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Rediff.com  » Business » Political parties & India's skewed taxation system

Political parties & India's skewed taxation system

By T N Ninan
November 05, 2005 14:58 IST
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Very quietly, and without public fuss so that almost no one has noticed, the government has excluded political parties from the purview of the fringe benefit tax.

Since this has been done without public notice, there has been no official explanation nor (perish the thought) any justification. Readers will recall that the finance minister designed this new tax in order to nab tax-avoiding payments made by employers to employees.

Since then, of course, despite all the initial promises by Mr Chidambaram, the tax has taken on a much wider meaning and now covers ordinary business expenses - but we will let that pass for the moment.

The point just now is that an organisation whose employees are subject to income tax must of necessity be covered by the fringe benefit tax. So what is the reason for excluding political parties?

Could it be that the parties do not maintain accounting systems of the kind needed to report payments that would attract the fringe benefits tax, or that they find the paperwork onerous --and if so, is that a valid reason for exclusion? If that is in fact the case, why not also exclude all small and medium enterprises, which too have been complaining that they find it difficult to handle the paperwork? Or, better still, exclude all tax-payers from this ill-conceived tax?

There is a larger problem here, which makes one recall Milovan Djilas' classic on the "new class" that emerges in supposedly socialist regimes.

In the case of Mr Natwar Singh and the illegal payments on oil deals, for instance, the Left parties and others have called for full investigation by the government. Mr Natwar Singh himself has said he is ready to face any probe. Fair enough. But who is to conduct such a probe into the financial dealings of the foreign minister and the ruling Congress party, or into the external funding of the communists who prop up this government (a la Mitrokhin)?

The many times neutered Central Bureau of Investigation? The plain fact is that we do not have an independent investigating agency -- like the special prosecutor in the US, who can cross-question everyone from the president downwards and make his findings public so that they bring swift retribution.

Returning to the tax question, everyone knows that while favoured groups like political parties get one kind of special treatment (when was the last time the tax filing by a party was subjected to special scrutiny? Indeed, when a tax official tried to quiz the RSS during the NDA regime, the official quickly paid the price for his temerity), others get the stick in the last quarter of every financial year for no reason other than the fact that the tax collectors are falling short of budget forecasts. And should there be a system whereby a tax official whose rulings are eventually overturned in, say, 75 per cent of the cases, suffers a severe career penalty because of the needless harassment he has caused?

The underlying problem all this points to is the subordination of what should be independent, impartial activity, to political supervision and thereby extraneous considerations. The solution therefore must lie in making specific arms of the state independent creatures of the Constitution -- in the same way that the Auditor General and the Election Commission are today.

There is precedent for this in both the American and French systems, where the police in one case report to the magistracy and not to the executive, and where the office of budget management reports directly to Congress and not to the treasury. Bringing about such change in the Indian system would address the creeping politicisation of supposedly impartial activities, and offer an extra line of defence to citizens against a marauding state.

For that very reason, the members of the "new class" in India will not want to bring about such change. But that does not make the change any less desirable. And till such change comes about, we will have differential treatment of taxpayers, on the one hand, and the impossibility of effective and impartial inquiry, on the other.

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T N Ninan
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