Education & Job

Blog: Tax policies have become extractive

Cafe Coffee Day founder VG Siddhartha’s suicide has catalysed a debate on India’s tax policies and tough methods used by the tax department to meet revenue targets. In this regard Mohandas Pai, former Infosys CFO, has publicly articulated what others have said in private. It’s not too farfetched to describe the prevailing environment as one of tax terrorism. Policies have become increasingly extractive in nature and are backed by coercive measures such as threats of arrests. In an already ailing economy this approach will make things worse.

Taxation is part of the larger fiscal policy which aims to influence aggregate demand. In India, fiscal policy is designed in a make-believe world. Tax targets are often based on an unrealistic assessment of prevailing economic conditions. Revenue targets end up being overambitious. Alongside, successive budgets have granted more discretionary powers to tax officers. The outcome is an environment where the taxman is incentivised to be coercive. What businessmen are hesitantly saying today has been described in detail in CAG audits of the tax department. The case against the tax department has been made by a constitutional body.

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