Thought for the day
-
William Wordsworth (English, 1770-1850)
Word for the day
Specter (n)
Some object or source of terror or dread.
(Source:
Dictionary.com)
Teaser for the day
If it is 35 (BJP), 35 (PDP), 12 (NC)
and 5 (Congress) in J&K Assembly - How the government will be formed?
Tax reform - make it simple, objective
The debate over tax reforms in past few years has circled around
GST, GAAR, simplification of tax filing and assessment procedures, and rationalization/elimination
of taxes like dividend distribution tax (DDT); Minimum Alternative Tax (MAT),
especially in respect of units located in SEZ; and capital gains tax in respect
of securities. The new Direct Tax Code is spoken about as a platitude but not
much enthusiasm is shown towards it. Similarly inconsistencies in taxation
rules are only spoken about when a change is proposed to the detriment of some
strong interest group.
In my view, these issues are important for various interest
groups. But to the economy as a whole these issues (except creating a single
market through GST) may be relevant at the fringes only.
The debate on tax reform to my mind should focus on three core
issues (a) Restructuring of tax provisions to prevent misallocation of capital;
(b) improving compliance; and (c) Maximum transparency and objectivity in tax
administration.
The objective of tax reforms to my mind should be to make tax
laws, rules, regulation and procedures focused, simple transparent, objective,
and people centric. For example, consider the following:
(a) All tax
incentives to encourage investment and consumption and tax deterrents to
discourage investment and consumption may be removed.
Private investment should be encouraged purely as a function of
commercial viability and not as matter of tax arbitrage. In my view, tax
incentives for investing in equities, windmills, special zones like Baddi (HP),
Kashipur (UK) etc. and SEZs, have invariably led to misallocation of capital,
rise in cases of tax evasion, manipulation, and rise in tax related litigation.
It would be interesting to know if some study has been done to evaluate the
cost and benefit of such tax incentives on long term basis.
(b) Providing tax
deterrent or incentive to discourage consumption, export or import of specified
goods and services has been widely used in India. Many of these have largely
failed in achieving the desired objectives. To the contrary in many cases this
has been seen to be encouraging unlawful practices like smuggling, black
marketing, adulteration etc.
Far removed from their original objectives, some of these
practices have actually degenerated into either (a) revenue maximizing tools
for the government like in case of duties on tobacco, alcohol and petroleum
products or (b) favoring strong interest groups like in case of exceptional
import and export duties.
(c) Ambiguity in tax
laws and many discretions to the tax administrators has led to harassment of
assesses, rise in cases of non-compliance and revenue leakages. Introducing
higher degree of objectivity and simpler rules may materially improve
compliance level.
The big bang reform would be a flat 16% tax on all income
(income tax) and consumption (GST), with no exemption, exception or deduction
with sedition charge for voluntary non-compliance....to continue tomorrow
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