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Equity in TAXATION & Comments on I.T &G.S.T

Hilights


Money, Finance & Taxation,Public Arena

 Summary:

Taxation, to the extent of enabling the Government to provide essential services is inevitable, but it should not be too burdensome on the real wealth creators. To be equitable its burden must fall on ALL proportionately.

The Indian Income Tax (I.T.) regime is a spider-web of complicated rules that interact with those of many other onerous Duties and Taxes. It is also paid by a very few and its high cost of collection does not justify the tax collected. It is also unreasonable, inequitable and is a double taxation that penalizes the wealth creators and encourages them to move to other, more favorable climes.

Of the many other tax regimes, a tax on Consumption/ Goods and Services Tax (GST), as now made applicable in India is the best and most equitable option. However, it needs to be made more comprehensive and be greatly simplified. It should demonstrate ‘Trust’ in the citizens, even as it calls for proper verification and lays out penalties for defaults.

A good GST regime makes IT and even other taxes redundant and encourages the wealth creators to grow wealth within the Country.

Highlights:

Understanding taxation – Tax to be equitable must be reasonable and applicable to all proportional to their consumption – concessions for the really poor call for differential slab rates for staple food products and for essentials – new ways of taxation only to enable the government to dole it all out as subsidies and thus attempt to buy votes, should be resisted – ONE Nation ONE TAX is the best way.

Quotations for consideration:

  • “In general, the art of Government consists of taking as much money as possible from one party of citizens to give to the other” – Voltaire.
  • “Public policy should not be designed to advance moral instincts that we all reject every day of our lives” –Steven E. Landsburg
  • “A Government big enough to give you everything you want is strong enough to take everything you have.” – Thomas Jefferson.
  • “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself by the handle.” – Winston Churchill.
  • “Government cannot make a man richer, but it can make him poorer.” – Ludwig Von Mises.
  • “Any politician who starts shouting election – year demagoguery about the rich and poor should be asked ‘What about the other 90% of the people.” – Thomas Sowell.
  • “Your moral judgments are valid only if they are divorced from self interest. Is there a moral imperative to tax the rich and give to the poor? The motives of both the rich, who say no, and the poor, who say yes, are questionable… all moral codes (are) variations on a single theme, ‘don’t treat other people too badly’… charity is entirely a personal decision.” – Steven E. Landsburg

Key Concepts:

  1. The slogan ‘Jai Jawan! Jai Kisan! Raised by Prime Minister Shri Lal Bahadur Shastri, rightly extols the protection and security offered by the Jawan to allow the Kisan to safely grow his crops and be a wealth producer for the Country. This slogan however does not recognize the Entrepreneur/ Industrialist as also a wealth creator for the Country. Such recognition is long overdue and the slogan should now be: ‘Jai Jawan! Jai Kisan! Jai Udyogan!’ – As even Prime Minister Shastrihimself would agree as he had said later that the Businessman has an “…even greater role than that of an Economist and the Politician. Too often, the Community (wrongly) views the businessman’s aim as only selfish aim.”
  2. Taxation to the extent of enabling the government to provide essential services is necessary but to be equitable its burden must fall on all proportionately.
  3. In ancient times the tax collected was generally one eighth or one sixth of the produce or revenue and the task of collection was quite an onerous task for the tax-collector. It was increased to one fourth or even more during Wars or due to the greed of the despots. Ofcourse, such increased collections could never be sustained for long.
  4. Such levels of Taxation were universal even across all types of Governments (even in Communist Countries where there was no official Tax, once the Costs and Privileges of the Party bosses that burdened the populace, were properly accounted for), as noted by economists studying historical systems.
  5. However under the British, the tax rates were taken as high as about 60 percent, resulting in pushing most of the farmers and artisans into extreme poverty compelling them to go as indentured labour to other British colonies. This also destroyed the middle class and the prosperity of the Country.
  6. The Tax rate should be equitable as low as practicable and be broad based, preferably universal so that every citizen can rightfully be proud of being an equitable tax contributor. It should be fixed after considering inputs from all Stake holders, not just the untaxed poor, who in a Democracy have more votes and have a greater say. (See Annexure – I below, for an interesting tale of what happens when the low earning majority seeks to demand more from the wealth creating and high earning tiny minority).
  7. Public services must be made fee – based in a transparent and rational manner. This would eliminate the need to subsidize it all through taxation, thus leaving the State enough revenues to invest in such services as cannot be fee – based. eg: Defence, Police, Legislative and some elements of Government and Judiciary.
  8. Exemptions, Waivers, Subsidies and Doles for votes soon reach impractical levels and cause the collapse of the system, as happened to the Roman Empire and recently to Venezuela. There can never be a ‘Free lunch’ as ‘Free’ ends up too costly.

 

 

 

Taxation – Universal and Equitable:

Creation of wealth, in all its forms, must be encouraged even as such wealth is comprehensively and equitably taxed.

“Wealth (is) the lamp unfeelingly speeding light to every land dispelling darkness…Make money… there is no weapon sharper than it to sever the pride of your foes. (Wealth creation through ethical ways) yields righteousness and joy without causing harm.”- Thiruvalluvar, the Tamil sage.

 

Kautilya too, in his Arthashastra, recognized wealth creation as a worthy human pursuit that should be encouraged. Ofcourse this was to in turn increase the King’s revenue from taxes and trading, in addition to those received by the King from properties and businesses owned by him. The tributes he would be receiving from his vassal kings also contributed to his wealth.

 

In those days, even as the main objective for a King was to strengthen his control over his kingdom and increase his revenues, it was also recognized that this could best be done if he took care to see to the spread of prosperity all across his citizenry, not only amongst the feudal lords.

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