The Hindu Business Line : Powerful oil shock absorber

West Asian sheikhs and sultans are often Janus-faced — dictators from one side but perceived to be benevolent tax administrators from the other, what with there being no personal taxation in these nations. The show of kindness hides a sinister design, founded on a convenient quid pro quo — don’t rock my boat and in return I won’t yours.

Blessed with a natural resource that has so far eluded an effective substitute but demand for which is steadily burgeoning, these worthies have been running their fiefdoms effectively, if not efficiently, buying comforts for their citizens with the help of the generous inflow of petrodollars and, in the process, lining their own pockets.

This is seldom questioned by the citizens, much less challenged because of the fear, by no means dismissable as unfounded, that the tyrants would strike back with a stiff tax.

Of course, one can argue with conviction that for economies that generate huge incomes from exports of Nature’s bounty, there is no need to look for income from taxation and, hence, it would be unfair to attribute sinister motives to their rulers. Be that as it may.

Slashing Taxes

If petrodollars made personal taxation redundant in these countries, the unrelenting oil crisis has served to warn our policymakers not to look to oil as the milch cow. In fact, the Left parties are on dot when they say that the current crisis can be surmounted without making life more difficult for the harried poor and middle-classes by refraining from increasing the prices of petroleum products and simultaneously slashing the taxes on these, which account for the lion’s share of the price to the customer.

While this would give the the oil marketing companies much needed succour in the form of price increases that gives them the cash all right, but without pinching the consumers, the resultant loss of revenue to the exchequer can be easily made up by taxing the share market, without showing it undue favours, as is the case right now.

Right now the long-term capital gains from the recognised stock exchanges in India are left untouched and the short-term gains therefrom are taxed at a soft flat rate of 15 per cent plus.

The Finance Minister has gone on record justifying this regime on the ground that the Securities Transactions Tax (STT) imposed on share market transactions amply compensates the government for this sacrifice made by the exchequer.

The STT might have set the Finance Ministry’s cash registers ringing merrily but that is not reason enough to turn the fundamental canons of taxation on their heads. Horizontal equity and tax according to ability are the two canons that have been blissfully ignored in feting and mollycoddling the share market.

(The author is a Delhi-based chartered accountant.)

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