AUGUST 21, 2007

By G-Bee

WE often underrate the capabilities of economists. They may have a professorial look with thick glasses. They seem to ponder over data tables, use some jargons and give an impression that they have no connection with the realities. Many of us believe that economists do not cause any impact on the way common man lives, as they spend their lives reading thick books and staring at the computer screens. But believe me, they have enough grey cells under their skull, which can generate ideas that can change the future of a country. In reality they make a lot of difference in the life of common man like us. This fact is proved when we look at the recent history on our country.

In the early nineties, when our Oliver Twist was looking for more and more, the economists (of India and abroad) pointed out that the solution lies in looking for green pasture elsewhere because if they to go back to the same cauldron for more and more helpings it would soon be empty.

Dr Raja Chelliah is a typical economist. A person who can be missed as one the insignificant ones, in a crowd, till he opens his mouth or his pen. Not that he is very authoritative in speech or uses jargons to impress, but when he speaks you are forced to listen. He would ask basic questions and raise basic doubts, and you would wonder why this did not occur to me. When he was (as Chairman of the Tax Reforms Committee, constituted in August 1991) was asked to ponder over the problem of empty cauldron, he studied the Indian taxation systems and also looked around for the systems followed by other economies. Amongst other suggestions, he suggested that the quantity of each helping from the cauldron is to be moderated (which means that the tax or duty rates of the existing taxes need downscaling) and new areas for taxation are to be identified.    

Bureaucrats too have grey cells, but years of working i.e. following office procedural manual and the horror story called the conduct rules, correcting drafts put up by their subordinates and finding ways and means to send a matter either up or down, train these grey cells to think within a box. Precedence is of great importance for bureaucrat and deviation is often frowned upon. Since the age old practice was to increase rates of duties and taxes to raise more revenue and it was the 'time tested' measure', most bureaucrats had great faith in it.

In this context, you can image what would have been their reaction to the suggestions that if the excise duty and customs duty rates are reduced, government would get more revenue from these taxes. I can imagine that some would have thought it to be too theoretical and hoped it would never be implemented. Other may have thought it to be a foreign concept, which the foreign economic powers are trying to smuggle in to destroy our economy (remember Swadeshi vs Videshi). Fortunately, at that point of time we had another economist at the helm of affairs in North Block, who was more willing to accept the out of box views than the time tested ones. It is true that neither the entire credit can be given to the economists nor the entire blame to the bureaucrats, for there were also 'no-changer' economists and 'change-manager' bureaucrats. Further, there were extraneous circumstances, like the one which forced us to take the help of a vedeshi institution and put stringent conditionalities on us. For some, it was an act of selling country to foreigner or to bring back the "East India Company'' days.

The second suggestion of Dr. Chelliah was equally dramatic. He wanted taxbase to expand. For a normal human being it was almost an impossible task. We had the history of taxing every thing. Your income is taxed, so is your wealth or your gifts. Your expenditure is taxed (by way of tax on goods). In fact, even death was not tax-free, the only saving grace was that you were spared from receiving a notice at heaven (probably hell, in my case) as the tax (called the estate duty) was to be paid by those you left behind.

But one had forgotten that there was a large part your expenditure which had remained untaxed. It was the service sector. Why not tax that sector too, the economist suggested.

Let us be clear about one thing. Unlike 'zero', the credit of this brilliant (sadistic, some would say) discovery does not go to India, as many of the countries had already started taxing services. Frankly, I do not know who had this idea at the first palace. It must a philosopher who, while getting his beard shaved by a barber, got the bright idea that what the barber is doing is an 'economic activity' and it must be taxed. Probably he would have started running on the street, half shaven, shouting 'Eureka.. Eureka' for he had found resources to meet the expenditure for his emperors' costly habits. However, I could not find any historical evidence to my well thought assumption, as the historians don't seem to record every event like our TV channels.

Again, let me imagine (my power of imagination is certainly increasing while writing this column) the impact of this suggestion would have had on some of the individuals. Taxing services.... Such a thing was unheard of in this country. After all, unlike goods or money, service is intangible. While goods are like bodies, services are like souls. You can operate the body, but how can you operate the soul. There must be heated arguments in the rooms of the North Block and elsewhere. Some smart revenue officer would have questioned,- Hey man I can stop a truck and check whether the goods being carried are duty paid. But how can I check if whether a barber has given 10 shaves or not. Some would have smiled mischievously saying taxing services should start with the 'oldest profession in the world', for it would be nice to go to collect tax from the service providers. But on a serious note, the question is real and difficult. 'WHAT IS SERVICE', after all.

See you soon