Friday, February 09, 2007
Hard work in store on tax exemptions
The Indian tax system has made enormous progress. Rate dispersion has come down; peak rates have come down; distortionary taxation has diminished. The political economy of businessmen pleading for tweaking the tax code in ways that suit one firm or the other is diminished. All these good things are true when you think of the big picture: things have improved dramatically. But in absolute terms, we are still far away from a rational tax system. The normative goal involves three things: (a) a single rate for all goods and services, (b) a single rate customs tariff for all goods and services and (c) the single rate of customs should be zero. Sukumar Mukhopadyay has recently done a great job of reminding us how much work is in store to get to this happy destination.