Parthasarathi Shome’s latest tax treatise was released recently amidst a galaxy of his friends, more particularly KL Krishna from Delhi School of Economics (who lectured Shome when he was completing his Masters) and travels much beyond his last two books on the subject—Indian Tax Administration: A Dialogue (2013) and Tax Shastra (2012).
Divided into eight sections, the book is nothing less than the ‘Vedas’ on the subject, as was ascribed in the felicitation discussions. The chapters have been taken and adapted from articles and papers contributed by Shome for over four decades in various research journals, books and lectures. Besides dealing with key policy issues and economic principles surrounding tax policy in India, the book focuses on the elasticity of a developing nation’s tax system. More particularly, how a country’s growing social, infrastructural and developmental needs can be met without resorting to significant deficit financing. He prescribes a judicious mix of differentiated rates, adjustment for inflation and increased use of withholding tax and presumption taxation. To buttress his arguments, he supports his decision (or rather advice to the FM) for levy of the not-so-popular fringe benefit tax (FBT) in 2005. However, he admits that the FBT, which got repealed in 2009, was ahead of its time.
The book contains mathematical models used to explain general equilibrium theory and taxes. Any student of pure tax economics would find these chapters to be a delightful read. Innovative concepts such as global carbon tax, modified cash flow tax and mineral resources tax have been discussed to incite the curiosity of a thoughtful policy maker.
Interestingly, on future direction and tax reforms, he strongly advocates withholding taxes (WHT) for all forms of income. India has an elaborate WHT system. Instead, the idea should be to have clarity on presumptive taxation for specified activities undertaken by non-resident taxpayers. However, it is coincidental that OECD as a part of BEPS action point on taxation of digital economy has recommended withholding tax on digital transactions. Under the Indian constitution, tax can be levied on income and not expenditure. Hence, this has to be given deeper thought and not implemented just because it’s fashionable to do so.
Tax harmonisation—a topic of debate in EU—has also been touched upon by Shome. It prescribes integration of personal and corporate tax for alleviating the problem of double taxation and harmonisation of VAT based on ‘Origin Principle’ of taxation, namely, taxes levied in the state