extracted text

103

D/T
T/Vos

3 U&y

t Octoher 1953
Na

AV(1)~TEC/53

1

1

Mr I n d a r ; 5 i t Slngh,
Secvet^rj
T a x a t i o n Enciuiry
Oormiasion,
'?/hlte Horu.>e',
91 VVf»lkeiiihwtir Road,
Bornbay » 6
^

.1^:2-

Dear Bir,
Please, find enclosed my ansv/ers to
seme of the mor-e general -nieationa put oy the
Taxation En'iul3?y Ccr.misGion. I aT.olo^'-iise' for
being ao very late with my answers, oz'eeBxii-e of
work aoing the main explanation, although not
an excuse.
Having no detail laiowlejdge of the
Indian tax systeia, I had to abstain f rata
answ0rin<j a large munoer of 'luestions which
in addition can only oe answered on the uaeis
of much wider Icnowledge of Indian circumatimces
thfin I could ever have, I hope never-theleas
that sane of my answers may 'be of aome use to
you,
Youra very sincerely.

(J, Tinbergen)

4i

1^'

c
ao

^.f. - 1 ' ; ff,-':; r

••tOÜB

J!
<J

,-i.t

.•j-

ü'ïevfüiim Hir :jNMial»£l»

^-

ftPlt

- '"-f '^- .

»t*)

-3 filjmo l u—
.iff %e> «ixDÊ 4'ttfC.t
«liov.

TAXATION SNaUIRY COÏMISSION
Answers to sane of the more
general c[uestions, by
J, Tinbergen, the Hague,Holland,
(Ewflbers refer to questions)
1e

Objectives (a), ("b) and (c) should be adhered to;
(d) is identical to (c),
2,
This is such a complicated matter that it seexns difficult
to foK-nulate precise criteria. By trial and error the different objectives should be promoted in such proportions
that an optimum be reached, easing the experience inside
and outside the country.
In most countries a number of taxes of very different character exist and the mutual proportions do not
diverge too widely. Often there is about equality between
revenue frc»n direct and. indirect taxes; and roughly onehalf of the former is income tax, roughly one-half of the
latter sane general turnover tax. This might be indicative
of some common experience on the optimum proportions.
Income taxes in the higher brackets usually are well above
50%, The Indiaan tax system does not diverge, if I am well
informed, too far fran these criteria,
3.
In a öo\antry with a low average incane taxes on higher incomes
will have to be high. One wonders \7hether incomes above
R 10 000 could not be taxed higher and whether not those
betv;een R 20 000 and R 25 000 are relatively under-taxed
by a few percent,
5.
The small'ness of the proportion of tax revenue to national
incane in India is primarily due to the low average income.
Nevertheless it may be necessary to raise the level - given
the problems of the country. Of,answer to q.uestion 3*
6,
Of, answer to question 2.
8/9, I see no objections in principle against earmarking some
taxes for certain purposes; but there are necessax'ily
important overall expenditures which have to be financed
anyhow; it would be hardly possible to link these up with
specific taxes,
18, Borrowing v/ould seem attractive for self-liquidating
projects and less so for productive products that are not
self-liquidating. For overall expenditures difficult to
attribute to special projects borrowing would seem to be
not attractive at all,
19. (a) and (b) would seem to be especially important,
20/1,The tax policy should stimulate investment by exemjjtions
in case of investments rather than by low taxes on profits
without discrimination,
23, I am afraid it would mainly promote consumption,
21+. A tax on super normal increases in income might be attempted
in order to raise funds for public investment.

-jt

ï!0i8h

• Ysiïxs^ws. my.

(eaoicJ'aeijp o:J' «ÏSIÖT: aioc

. ( o ) o:r If'
1: 8x (f))
iLsjoï'itïb
amses ;5-x Jsild" lacfJ'KCi jjeciii;Oj.Ia: ÜO ^ rfox/a a i o
"lïb
QiLS 10^119 ï^m S.B±^i xS. mBMsilio
a s i o s i q e^Blxrarjot o;t
aaol^^oqo'i
• ^^ n l JB9*o£ffOT:q
"
'lcJ"o&t<^o ^ i t e i s l
oLiGirJt ©or;
:s srlrf' :-j:ïJtsfl9 ^
: . iiJiaiS"qo CIB i,adi
V *ïJm.roo Qdt sbiatuo
bssB
-.1
i.jüwf i ü 'XöUifiuxi £i ael'ïd'fïjjoo Jeora n ï
ton c
Isifi^imi »ri;t IKIB * 8 l x © 'XQiomiBdo
ineieJ.
/^•«tf Tjcrxlxiixfj® toocfB 8 i si^ifi". xïu^lü .Y-ta^iw o o t s g i s v i t
-'?ao Y-^rfSiron £i«nB isexed- tosTlfirii fjiss 3'os'ïi:'
't ourieve-x
Bdi l o Ilsrf-SHO Ylrf^J^o'ï «xsd^ s3fbonl ai isfir..
'ïo l l ^ f f
evld-Boii>iïi @d &dgïm alxIT ,XJRJ tevortiat
Isier;
tf^I
.8noi3-'£oqo*sq Mtrml^qo edi no o
''Tsqxs UOLL-OW' riüi/jc; Ï O
svocffi I l e w ^rt'^ T-CIsusxr 8*9:?ïos«£ti' "ïv
JJIW ai &&xeS sffiootil
II9v/ iiic :
•:i3vtb ioa aoGb mo^B^s XB& oBibsiI 9UT ,$?€)c

«öoxf* ;J'©xi *!:©if#aiiw &i» ^toiis-tu Issxsd^ öcTït-oit Jb^ïéd^) ^Öl) Of S
r-,^Y,--'_>-r«r->r-r ..-TA-K ;..t,,'".•,.•,- «,^ r. Ann nQ (T F>f£fi <J0o os'
&-em0êm
4éaém»q
«rd*-« T|O
.©moofïl a s "
;-,-e-71-•.- - X.9v.._ „„^ —
. . nói^teéüjp ^Éi" •

c sl£>ixl n±
. J± s a s l e i i - -..,..
^
.
' l o a c i s l ü c ï q sii:l
, S noxdasjjp o:."
ia . 1 .
Qssxm ym
ie iaalBsa
&Lqioa.ltq
ai 8aoi:ïo&ldo
on me» I
919x1^ tsjd \a
q alBi 1&0 •
x<ct
bv—
_ _- ; iioïdw aermi^
- _-:3 I I B I Ö V O ^
l i t l w ^ MMIfiL^
-j ald'lasöq: igXfwesrf s d LIxrow ;Ji ;
ViU-fc-^isöxjjpli-'ïIee l o ' i avxd^oe'ï^vtfl x
Iwow
Joii a-i.fc ïBr!>t aSossbo^q SfrX^oisboiq l a ' i c - _ ^ I beiB „ . . , , , , ,
a d o * r.ï89a Mxrov.

,^\8

.^•^•
.

• -o*t1t^ IKJ'«N>|i<:«<i . ^ i ö e q e o* 9&iidX'
.•c I

eaox^uüer8;Jx';!:o'iq r:-(.

_.
>'#|^;'i»föJït^fa 1 » ^ © ^ » •'f^
t wol igif itaÊè *mm'&t n^sèm^^^^nt
to
ïioaïb

iSBtvfSG-TTil

o:

arlT. ^^0S
nï
iisod&ï,.

BBBO

'2-

25.
27.
28.
29.

3Ö,
31.
32,
36.
37.

The most effective tax preventing consumption froa rising
would be a general turnover tax,
Exemption for investments could be differentiated according
to some classes of investments; it might for instance
not be given for the construction of luxurious dwellings.
Sc»ne examples have been given in the preceding answers,
In Western Europe direct controls are considered to be
not very efficient, but in war time they are nevertheless
applied. Much depeMs on the need for private initiative,
which is not so large in war, but large in the case
of development in industry,
It does, of course. Whether it does sufficiently is a
second point. I find it very difficult to judge this,
The only possibility seems to be to make a sharp distinction
between consumption and investment (cf. above, points 20.
25, 27),
Fot a large one. But sorae basic social insurances would
seeiri to be very important,
Certainly,
Public education and propaganda, shov/ing the importance
of a high tax morale amd the direct connection with the
vast tasks of the Indian people, (Of. Blue Eagle in the
U.S. in the thirties'; Russian methods; reconstruction
activity with the youth in Yugoslavia, Poland, Hungary.)

ipD, In times of inflation taxes should be increased and in
particular taxes in income rises might be imDosed, In
times of depression taxes on consumption should be lov/ered
(sales tax in particular),
k•^. Cf, answer on guest ion kO, Import and export duties might
be used according to the situation of the balance of
payments,
42. This capacity is largely dependent on the level of the
income tax; the higher this level, the higher that
capacity !
i+3.

If a large portion of expenditures is for investments
they would seem to be a regulator of some importance,
144. Taxes or subsidies might certainly be useful to meet
difficulties of a temporary character in special industries.

•p,£tïÈn<^'.'0'^ beiïütiiïQia'i'iïb
^mt i n ^ $s^tm

&d blsroo ».
St iBi£mtsstB&vai

.avnJ: ' Ï O ^ sy.otSqm.&x¥
Ic
Mum ^

.S'ïewain
•—^o&^q Bcii at U^JVX^,, .iv>»i> ^S-ZK-H aalgiviij^.r • .it-^-:.
©ü"" o* i.u-iï-!.'4.aitr- - •'• a l o t * ' "
••
'• •—••- •• meJ-aoW n l
a a e X a r l t i a v s n errs \
.n^tS 's.
& T^ISV i^on
,9vlJ-Bl;l'liïi scf.8V±"ïQ[ l o l b®&a &n7 «» aiaasqeJD nüiiM . Ê s i l q r r B
©asr - • • ' s g i s l ••••••' .-'•-" Til «sttBl oe •'-r •- •• •• '--rriw
.sirfj
nctioatiéïb

8'g-5^>i-'G OJ ^luotVlib
X'^or &t bi
.jraloq; M o o s e
q^Bda B e::ifsm o* acf « * a f p ^ "SEtMiöiaaoq xlm>

^Ii/üw a©ortQ«ïj:feal If^looe O'iaBcf Sivioa 4 ^ . «M^il'; -

3* i«fl|

Qd& éiï^! iioi:t's=artaoo t o Q i i t — . ...... w... ^.ÜJEH x » t tfgijri fi - aricf at &I:^BS mflü . 1 0 ) .aXqpdg £ c e l l ^ « ^ ^^^ d^^aed- i^mnr
aoïiotrt^aax3t>i»i
lÊktodiam OBÏB&US
;*8#icl-iif
nl ,a,ü

H l •&•. ....- ,,.. -.„,_.„...
b@t&wol »€f hSisodm aottq^msamyo
:aict"i;i> i'noc;'-

^loc

... „
- J at M-ÓXBS ...
.,...,
xxo e^xBi uoïaaQiqQb
l o asüitj^
, (iBliroi:4''ifiq xïl XBJ- f;
,

i noJt;Ja0X/p « o

dr[.t l o I9V3X 9rl;f a c ' ^jCÉll&sdq^jauli^ . I l I j M i ^ --i^'^^^
B:ïiï&miaerai
; Ébm^Êt- lÉS'- ÜfiNli^i^ a^ai-I'^^W TT
. aoa.Gd'ioqBit smoB l o l o ï e X i r g s i B stf o^ffliHÉiKÉïllliir 1|

Part II, Direct Taxes

k8,

I am in favour of a tax on capital gains. The armment
raised ajminst it that they hinder the functioning of
the capital market, although correct, does not seem to me
to "be very important,

55.

I do notknow the present regulations in India with respect
to fluctuating Income, 'but averaging them seems to 'be "
justified,- as far as they are euh.iect to crop variations,
i.e. almost a random variable with, therefore, a quasicycle of three years, averaging over three years miffht
he good,

61.

Larger depreciation allowances on new assets (sometimes
only for the first few years, and then to be compensated
tor oy lower allowances in later years) are now being
applied in several 'European countries, and it seems with
some success.

66.

Combination of income - tax and super-tax into one single
scheiiie would seem to be a simplification. Holland always
nad It that way. The scheme taJies the form of a table,
with small increases in income, from which taxes can be read
off directly. i\'o necessity to make calculations.
As far as I understand there is a eomev^hat sudden
jump m income tax rates at R 25 000 and I wonder whether
this could be avoided oj introducing a higher rate for
i?^'^'''®."®'^"''®®'^ ^ ^° °^° ^'^ ^ 25 000, e.g. 36% as against
^6% between R 15 000 and R 20- 000 and 1^6% (incl. surtax)
between R 25 000 and R I+O 000. I ain afraid, however, it is
v.ry difficult for a foreigner to judge a country's tax
system, I even could imagine that, given the problems of
India, income taxes might be further increased, but here
the above remark applies still more.
An exemption limit of R i+^OO seems to me to be high; in
Holland it is only about ƒ 2000 or R 2I4OO.
In Holland there is a slight progression in the corooration
tax (roughly 3% more for lar^e corDorations than for small
ones;.

67,
79.
81.
83.

Seems justified, since it Is double taxation.
It might be unnecessary to differentiate, if special
facilities are given for new investments (cf. question 6I).

cïT Sö®nia

, 1 1 J'ïB'^ï

, ifï±B-g T.BtiqBt) rtö x.e.:t B l o Oï/ovsl: n l ÖIJTO -fiaxnoiSoiiSfj- QM tebni
'< oi &aaiBr\B j&eeitsi
;J-09rfa9'ï dii'ff Gihal

ai aaoiSBL

tia.Bi'ioqt^.i xi&v «cT oJ
aiteas^zq^ erf^t woorfion o^ l

.8+i

»5:2

• " - •-

-' joatcftra ©ns ^ 9 ^ ^ s^ '^^ • '-"- l^-t^i^ax/t
t ^^ivf oIcBJ:'ï'";v ffioMei B i-aomls , a , j :
'5% ööniiio' novo i;:i i .'L'-?i/r- ^aissv; seirf-t

•loó erf ©* n»4* J8aÉ» ij«^E««^ wo'i te«iil1 ©ftd- a o l Y-^' (a^EB»'^ t&i^L ai edOffsw©IlB «ÏW/CI ^ d «w?!

jB^i,
.
'
likm s ösd" o3^ a09B bXacm e
,.,..„.,.. .. .... .-„.
.-. J eöi«M^"#rf3P .TEaw d'Büft vi6BÖ«Ï ©cf azo aëssLB^ ife»lilir futy*! ,<MïQ®aÉ. tik iÈS»«»«ï©Mi.- lii^iii 4f iw

JsnJbs®^ -. . .V--. • •
{xÉ^^ma ^loai

ei ^i ,-

."
•- '
--^^
'JS^IS^ t ÉHB OÜO ^^ S neswcTecr ^ö^^

Bi.

Xi;;t i. ,,..,..-.- ,- -^.--t. o* -i^.... ,_
t© mamleo'vi 9d& n a v i s ,tiiAi aai;
©ir
,i)o8B»ionx n
,;:,„„,

• aoo es 5^

.:..x J l ü o i l . - . - - „..
Zstoo neva I «mscJ^BTje
i ,Blf-<:"^
.-..

-•-

-

.-•/ode

';;i^j

r oi-r cc/- ©m od- afiisös O-,
... l o &imil aoiJquii^xQ nA
.OOiAS S «ïo OC'ü^ 1 ïi/otfc ^ I n o a i &i bitMilol'
aolcfsioqioo 9df ai aolae.
d& baslLoK n l
.itoiJ^BZBd^ alösjob si ii ©onls ,È©iti4"eiJt am$éB
XBio©<ï8 l i ,8crsi;tn©T[et1:il) ©# ij^aasoonisSr/irf t ^ l i s i J"I
, ( ^ ö nold-aiüwp . t o ) ed-nsfl^Bövnl wen l o l a&vt:^ 9^B iiafa-tiloBl

,Tö
.SV
. ^8
*^8

Part I I I ,

Goiiiiriodi ty 'raxes

110# For cojTfffiodlties with a luxury c h a r a c t e r or even adverse
to puljlic h e a l t h , c-ustoras mmld ae&m more appropriate
arij^ow,
113. T«2xport d u t i e s might lae ths siiiiplest vmy of taxing comffioditiea l a r g e l y produced f o r ©xijorts i f i t i s ocaieved
t h a t "oj so doing excessive pr^ofits can be tfixsd without
doing hawn to the balance of payments»
122, 1 do agi*ee.
125, Both tjrpes of t r a n s a c t i o n s mentioried under ( i ) and ( i i )
are "being taxea in Hollaïjd,

„..,...'T T*.U>^u.oO

• i . J , " •••

1j .1.

*>*

i *

•:--- i \ . . - x * - i ^

( i i ) iüiQ ( i ) 'ïtafsEtü x;

-••'

« l i l :liB-I

•

• '