Notes on Tax Reforms :
1. On Taxation :
1.1 Taxation in a modern State is essentially for the purposes of meeting the functions of State.
1.2 In the modern world, it is extended by the principle of redistribution of income. In India, it has not achieved this purpose with the principles of social, economic and political justice which the nation is committed to. In taxing, government is in reality deciding how its needed resources shall be drawn from the nation's households and businesses and put into collective consumption and investment. The money raised through taxation is the vehicle by which real resources are transferred from private goods to collective goods. - Samuelson
1.3 The present polity and administration has made the people believe that the Government is something separate from themselves. The State today barely provides the functions of State. This is evident from the expenditure pattern of the Central and State Government.
1.4 That is why taxation is considered painful in India and is administered with harshness and without finesse. Taxation has evolved in the developed world and is based on canons. But even a cursory glance at taxation laws in this country reveal gross deviations from these canons. Taxation in this country do not conform the principality of equality before law. A smug argument comes in that Indian courts have validated all our tax laws and pronounced them to be not violative of Article 14 of the Constitution. Based on such decisions tax laws have been distorted to such an extent that rights of citizens have been violated. To an extent Courts have been biased towards the State. But, it may have been citizens failure to adequately convince the courts. 1.5 Taxation has become an end in itself and has become an obstruction to growth and development. Tax administration and tax law is heavily biased in favour of the State and the officers empowered in the enactments. The justice system which protects citizens against arbitrary actions is creaking and slow. Economic and commercial considerations do not allow for the costs of delays. Economic opportunities lost due to the inadequacies in the State system cannot be measured.
1.6. Complications and anomalies have flown into Statutes. These have been due to political, administrative and legal inadequacies to tackle specific issues and exceptions. Complications therefore have to be undone by the State itself. Hastily made legislation, weaknesses in draughtsmanship and poor handling by tax administration have made assessees prone to litigation.
1.7 Recourse to direct taxation, the hard earned money of citizens is taken in the form of taxes. The behaviour of the State is pompous inasmuch it considers it not as a voluntary contribution out of earning by citizens, but as if it is its rightful due. Citizens from whom tax is collected in the form of income taxes and like direct taxes are equal before law. But they are entitled to respect from public servants and also from the citizens who do not pay such taxes.
1.8 In the developed world all taxation, that is Government money is referred to as taxpayers money. In India, Government, (The State, which mean, the polity as well as public servants say) it is our money. (Govt.Money) When tax concessions are given, in budget speeches, the terminology used during colonial rule, that of "revenue sacrifice" is a clear evidence of such thinking. In a democracy, when a concession or a reduction is given it is not a question of 'sacrifice" but a choice by the people themselves not to take anything more than what is necessary for the State to have. 1.9 In the case of indirect taxation, whosoever has been the instrument in the law for its collection and remission is a citizen. The citizen has been assisting the State in mobilising the taxes. This assistance again is not voluntary but mandated by law.
1.10 These have been a part of the pricing of the goods or service whether he manufactures or sells the same. However, the citizen at times has put to several inconvenience and difficulties when the collection of tax has been administered.
1.11. Again, in the making of policy and enactments, several injustices have crept into the law itself. Even when the polity has been convinced about the difficulties, the plea either has been for a "sacrifice" or inability to deal with the technicalities to remove the injustice.
1.12 The manner in which taxation is legislated leaves much to be discussed. Especially in the State , during the last 15 years, taxation legislation has been accomplished in a matter of one hour during the last day of the financial year. Legislation, that is drafts in the form of bills are not available to the public until the day after it is passed.
1.13 Taxation in its grosses form has been pursued vigorously by the polity as well as by the bureaucracy. The amount collected has always been inadequate to meet the "needs and aspirations" of the people. While doing so it has ignored the sentiments and opinion of the people who pay taxes as well as those who are instruments in its collection.