VOICE

TAXATION - Exploring the link between extreme inequality and tax justice.

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CEO'S NOTE

To me, this edition is special in more ways than one. While we are bringing out our first issue on the subject of Taxation, this is going to be the final instalment of VOICE. This sixth edition of VOICE is insightful as well as exciting as it helps us link the myriad-faceted concept of inequality with tax justice. 

In January this year, Oxfam's report on inequality titled 'An Economy for the 1%' was launched during the World Economic Forum 2016. It gained massive traction globally as people and media around the world stood up and took notice. It was a proud moment for Oxfam as we have been advocating for policy measures to tackle inequality since a long time now. 

The report noted that 62 individuals globally hold as much wealth as the poorest 3.5 billion people in the world. It is shocking how the gap between rich and poor is widening as, just five years ago, the number of individuals was 388! 

Oxfam India has been working to address the root causes of inequality and poverty. The approach has been to push for quality, free and reliable essential services such as healthcare and education and also advocating for fair and progressive tax policies. 

The most recent Panama Leaks highlight the magnitude of the problem. It is estimated that poor countries lose taxes worth USD 170 billion annually due to the use of tax havens by individuals and MNCs. When we realise that 400 million people lack access to life-saving health services globally (WHO estimates), the contrast gets sharper. 

 

5 Questions / 5 minutes

5 questions

Pooja Parvati who anchors Research and India and the World portfolios at Oxfam India talks about the impact of taxation on inequality.

WHY IS INEQUALITY IMPORTANT FOR US? 
Globally, the gap between the rich and the poor is widening. In 2010, there were 388 individuals who owned wealth equivalent to the poorest half (50 %) in the world. In 2016, this number is a shocking 62 individuals! Widening inequality fuels crime, violent conflict and the impact is most felt by the poorest as they live shorter lives, robbed of basic rights like primary healthcare and education. As Oxfam's 'Even it Up' report noted, if inequality was checked in India, 90 million more people would be out of extreme poverty by 2019.

HOW DOES TAXATION HAVE AN IMPACT ON INEQUALITY?
Skewed tax policies widen inequality. In India, indirect taxes such as sales tax, excise duty, customs duty and service tax, are disproportionately higher as a share of total taxes. This is problematic as what it implies is a rickshaw-puller and an industrialist will pay the same tax for a matchbox. Progressive taxation policies rely more on bringing greater balance in the share of direct and indirect taxes, making tax structures more progressive by having the rich pay more tax as compared to the poor, and ensuring that the corporates and private businesses pay their tax. These are some steps to reduce inequality.

CAN YOU CITE ONE INSTANCE OF FLAWED TAX POLICY AND ONE WELCOME POLICY AND THEIR IMPLICATIONS? 
(a) The proposal in the Union Budget 2016-17 to introduce a slew of cesses to boost revenue collection is an example of a flawed policy. Unlike other central taxes, these are not shared with the states in accordance with the principle of fiscal federalism. Thus, it is not in the interest of the states and does not promote fiscal devolution in spirit.

(b) The Union Budget 2015-16 announcement to increase the share of tax revenue shared by Centre with states by 10 % is welcome. The Centre's transfers to states are either conditional (tied grants) or unconditional (untied grants). The transfers made by the Finance Commission (FC) are preferred by the states as they are untied and the states can use these for whatever purpose that is most vital for them instead of having to conform to conditionalities of specific schemes or programmes.

IS FISCAL DECENTRALISATION A GOOD OR A BAD THING? 
Fiscal decentralisation refers to shifting of decision-making on finances from the Centre to the state governments. This is a good thing as it checks undue centralisation of financial powers at the Centre and allows the states to decide their spending priorities. In this regard, it would now be useful to understand whether the increased Central tax revenue shared with the states in 2015-16 has had positive implications by way of increased spending on essential services such as health and education. Although it is too early to tell. Some preliminary analysis done by Accountability Initiative finds that while some states have been able to step up their spending, this is not the case for all.

WHAT ROLE DOES CIVIL SOCIETY PLAY IN THIS DISCOURSE?
Civil society organisations and networks have been globally engaged in advocating for more progressive tax policies. These include: more direct and less indirect taxes, reducing tax losses due to exemptions availed by corporates and private businesses, and ensuring tax evasion and tax avoidance are checked. As reported by the recent Panama Leaks, tax havens are an easy route for individuals and corporations to funnel much-needed resources (that could have financed education, healthcare and other basic entitlements) from the poor countries. According to a report in The Indian Express, 500 Indians are on the list. The role of civil society organizations in demanding accountability from their governments in this regard remains critical.

 


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The government had clearly failed to put any money where its mouth was. This was especially true of the Finance Minister's claim that his Budget provides "additional resources for vulnerable sections, rural areas and social and physical infrastructure"

C. P. Chandrasekhar

C. P. Chandrasekhar is currently Professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He has published widely in academic journals and is the co-author of Crisis as Conquest: Learning from East Asia, The Market that Failed: Neo-Liberal Economic Reforms in India and Promoting ICT for Human Development: India. He is a regular columnist for Frontline, Business Line and the website of The Hindu.

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FEATURE STORY

INCREASED FISCAL DEVOLUTION FROM CENTRE TO STATE: WHAT DOES THIS MEAN?

The total devolution to the states in 2015-16 came to Rs. 5.26 lakh crores, which is Rs. 1.78 lakh crores more than in 2014-15.

A welcome policy change that has come about through the national budget in 2015-16 and continued in this year's budget (2016-17) has been greater fiscal decentralisation from Centre to state governments. Fiscal decentralisation refers to shifting of decision-making on finances from the Centre to the state governments. This is a good thing as it checks undue centralisation of financial powers at the Centre and allows the states to decide their spending priorities.

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