Chidambaram''s hour of reckoning
The honest tax payer d
03 July 2004
Come ministry-making time and one of the most enviable posts up for grabs is that of the finance minister (FM). But during the budget preparation phase, the post becomes the most unenviable. Come Thursday, July 8, P Chidambaram will rise to present the union budget and that could well be his hour of reckoning.
In his earlier avataar as FM in the I K Gujaral government, Chidambaram had presented what came to be termed as a dream budget. He had the markets and industry shell-shocked by offering them more than what they wanted or expected. The measures proposed by him then, were dramatic and would have had far reaching implications if they were implemented over a 5-year period. However, the government fell about seven months after the presentation of the budget and the dream budget turned out to be a pipe-dream. This time, Chidambaram will serve the nation well by presenting a reality budget.
The finance budget is basically a statement of income and expenditure, which the government will incur during the coming fiscal. Incomes are derived from taxes and expenditures are driven by government spending and both these items need the sanction of Parliament, which is why the budget has to be presented before Parliament.
Tax is a taxing job. An increase or decrease of a single percentage point in the tax rate could lead to peels of joy or cries of anguish. Under such circumstances the best thing that any FM would like to do is please everyone. However, as that is nether possible nor desirable, the next best thing that the FM should do is abide by the basic cannons of taxation.
The noted 18th century English economist, Adam Smith, had enunciated the cannons of taxation in his celebrated work, An Inquiry into the Nature and Causes of the Wealth of Nations, which was popularly abbreviated to Wealth of Nations. According to Smith there are four basic cannons of taxation, which are based on the concepts of equality, certainty, convenience and economy.
The cannon of equality arises from the following idea: 'The subjects of every state ought to contribute towards the support of the government as nearly as possible in proportion to their respective abilities that is in proportion to the revenue which they respectively enjoy under the protection of the state.' This canon embodies the principle of equity or justice and lays down the moral foundation of the tax system. 'It is not unreasonable that the rich should contribute to the public expense not only in proportion to their revenue but something more than that proportion,' Smith had written in his Wealth of Nations. Thus, tax should in proportion to the ability to pay.
