TAXATION PRINCIPLES AND APPLICATIONS

All of us as Chartered Accountants are busy with the interpretation and application of Revenue Legislations. We do not normally make a contribution in the Legislative Tax Policy and Planning, except at the time of presenting the pre-budget or post-budget memorandum. Dr. Parthsarathi Shome’s latest book, however, takes us even a step prior to Revenue Legislation and the thought process behind Taxation Policy and Planning.

Dr. Shome has rich experience as an internationally acclaimed Research Scholar in the Fiscal Policy and planning and during his illustrious career spanning four decades, has made several research studies and given presentations at various international forums. The present book is a selective compendium of his work in the field. As a result, what we come across in the book is a progressively changing thought on Fiscal Legislation.

Divided into seven main chapters, the book starts with an overview of Taxation system from earliest days of Ramayana and Mahabharata, and later on, Kautilya. The early economic principles from Mahabharata and Ramayana depict the social responsibility of the King. One finds that even after many centuries, these principles are even valid today. Dr. Shome in his research has touched upon these principles, of course with changing trends.

In the later chapters, he has analysed in depth the incidence and distribution effects of Taxation, efficiency effects of Taxation, an overview of VAT , GST and customs duty. In the entire analysis, GST appears to be the darling of the policy makers and scholars and Dr. Shome is no exception. In the process, he has also touched upon some innovative schemes of taxation such as Financial Transaction Taxes, Global Carbon Tax, cash flow tax, asset base of tax popularly known at many places as MAT , the much criticised and later on jettisoned from our country, the Fringe Benefit Tax etc. He has examined these innovative measures both from the point of view of policy framing and administration. Before the general elections in our country early this year, there was a talk of abolishing all taxes and in its place imposition of only one Banking Transaction Tax. A theoretical analysis of the said measure of taxation also finds a place in his book. He has of course not forgotten the problems of small and medium size taxpayers from both the sides.

The book also contains the country’s and regional experiences in the process and his analysis mainly concentrates on Latin America and Asia, because of the traditional tag of developing and underdeveloping economies in these regions.

The last chapter of his book is devoted to the exclusive study of Tax Administration, concentrating on the process of a discussion on countering tax evasion, including the famous, tedious TDS. The use of information technology in tax management and administration also finds a place towards the end, but it is touched on the surface. Perhaps, in his next compendium, Dr. Shome may be making a reference to Tax Administrative Reform Commission, which he is chairing at the moment. As we all know, the Government of India had set up the TAR C in August, 2013. In its first report, TARC has suggested radical changes in tax administration. The key suggestion, if implemented in its true spirit, the taxpayer may be treated as a valued customer. Such a radical change will require a drastic change in attitude. The ingrained attitude of arrogance on the part of revenue officials needs to be deeply buried.

Dr. Shome has made a very valid and valuable reference to Spengler’s Contemporary hypothesis, which is reproduced below because of its importance, “ Increasing political stimulation of man’s wants beyond his capacity to supply them has generated forms of disorders. Wants generated by political means are bound to outstrip a community’s economic capacity to satisfy such wants and hence must give rise to increasing frustration of man’s expectations. This ascendance of political over economic want-generation, together with the disorder, which comes in its wake, may be numbered among the progeny of the two Pelopennesian wars which sundered the world of European civilisation and polity between 1914 and 1945.” (p 7).

In today’s world, the people’s Kings have taken the places of hereditary Kings. A continuous aspiration to become the people’s King is reflected by a group known as the political party. Politics, therefore, demands a continuous show of moon to the public at large, thereby increasing the actual and perceived wants in geometrical proportion. This necessitates a need for continuous higher tax collection since it is a main source of revenue for governance. This relationship of economics of tax policy and planning and political necessity for faster and increased collection through such a policy has given rise to political dominance over economic principles. This has given rise to complex economic policies for generating tax revenue.

Although the book avoids reference to political overtones, it describes in detail various complex and multiple models of Source vs. Residence, DTAA issues, Transfer pricing, base for taxation whether expenditure or income, final destination points of taxation. The policy and planning is therefore truly complex. Dr. Shome has through his writing skills tried hard to soften the complexity. Since it is a compendium, there is repetition at some points because the thoughts have been expressed at various times and various places, but in the context of the book it appears to be unavoidable.