The Hindu Business Line : Financing entrenched problems

Widespread disability or morbidity due to illiteracy, malnutrition, or absence of health services, though familiar for long, are no less serious than the emergencies for which surcharges are levied, argues Mihir Rakshit in Money and Finance in the Indian Economy (www.oup.com).

He calls for Kargil- or Gujarat-type taxes to address these entrenched problems. "It is also necessary to reduce wastage and plug leakages in the government's expenditure programmes," the author adds.

Elsewhere in the essay, he faults the framers of the fiscal responsibility and budget management legislation for seeking to apportion the incidence of taxes, borrowing and government expenditure between different generations.

"Bemoaning the long history of fiscal profligacy in India the Bill notes: `The situation has deteriorated to such an extent that out of every rupee expended by the Central Government, about two rupees come from its own resources and one rupee from the borrowed funds. Thus, the incidence of two-thirds of the Central Government's expenditure falls on the present generation and one-third on the future generations.'"

The current budgetary exercise has an adverse impact on the welfare of subsequent generations only to the extent it reduces the availability of goods and services in the future, Rakshit reasons. "This reduction occurs in case the fiscal policies effect a cut in current investment, since the economy's future productive capacity will then be less."

For a detailed study.

Retail rumblings

The service tax on renting of immovable property has proved to be a very significant cost for the Indian retail business, rues a recent report on `retail & consumer industry' from CII and PricewaterhouseCoopers: The Benefits of Modern Trade to Transitional Economies (www.pwc.com). Real estate costs account for 30-40 per cent of the operating costs of a typical retail business, the report informs. "Normally, the service tax payable on renting of immovable property would be available as a set off against the service tax liability on output services. However, in the case of the retail sector, the business transacted involves purchase and sale of products and, per se, no services (taxable under the service tax laws) are provided." As a result of the inability to offset the service tax paid, the tax cost on account of rentals increases, states the report.

Topical read.

An acceptable tax

A CO2 (carbon dioxide) tax is both environmentally effective at current tax levels and cost-effective for combating climate change, observe Henrik Hammar and Sverker C. Jagers in an essay in From Kyoto to the Town Hall: Making international and national climate policy work at the local level, edited by Lennart J. Lundqvist and Anders Biel (www.vivagroupindia.com).

"Interestingly enough, when comparing the popularity of increasing the CO2 tax with the popularity of increasing other taxes - that is, fiscal taxes and other taxes that would be increased in order to finance, for example, fuel subsidies - it turns out that the CO2 tax is a relatively popular tax."

A published study (Hammar et al, 2005) cited in the essay speaks of how "of 11 taxes, respondents rank the CO2 tax as the fourth most acceptable to increase, coming right after the wealth, payroll, and corporate taxes."

Instructive insights.

D. MURALI

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