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Journalism of Courage
P. Chidambaram, the Union finance minister, is one of India8217;s best lawyers, and his credentials in terms of knowledge about the tax system are unquestioned. This gives us high hopes about what he might achieve in his budget. The present mess in excise, service tax, sales tax, octroi, and so on, needs to be replaced by a simple value added tax VAT. State governments are said to be moving to a VAT. The finance minister needs to show a clear game plan for how the administration of the national VAT and the state VAT will operate as a single harmonious whole. The central thing that Indian companies need is to deal with a single tax system through a web browser, and to not have to deal with multiple authorities through multiple forms.
On income tax, the central problem is that of exemptions. We have built up a maze of vehicles 8212; like mutual funds and insurance products 8212; through which taxes are dodged. Some of these vehicles, like the employees provident fund, are high cost borrowing for government. There is an urgent need to make a clean sweep of all these, to obtain a simple and rational tax structure. Chidambaram has fumbled on this before. When he was finance minister last time, he cut rates 8212; which was the correct thing to do 8212; but forgot to simultaneously eliminate exemptions. He has had many years to mull over this experience, and we may hope that such mistakes will not be repeated this time.
