Here Comes The Tax Man
It is common knowledge that some of the best documents in government are those compiled by the various working groups that go into the making of the Five Year Plans. Though these documents are rich in background and insights they are tucked away in some government archive due to probably an antiquated secrecy clause. Often it is perceived to be a concerted effort to supress information of any kind.
Now seven years after the tryst with reforms was initiated in 1991, some fresh ground seems to have been broken at last. Much to our pleasant surprise, the government has given its consent to the National Institute of Public Finance and Policy (NIPFP) to publish the report of the working group on tax policy.
But this probably has less to do with open government and more with respect to the relentless efforts of the former NIPFP director Partho Shome. Thanks all the same, the working group report, has probably for the first time been made public as a priced document.
This book just published by Centax Publications is a must read for all those who keenly pursue the process of reforms and the macro-economic fortunes of this country. The thrust of the report is that you can still be revenue productive if you are able to increase your tax-to-GDP ratio by about 3 per cent of GDP.
It deals with and identifies the various tax policy measures that have been in practice and those that could be initiated afresh for the simple purpose of additional resource mobilisation for financing the Ninth Five Year Plan (1997-98 to 2001-02). Coming as it does on the back of the historic cuts in direct tax rates in the union budget for 1997-98, the book is a must read.
In fact, tax reforms is the key agenda of the finance ministry and has been articulated time and again by finance minister P Chidambaram. Observers argue that this fact is also amply illustrated by the finance ministers decision to appoint an officer from the Indian Revenue Service as the private secretary.
But the task is by no means easy, especially in the light of the fact that the there has been a perceptible decline in the tax-to-GDP ratio in the 1990s. This is true not just of the centre but also of the state governments, which have often been seen an erosion of the tax base following a competition with neighbouring states.
Among the new initiatives, the working group suggested that the market-based initiatives be used to tackle the problem of infrastructure. The group has suggested a shift in the current approach of policing and replacing it instead with market based or commercial tools to tackle the problem. The environment ministry has in fact taken up the proposal and is actively pursuing the idea.
Similarly, the working group has taken up the emotive issue of prohibition in the context of the impact it has on state revenue coffers. It suggests greater freedom to states to evolve their own policy with respect to licensing, regulation and levies on alcohol. It propagates a more pragmatic approach that leans more on moral persuasion rather than policing as a means to enforce prohibition.
Quoting from a World Health Organisation publication, the working group says, Restrictions which are extremely severe and lacking adequate public support may temporarily succeed in reducing consumption and harm, but are unsustainable and counter productive in the long run.
The experience in the neighbouring state of Haryana, where police stations are fast turning into veritable storeshouses of alcohol following the large scale seizures that have been effected in the wake of introduction of prohibition.
Clearly, the document breaks fresh ground and does not, as it claims, just offer a tour de horizon of the entire tax system. Instead, it targets particular tax instruments, which largely fall in the ambit of states that might be harnessed successfully.
Presumably, a government which is pioneering the right to information bill and amendment to the Officials Secrets Act, will now take up on its latest efforts and make it a practice to publish these kind of documents.
Coming as it does on the back of the historic cuts in direct tax rates in the union budget for 1997-98, the book is a must read.India: Tax Policy for the Ninth Five Year Plan (1997-98 to 2001-02)
Centax Publications Ltd Rs 350/265 pages