Though regulation of a demerit good such as tobacco is recognised, the state’s stake in the tobacco market coupled with the labour that still depends on it for livelihood makes such a regulation a murky business.
Asian countries will need to cope with much greater complexity in both domestic resource mobilisation and in dealing with international tax issues. Fiscal laws and institutions will therefore acquire much greater importance. Capacity to use information technology in fiscal institutions in general, and tax administration and compliance in particular, will acquire greater urgency. Asian countries will also need to consider a regional forum to discuss tax issues and to share tax information. Indigenous fiscal research capability will also need to be strengthened.
The approach of the Kelkar Task Forces on direct and indirect taxes suffers from certain basic deficiencies for which the consultation papers put out by them have come under flak from large sections of the taxpaying public. The deficiencies are twofold: (1) lack of a strategy to secure majority support, and (2) absence of a sound conceptual framework. In a way the two are interrelated; failure to visualise a strategy stems partly from the weaknesses of the conceptual foundations of the proposed reforms. This essay seeks to explore the sources and nature of these deficiencies. Since the proposals relating to direct taxes have attracted most attention, the discussion here is confined mainly to the direct taxes paper, especially the structural reform proposals, though some observations are made on the proposals for reform of indirect taxes and the administrative system as well.
The consultation paper of the Task Force on Direct Taxes has an evangelical flavour to it. Some of its suggestions for administrative simplification can be accepted without hesitation, but its other suggestions require more inputs before decisions can be made. It would be interesting to see the detailed computations that underlie the recommendations of the Task Force.
The Kelkar Task Force on direct taxes has gone much farther than its predecessors in respect of tax administration. However not all its recommendations on structural changes are "congruent with generally accepted principles of taxation", though it was the KTF's objective to make them so. In respect of both personal income tax and corporate profits tax there are recommendations that are not really in accord with international practices based on accepted tax theory.
In spite of some limitations and weaknesses, the Task Force reports on direct and indirect taxes have covered the large and highly complex canvas of tax administration competently. Their comprehensive treatment of issues, within the very short time given for their deliberations, is commendable. As the reports have underlined, the efficiency of the recommendations is likely to be seriously vitiated if individual components are selectively accepted or rejected and reforms continue in a piecemeal manner. Success of tax reform efforts depends on their implementation as an integral package.
The Consultation Paper on Direct Taxes makes a strong and cogent case for the autonomy of tax administration, for transforming it into a taxpayer service department and for the abolition of fiscal incentives. A critical review.
India has always been in the forefront where supplying of revolutionary ideas in the realm of philosophy, including economic philosophy, is concerned. It is therefore not at all surprising that, even in the matter of taxation, a historic departure has been heralded by a report recently submitted by a committee set up by the government of India. The committee has dared to dare.
