{"id":117029,"date":"2021-07-07T19:59:59","date_gmt":"2021-07-07T14:29:59","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=117029"},"modified":"2021-07-07T19:59:59","modified_gmt":"2021-07-07T14:29:59","slug":"shibboleths-of-the-ideal-tax-system","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/shibboleths-of-the-ideal-tax-system\/","title":{"rendered":"Shibboleths of the &#8216;ideal&#8217; tax system"},"content":{"rendered":"\n<p><b>Source<\/b><span style=\"font-weight: 400;\">: <a href=\"https:\/\/www.business-standard.com\/article\/opinion\/shibboleths-of-the-ideal-tax-system-121070601466_1.html\" target=\"_blank\" rel=\"noopener\">Business Standard<\/a>\u00a0 <\/span><span style=\"font-weight: 400;\">\u00a0<\/span><\/p>\n<p><strong>Relevance<\/strong>: The old idea that direct taxes are \u201cprogressive needs a relook as all ideas and principles should be implemented as per a country&#8217;s requirements.<\/p>\n<p><b>Synopsis<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The principle of focusing on direct taxes is worth questioning in the current era. This is an example of the mindless application of \u201cuniversal\u201d principles that have begun to fail even in the soils in which they were originally nurtured. Therefore, the focus should be on using a strategy that works best as per the country\u2019s society and economy.<\/span><\/p>\n<h5><b>Background<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">All the things that we took for granted in the 20th century have started to crumble under the weight of their own contradictions.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Belief in free trade, globalisation, electoral democracy, capitalism, communism or Keynesian macroeconomics <\/span><b>has never been lower.<\/b><span style=\"font-weight: 400;\"> The principles underlying them have proved to be flawed and are not working.<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">As per Hegelian thesis, every proposition contains within it the seeds of its own destruction.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Marx\u2019s predictions <\/span><b>have failed primarily because they expected human and economic progress to move linearly<\/b><span style=\"font-weight: 400;\">. However, in reality, they moved in cycles as Hegel\u2019s proposition or karma theory suggest.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h5><b>Crumbling of traditional outlook and propositions<\/b><span style=\"font-weight: 400;\">:<\/span><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Capitalism is under attack in Western Europe and America, and communism has collapsed in the regions of its dominance in the last century.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">One can be certain that authoritarian capitalism of the Chinese variety will also have a sell-by date.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The United States now believes that <\/span><b>all companies must pay a minimum amount of tax<\/b><span style=\"font-weight: 400;\"> (currently deemed to be around 15 percent) that most rich nations seem to agree with.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Ideas are portrayed as universal only as long as they work for the US. The country supported capitalism and free markets when they saw benefit in them. However, now it has changed tack and wants to make sure that the capital which had flown out of the US to low-tax jurisdictions comes back.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The US preached the<\/span><b> virtues of technology <\/b><span style=\"font-weight: 400;\">when it was the top dog. This enabled technology companies like google and facebook to become market leaders.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Today, the US wants to rein these technology giants at home through antitrust suits. However, the US has no problems with tech colonisation elsewhere, as long as it serves US interests.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Considering this evolving and changing nature of traditional propositions, <\/span><b>one can also question <\/b><span style=\"font-weight: 400;\">the two time-hallowed tax principles.\u00a0<\/span><\/p>\n<h5><b>Principle one &#8211; it is good to raise the tax-GDP ratio in general<\/b><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This ratio is the result of not just tax policies, but levels of compliance and levels of economic activity achieved. It is a derivative number, and should not be a focus area for action.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The focus should be on having a rate where compliance is maximised, and economic activity is least impeded. It is time we stopped obsessing over the wrong goals.<\/span><\/li>\n<\/ul>\n<h5><b>Principle Two &#8211; one must not raise too much from indirect taxes<\/b><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The basis of this principle is the regressive nature of indirect taxes. As per the principle, focus should be on direct taxes which are \u201cprogressive.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The recent provisional data put out by the Office of the Controller General of Accounts showed that the Centre\u2019s collection of indirect taxes exceeded collections from direct taxes in 2020-21.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Due to this, many economists are expressing caution about regressive taxes overtaking progressive ones.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This reasoning is flawed in the Indian context <\/span><b>for our goods and services tax (GST). It is actually progressive in nature, <\/b><span style=\"font-weight: 400;\">as less GST is imposed on basic goods and more on luxury goods.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Further, focusing purely on direct tax will <\/span><b>allow the rural rich to escape the tax net due to a negatively taxed agriculture setup<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">On the other hand, it is not always true that <\/span><b>direct taxes have to be progressive.<\/b><span style=\"font-weight: 400;\"> A state that levies a flat rate of income tax will be regressive.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Therefore, <\/span><b>we must understand that whether a tax rate is regressive or progressive depends<\/b><span style=\"font-weight: 400;\"> not on the tax itself, but the rate structure.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h5><b>Way Ahead:<\/b><\/h5>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In a diverse country like India, taxpayers and social security beneficiaries may come from different communities. Thus, the <\/span><b>willingness to comply will always be low<\/b><span style=\"font-weight: 400;\">. Hence, a need for tax terrorism arises however this may induce high net worth individuals to move elsewhere.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Therefore, indirect taxes are the right way to make people pay more taxes, without anybody worrying about who is paying them or benefiting from them. Bearable indirect taxes with near zero rates for wage-goods are the way to go for India.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">With reference to Global Taxation, India should insist that actual tax flows from global companies must be monitored to check if the minimum tax proposal is beneficial to all or not.\u00a0\u00a0<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Source: Business Standard\u00a0 \u00a0 Relevance: The old idea that direct taxes are \u201cprogressive needs a relook as all ideas and principles should be implemented as per a country&#8217;s requirements. Synopsis: The principle of focusing on direct taxes is worth questioning in the current era. This is an example of the mindless application of \u201cuniversal\u201d principles&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/shibboleths-of-the-ideal-tax-system\/\">Continue reading <span class=\"screen-reader-text\">Shibboleths of the &#8216;ideal&#8217; tax system<\/span><\/a><\/p>\n","protected":false},"author":10322,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[],"class_list":["post-117029","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":1700772738,"cached_date":1704815892},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/117029","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10322"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=117029"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/117029\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=117029"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=117029"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=117029"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}