A
few days back our honorable Governor of RBI had hinted about this
topic but it appears to me that his hinting has gone unattended as
usual. I however, felt that his point is correct and so began to
observe and study relation between these two seemingly unconcerned
subjects. As I began to study it, I could see the need for proper
check on this uncontrolled taxation we are practicing while preparing
budgets of almost all institutions, central, state, local bodies,
municipalities and such. We should realize that while these taxes are
levied so freely that the economist never becomes conscious of the
effects of their taxing on purchasing power of our currency. For each
tax, prices elevate and as that occur, purchasing power of rupee
drops. This phenomenon goes unnoticed. That means, at every new tax
applied we unwittingly as though, devalue our currency. It has
effects in home economics as well as in international economics.
Taxing authority is bothered about garnering extra rupee for their
treasury and there the concern ends for them.
Before
I go further on this argument let me discuss different reasons for
devaluation of any currency. Unless it is properly understood, we
cannot go further in this topic. First, we should know that a
currency is devalued or up-valued on two platforms. Internal
economics and external economics are those two platforms. Taxation,
arbitrarily made, causes devaluation of the currency internally. It
has no effect on its performance in international transactions.
Presently, I want to discuss this issue but to be clearer about other
platform (external economics), I would like to mention it also. The
second platform of international value is influenced by again three
prime factors. One is borrowings by the country, second is GDP and
third is Forex market. Forex market is developed by modern time
economists when Dollar became vulnerable and valuation among
different currencies became an issue. That market is situated in
London but it works mostly on INTERNET. There is enough opportunity
for smart players to manipulate values of currencies by playing
smartly. Even if GDP of a country is not very promising by playing
well the currency of that country can be maintained at a reasonable
position. At present Dollar is holding its position because of this
advantage in this market. Moreover, our rupee is dropping because our
boys at gambling dens are not doing what they should do at Forex
market. Old concept of GDP has been already surpassed by this Forex
index and we are still very much bothered about our GDP. I do not
want to write on that in this post on this very tricky subject, as I
am presently more worried about devaluation of rupee in home market.
Now
let me say why currency devalues in home market. Prime cause for
devaluation of currency is arbitrarily made taxation. We see some
people suggest that printing currency and dumping it in money market
causes devaluation but let me tell my readers that it is not, any
cause for devaluation if it is properly manned by concerned banks.
Luckily, our banking institutes have been good at that, and
therefore, that is not the cause for devaluation of rupee. Usually
such printed currency is given to Standard Bank for safe keeping, it
is used to help other bank. It never enters home market and so that
should not cause devaluation. Proper method is to pass on printed
currency to Banks as reserve fund and so the fear expressed is not
plausible. Second most important cause is price escalations in local
market. This is caused by real or unreal shortage of commodities in
the market. We often see political parties encourage unreal shortages
of essential commodities so that prices will rise and people pay
exorbitant prices to buy it. Reason for such artificial escalation of
prices is very clear. Politicians and their parties want funds from
the market traders. By creating this artificial increase in price
more money traders earn which they eventually pass on to these
political parties and many a times to their leaders. Value of
currency is its purchasing value. By creating artificial shortages
value of commodity they increase and increase in prices means
decrease in purchasing power of the currency. Here we should note
that in the event of real shortages, devaluation does not happen
since as soon as that situation improves prices come back to normal
and the value is restored for that currency.
Second
cause for devaluation is more dangerous; it is due to taxation.
Devaluation due to this reason is more permanent. Therefore, it is
more hazardous for healthy growth of any economy. Here I would like
to remind my readers about what our RBI governor said about these
arbitrarily levied taxes. Presently we do not have any monitoring
authority to control taxations by various institutes and other bodies
who, rightly or wrongly, are authorized by government to put taxes,
including such as toll on roads.
RBI
governor wanted some type of control on these taxes. The Bank has a
right to object to this irresponsible way of levying because the Bank
is by convention considered to monitor value of the currency in
markets, home and world. How it can do it if it does not have
authority to control factors those cause devaluation. It is a case of
having responsibility but no power to execute its needs.
Responsibility without authority does not make any sense. I appeal to
all those who could be interested in this very vital issue to bring
this matter in public view and help our governor Mr. Raghuram Rajan
in acquiring the necessary authority to control taxation policy. By
that, any authority who wants to apply any tax or levy (such as toll
on roads) must get prior approval of RBI and only after RBI approves
of it that tax, levy, toll etc., will be applicable. By this
arrangement, irresponsible taxation will cease. Taxing authority will
have to convince thoroughly RBI about the necessity of such taxes and
on failing to convince RBI that tax, levy will not be applicable.
There are many examples of criminal use of this by taxing
authorities. I want to sight one to show how taxation is misused to
loot people. This will not be possible if such a control is brought
about. There is nexus among bureaucrats, politicians and contractors.
On failing to do, some work, the contractor incurred some loss. To
recover it bureaucrats and politicians jointly decided to put tax on
people and they recovered the loss by that money. Here we see the
public had to pay for irresponsible work of the bureaucrat and the
contractor. For no fault of taxpayer, they have to pay it. Recently
we saw how BEST of BMC wanted to add additional tax in property tax
of Municipality because BEST has made losses in their undertaking.
That loss is due to corrupt management of BEST, otherwise, there is
no reason to incur that loss and every body knows it. All these and
many more such examples can be given to show that RBI governor's
concern is valid. Some check on arbitrary taxation is essential and
RBI is the right authority to do it; since it is responsible for
maintaining purchase power of rupee. I wish somebody from public
should rise for that and bring this malpractice to notice of people.
Media should take initiative in that. I am doing my small
contribution towards that in this post.
Types
of taxes – seven categories are found and they are given below.
- Revenue tax to earn money to manage (running) government,
- Tax to collect money for plans for development.
- Tax to control or discourage consumption of certain things government increases prices by increasing tax so that the material becomes costly.
- To cover up for loses due to bad management or decisions.
- To protect and encourage parasitic economics.
- To discourage bona fide beneficiaries.
- To help vested interest against others.
RBI
will find out to what category tax under scrutiny falls. After that
proper investigation will help it avoid tax proposals, those are not
to the interest of country's economy but proposed to help other ends.
The last four are taxes to be checked particularly. I have noticed
that many tax proposal falling in category 4 to 7 are promoted with
false pretense of category 1 and 3, RBI skill will place them in the
proper category before scrutiny. All taxes coming under 4 to 7
category will be rejected. All taxing authorities will have to
explain to RBI need for that tax and if convinced RBI may accept it
with necessary corrections. This will reduce measure burden on our
rupee and will help get the appropriate purchase power to rupee.
There
is a hitch in this proposal of RBI to control taxation by monitoring
it. The hitch is RBI does not have all non-corrupt officers. If an
officer like the one Kurupasami is appointed to do the monitoring,
this aim to stop arbitrary taxation will fail utterly. Raghuram Rajan
should see that a truly honest person is appointed to do it. He must
also see that the committee will be guided by him in person, to avoid
any misuse of that authority so that the very purpose is lost. I
also hope that Modi administration should honor Rajan's plea in the
interest of people for whom he has given many promises.
You
may contact me on my Email ID given below,
You
are invited to visit my other blogs
Ashok
Kothare,
http://ashokkotharesblog.blogspot.com/
for
stories
I
reckon,
http://kotharesviews.blogspot.com/
for philosophy
You
may visit blog, Freedom
of Expression,
http://blogs.siliconindia.com/kothare/
for intelligent discussions.
Freedom
of Expression, http://kothare-thinks.blogspot.in/
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