I can bet, that you have more taxes than friends in life. This is all due to your passive and uncritical attention and check on the government expansion and public finance. If you attempt to examine the circus of governmental economics, then you would surely gibe with the content of this article. To begin with, tax is a penalty which we pay for doing things rightly. Fine is the tax that we pay for doing things incoherently. In the case of former, the penalty is not voluntarily collected. This is why people are not incentivized to pay more taxes, followed by unaccountable tax collectors acting at their whims and will, and thus the government cries like a baby over the “tax base” episode without understanding that its own approach towards tax policy is the cause of all tax problems.
In India, the tax reforms have done more harm than good. For example: The tax reforms, since 1953, in India, never minimized the size of bureaucracy, government interventions, etc. On theory, it deals with bringing an equilibrium between compliance cost, collection cost and distortion cost. But, on the field, tax reform is simply an old wine in a new bottle. Which means that the government uses tax policy to score brownie points over the previous political regime, and possibly the scope of clubbing, remixing and replacing the titles of taxes is always there and will be there because politics is the art of conscripting liberty and people’s wealth. Johnson and Myles rightly stated, “In the real world, proposals for tax reform are constrained by politics. Those who lose from tax reforms tend to be vengeful while those who gain from them tend to be ungrateful.”
In 1953-54, Taxation Enquiry Commission (TEC) was established with an intent to fulfill a variety of objectives like raising the level of savings, transferring resources from the private sector to public sector and accomplishing a desired state of socialism. Prof. Nicholas Kaldor was invited to study the matter but the economic nature of the market (not government) failed the motive because expected revenues couldn’t be generated. This was the first litmus test, which former and late PM J Nehru didn’t acknowledge, till his government realised the utopia of socialism in 1991.
In 1971 and 1977, committees were established to examine and respectively study the scope and reforms of direct tax and indirect tax, but the recommendations were not implemented till 1986. This clearly highlights the nature of implementation in India, and it persists till date. The execution lag, in India, is one of the greatest problem. This problem empowers people to evade taxes too, and sadly the government isn’t accountable for the delayed steps. Then, in 1991, India played a salient role by providing to the world that socialism doesn’t work. If you believe that it still works, then visit Venezuela today.
Cheered as “father of tax reforms”, Chelliah committee (1991) focused on supply-side economics. It recommended important steps like lowering the tax rates, VAT, etc. Then, in 2005,
VAT was implemented. This is another example of government’s lethargy. It is likely to occur because politicians are driven by their own self-interest. Read ‘public choice theory’ (economics), if you have a choice to make in this summer vacation. It is a myth to endorse that government is for the people. Actually, tax reforms is a tool of the government to imply ‘far the people, off the people, buy the people’ policy. Since 1994, Tax Reforms Committee (TRC) is not able to play pro-active role.
Till the Vijay Kelkar Task Force (2004) came into being, reforms of tax administration was not given attention. Enforcement is another undiscussed problem, in the whirlpool of tax reforms. It is disconcerting to note that the government enjoys monopoly on tax collection and violence but it still fails to do economics coherently. Parthasarathi Shome is heading Tax Administration Reforms Commission (TARC), since August 2013, but still his leadership is failing to convince the government to have a more customer-focused tax policy. As long as powers are vested with tax bodies like CBDT and CBEC, tax system cannot be objectively modernised. Also, to add more fuel to the fire, it does not make sense to have Revenue Secretary (RS) in the whole process because s/he brings with him/her little experience of draconian tax laws. Result: The RS ends up focusing on administrative aspect. Other than this, while India has just 20 people engaged in analytics in the tax department, the UK has 400. There is a great need for capacity building in this area.
Tax reforms are designed in a way to not succeed. No impact assessment is carried out before changing tax laws. Nor is there any assessment of costs or benefits after the change is implemented. This is a key reason why the tax system completely lacks customer focus. Pradhan Mantri Garib Kalyan Yojana (2016) is another anti-economics step. It invites the hon’ble tax evaders to undo their sins but unfortunately they’re not incentivised enough to pay back because there’s 10% penalty, followed by 30% tax on income declaration and 25% surcharge on the amount. Would you mind paying your smart money, if you were the tax evader, in this case? Obviously, no. It does not matter to learn that there’s 6 lakh crore to 9 lakh crore rupees stashed away as “black money”. The burden of proof is actually on the government for unquestioning its own ideology, economic behavior and public policy. Even if the government could somehow recover all the stashed black money, the proceeds would go back into the hands of the same government whose departments & agencies are the major sources of this embezzlement, to begin with.
I know that there are statists who would disagree with me for the sake of disagreement but it does not qualify their so-called intelligence to disprove of what I am saying. The more the government meddles with the economy through taxes, there would be an escape route certainly. In this case, I uphold the black money hoarders (except politicians). Certain practical examples are eminent to grasp that tax penalties do more harm than good. Say, in 2010, Maryland passed a special tax on millionaires in the hope of collecting an additional $106 million in revenue. People left, thus, casing loss to tax revenue around $200m. Then, in 2014, France inflated income tax up to 75%. People left for Russia and Belgium.
To conclude, people should be allowed to pay taxes for only those services which they use. Why should I pay for Air India, indirectly? Instead, ‘tax choice’ should be availed in our economy so that the market functions can spontaneously allocate the economic resources. Government should be the servant of taxpayers, if at all it is serious about running the so-called democratic economy. 100 years ago, we experienced “No taxation without representation” movement. Time has come to reinstall “No taxation without implementation” revolution, to make government accountable for its lethargic attitude.
Whatever the Finance Bill 2017 did, with respect to empowering the tax collectors/extortionists, is going to not help the government in expanding the tax base. Also, the government has cheered itself over indirect tax collection but it has failed to understand that the spillover effects of indirect taxes have pinched more poor people. Send me to Pakistan for questioning the logic, but you cannot escape the consequences of the government’s choice.