Its basic objective is to further moderate the tax liability of business corporations and the wealthy in our society of mass poverty in the name of promoting voluntary and better compliance in the payment of taxes by individuals and business corporations. To expect this to happen in the current social and political environment in India and world is futile when black money rules the roost the world over.

The draft of the new tax code, which has been released, proposes that instead of 30 per cent, the tax liability would be brought down to 25 per cent for the top segment of wealthy with an income 30 lakhs and above annually. Side by side, profits of the business corporations are bound to gain substantially from tax concessions in India which is already among the least taxed countries in the world. It is, however, expected that tax relief will not reduce revenue of the government. It is also assumed that withdrawal of current exemptions from taxation for promotion of some priority industries as idle income of exporters and traders in stocks and shares will yield additional revenue. This is likely, however, to provoke opposition from business interests who now exercise effective clout on official policy making and administrative set-up. The new tax code, after all, is inspired by the surge in the confidence in the UPA-II government to carry forward its economic reform programme after its victory in the last Lok Sabha elections and removal of political constraints from the left and other political parties.

The guiding fiscal wisdom since the mid-seventies in India has been that “reasonable rates” of taxes, especially direct taxes on income and wealth, would result not only in better realisation of taxes but also broadening the resources base by increasing production and productivity and new income-generating employment - creating investment in the private sector. This is the essence of the ticklish problem of revenue and fiscal deficit of the government which has grown into crisis proportions and has been aggravated by rising non-development expenditure of the government and consumerist cravings of the upper and middle classes. The share of direct taxes had declined to 22.6 per cent of the total revenue of the Union government compared to 26.6 per cent in 1979-80. This trend subsequently accentuated and the share of direct taxes touched a low of about 17.0 per cent. The share of revenue from agricultural income tax came down from 1.27 per cent in 1960-61 to 1.22 per cent in 1989-90. Side by side, the share of direct taxes in the agricultural sector, including land revenue, declined from 0.81 per cent to 0.19 per cent despite the growth of commercial farming on a large scale.

The lobbies of vested interests, urban big business and landed gentry, have had remarkable success in turning the fiscal regime to their favour by way of across-the-board cuts in income, wealth and corporate taxes. India is now among a few capitalist countries where estate duty too has been abolished. Tax exemption has been extended to export incomes as well as special economic zones. Curiously, however, the urban business interests and their more outspoken representatives have begun suddenly to revive interest in agricultural income tax. But a meaningful approach to the question of equitable taxation of all incomes and wealth well above the per-capita level which will still leave 90 per cent of population out of the direct tax, has been subverted. Bringing into the direct tax net the “presumed” incomes of the self-employed and the traders is certainly a very valid proposition and a timid start had been made in this direction. But the tax system, especially direct tax on income and wealth, has been so much distorted by incentives and exemptions that what are apparently high rates of taxation are in fact quite low rates.

The plethora of fiscal policy adjustments since the mid-seventies were supposed to provide incentives to what is euphemistically called a viable class of individuals (as well as corporations) to and earn more and in the process not only to consume more but also save and invest more. This is a marked contrast to the fiscal policy which sought, when development planning was attempted to be pushed forward not only by a saving and investment -oriented quality but also an equity thrust. The policy shift, which started in the Emergency regime but somewhat moderated during the Janata interregnum, was reinforced after the return of Congress party to power in 1980. It has now been elevated to the status of a philosophy and strategy for market-driven development.

Till 1976, when the first adjustments were made in fiscal policy frame; the governing principle, even if it was never put into practice with consistency, was that the class of people in our society which constitutes a thin crust of affluence at the top, and has money to save, invest, produce and consume, was also the one in a position to contribute a fair share of its income and wealth for meeting the expenditure of the state - both administrative as well as developmental. This was relevant not only to the direct taxes but also to indirect taxes. A steeply progressive structure of direct taxes was sought to be created even as indirect taxes were so designed that their incidence should fall heavily on items of upper class consumption and slightly less so on items of middle class consumption, with only items of the most essential mass consumption left out of the tax net. It was bemoaned that at high levels of incomes the direct tax liability exceeds hundred per cent of the income of an individual. The fact is that the use of fiscal instrument to place a ceiling on income and wealth was then accepted as a matter of high principle. Another norm was that given the level and distribution of incomes in India, the concept of relatively well-off segments able to pay taxes might cover many who would not be regarded as rich by standards in the developed societies.

These trends in fiscal policy are often attempted to be objected to by a lot of clap trap. It is claimed, for instance, that high rates of direct taxes in particular weaken the incentive for work and enterprise and, in addition, breed dishonesty. The case to lower tax rates rests on the ground of incentives for better tax compliance also. To think that the economy will be revived by submitting to the demands for higher incomes and consumption of the affluent is to build false hopes. The way progressive taxation of incomes and wealth influences work ethics in a community may be argued by the votaries of cuts in taxes. Some go as far as to plead for complete abolition of taxes on incomes and wealth and that one's desire to work is directly related to the return one gets and inversely with the tax one pays out of the income and wealth. Hence the higher the tax, the weaker is the urge to work and stronger the temptation to remain idle. But can it be claimed that professionals who may be self-employed and executives in the public and the private sectors enterprises, start working less diligently and become work demons when tax rates are lowered. Perceptive observers, on the contrary, have argued that if high taxes deter some from making any extra effort to earn more, for the society as a whole this is not the case.

The so-called economic liberalisation and privatization policy has reflected, in stages, the transition of India from a mixed economy to a market economy. The principles and philosophy of development planning elaborated and attempted to be applied under the political leadership of Jawaharlal Nehru after India gained political independence have been adjusted and supplanted, step by step, by policies and strategies which are appropriate for a market economy to subserve dominant social forces in India. But this is a rather simplistic view which does not fully comprehend all the complex characteristics and nature of the policy adjustments and changes in the economic growth strategy. It is not merely a shift away from the “mixed economy” to the “market economy” but a switch from the path of autonomous and equitable development to neo-colonial dependence and ruthless exploitation of its natural resources and labour and repatriation of the gains of this exploitation abroad. (IPA Service)