April 03, 2017

Zero Loss, Zero Tax and the Contest of Flawed Narratives

In this New Indian Express ArticleShankkar  Aiyer, Visiting Fellow at IDFC Institute, weighs in on the seemingly low number of tax payers in India. In the article, Shankkar looks at why the number tax payers in India has been low historically and how this is a result of structural flaws in the system.


"Shankkar in the article writes: "The lament persists; thanks to the structural and systemic issues. At a structural level, tax policies have been deployed to achieve multiple objectives—from savings to investments to behavioural change. This has led to a plethora of exemptions, distortions and multiple failures. This had been identified by the task force on Tax Reforms headed by Vijay Kelkar as early as in December 2002.


The task force had observed that the “myriad and often contradictory exemptions” have led to complexity and “such complexity is inherently regressive and therefore favours the rich and the powerful”. The recommendations included doing away with the fog of confusion in exemptions, reducing compliance costs and harassment. The task force also pushed for a tax on agricultural incomes. Governments since have cherry-picked recommendations. The Direct Tax code, which promised the overhaul of the Income Tax Act, has been in the making for well over a decade.


The systemic approach has been typically more of the same—perpetual pursuit of the middle class, professionals and the salaried class. Logic dictates that the focus should be on those outside the tax net, outside the formal system, on the scourge of the benami economy. It would be interesting, for instance, to cross reference number of business establishments, number of new businesses, number of new cabs, and also consumption data from GST with tax returns a year from now.


Compliance is a loaded phrase and the political class must accept that the business model of politics fails the moral hazards test. It is imperative that candidates and parties reveal where the money that they spend is coming from."


You can read the full article here

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