Redistribution, but not at the cost of growth
Contd from previous issue
Now that we have established that the state of the economy is crucial in determining tax collections, we can infer that to increase tax collections, boosting the economy, i.e., increasing the size of the economic pie is crucial. Consider the case of the Nordic Countries. These have been consistently cited as the best places to live. Yet, their economies are amongst the most dynamic as well. These countries have consistently ranked high on the Economic Freedom Index, which measures the degree of economic freedom in a nation. New Zealand, which has been ranked at the top, both in the Economic Freedom and Ease of Doing Business Indices, has been lauded for its strong social security nets. Therefore, key to running sustainable and transformative redistribution policies is a robust & dynamic economy.
Crucial structural reforms, governance reforms and regulatory reforms have been undertaken by the current government to formalise the Indian economy and unlock long standing inefficiencies. A new tax regime has been rolled out, both in direct and indirect taxes. The new system promotes voluntary compliance and trust, compared to the adversarial regime that had built up in India’s taxation system. Faceless assessment and appeals, reduction in corporate & personal income tax rates, a resolution mechanism for pending disputes, GST with input tax credit are testament to the fact that a rules based, voluntary compliance system of taxation is being ushered in.
In India, we have seen all three instruments of redistribution policies at play now and in the past as well. However, access remained a key hurdle. The money being spent by the government was not reaching its intended beneficiaries. I remember in my early days as an officer, where the then Prime Minister said that for every Rupee spent by the government, 85p was leaked.
(To be contd)