The Hindu Business Line : A tax idea whose time is coming?

STUDENTS of tax history know how Peter the Great once taxed beards. And in the 17th century there was even a tax on windows. Finance ministers always have the problem of plucking the goose to obtain the largest possible amount of feathers with the least possible amount of hissing. Thus, every year, the backroom boys in the Finance Ministry have to come up with new products and services to tax so as to fetch more revenue into the kitty.

This piece is not about the hectic work going on in the North Block to rewrite the tax law, but about how a German city is trying to make both ends meet.

After national reforms made a big hole in its finances, the local authorities of Cologne — the fourth largest German city — are exploring a new avenue to make good the cash shortage: Sex tax. Nothing new, say the city authorities, because they have a `pleasure tax' that is already levied on casinos and amusement arcades; only this is getting extended to `brothels, erotic massage parlours, table-dancing clubs and displays of people and similar activities with the aim of achieving an erotic effect' to triple the receipts on account of pleasure tax to three million euros in 2004.

Germany recognises prostitution as a legal activity and sex-workers there pay tax not only an income tax but also a value-added tax.

The new tax would apply to circuses and funfairs too, though much of the city's revenue under this head is going to be from the oldest profession.

The tax is not new. For instance, when W.E. Dunn wrote about it decades ago in a political satire, it was shown as an idea "whose time is coming." Here is some Dunn-speak: "Consider the tuppence tax that launched the Boston Tea Party and the ensuing war for independence. One makes a great mistake if he does not consider a tax measure as among the most important of human events, excepting, of course, the technological breakthroughs, which are usually unheralded and certainly unrewarding to their inventors." Again, a page on www.abc.net.au is a report by Peter Lloyd about Thai authorities considering a similar tax, in March 2003, on the nation's estimated 3 lakh prostitutes. "For decades Thailand's sex workers have been plying their trade without fear of the taxman, simply because their work is not legal and so, for tax purposes, is invisible," states Lloyd.

"Officials from a government think tank called the National Economic and Social Development Board think they have come up with the answer: a sexual revolution involving legalising and then taxing what many regard as the biggest underground money-spinner in Thailand."

Those who still remember what the classical economists said as the canons of taxation — that it should not inhibit production, tax should be easy to collect, it should be certain, and such — might feel that laws and taxes such as these hit below the belt. And hitting where it hurts.

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