like Direct Taxes, India's Indirect revenue regime is an elephantine and occasionally conflict-prone labyrinth of state and federal levies that is as much evolving now as it was in my days studying Economics in College fifteen years ago (and earlier). To boot, the framework carries the baggage of its roots in our colonial past and hence is arguably anachronistic. Applying whatever little one remembers (which would be a fraction of the even more little one would have put to rote!) of economic theory, there are two clear wins in its reform: First, elimination of multiplicity simplifies tax structure and fosters compliance (similar to what Pranab da has already been commended on above). Second, creation of a common market and lower tax burden boosts production, directly and via increased investible surplus - the logic EU was born on, or ASEAN thrives today.

While the actual gains from implementation of a reformed Direct or Indirect Taxes regime are either the subject of impassioned debate (my Commie friends any way derive sustenance from chatter, especially of the idle kind!) or entail expertise in macroeconomic theory more than is my metier, it is likely that Come April we may be raising ours for two and a half cheers to Mr Mukherjee!


Anonymous said...

And look who is whooping it up here... Echohum!... What should I touch first ... Your coming back or the inevitable T.A.X... Guess! It’ll be good to restart with You... Enjoyed your saucy complements for the Code and its makers, no wonder why some irate souls accuse you of promoting ‘The Lotus’... I clearly remember reading something like “BJP propaganda” in one of your older Blog comments... your posts keep the blood gushing!!!

T.A.X – well what about it??? Have been paying it ever since I got introduced to the beautiful word called; ‘Salary'... paying Tax makes me happy about the fact that I’m still employed, thus never found the need or reason to criticize. But yes! I took a minute out and come to realize that every penny paid in TAX should be demanded back in form of comforts and amenities, both, for the one who pay it and for the un/under privileged segment of our society. Looking around really boils up my blood … the gallant act of demolishing the Night Shelter in Delhi, leaving 200 odd people to die of cold and then rebuilding it back after the Court slammed its orders, is just one of the several such indicators, of how the stash of funds resting in government locker gets wasted in impulsive acts and then in its corrective actions … Echohum! The blood is gushing now and the brain has started debating … as you are our wise guy, you must start exploring options of how you will show us and the ones in power some light …