Evaluating Taxation Systems and Policies

The book under review is a comprehensive collection of a set of fascinating papers on taxation written by Parthasarathi Shome over the decades. Shome had served as adviser to the finance minister of India holding the rank of minister of state. This compendium is meant for scholars, teachers, graduate students and policymakers. It is a rare balance of theory and application of policy analysed in the context of specific subcontinental regions. The book cogently documents structural reforms in taxation or the lack of it in various countries. It would greatly help tax administrators and practitioners in the pursuit of issues relating to the design of tax and tax administration policies, particularly in the context of developing countries. The compendium is divided into eight sections and its key features are: (i) presenting theoretical arguments and empirical evidence of the “incidence” and “distribution” effects of taxation; (ii) reviewing efficiency effects of corporate income tax and personal income tax; (iii) providing a comprehensive historiography of and useful insight on innovative taxes, for instance financial transaction tax, global carbon tax, cash flow tax, minimum alternative tax, and fringe benefits tax; and (iv) critically evaluating the role of tax administration in executing tax policies through country and regional experiences.

This compendium eloquently elaborates on critical discussions and empirical evidence relating to the incidence, equity and parity effects of taxation, predominantly on addressing the likelihood of tax evasion. One may argue that when it comes to innovation in tax policy, the emphasis is on simplification of a country’s tax system for greater compliance. The author has critiqued innovations in terms of tax exemptions/concessions to small-scale firms as discouraging such firms from expanding capacity, beyond the stipulated level of the definition of small-scale units, to avail advantages of tax exemptions. Instead of increasing their volume and reaping the benefit of economies of scale, small-scale firms simply set up new units to continue availing exemptions. These tax-exempted enterprises then are not part of the value chain, in the sense that they cannot avail input tax credit on taxes paid for raw materials. It is, therefore, important to move the focus away from tax exemptions and concessions, if an economy seeks to encourage not only growth in the small-scale sector but also enhance efficiency in the overall tax regime.