One of Thomas Friedman’s thesis states that individual countries must sacrifice some degrees of economic sovereignty to global institutions such as capital markets and multinational corporations for high performance, a situation he termed as ‘golden straitjacket’. Most ‘miracle countries’ like Singapore, UAE and others have done it commendably by making their economies resilient, free of corruption, most ease of doing business and most importantly ‘light on taxes’ to the individuals and corporations. The situation make sure that the world takes notice of such countries and prioritise their business interests around them.
Lee Kuan of Singapore showed the world how brilliantly it can be done. It is now said that another Lee Kuan is born in India in the form of Narender Modi, who seems to be bent upon replicating the Singapore type experiments on mass scale in a larger economy like India. By taking an unprecedented decision to curb black money in India a few days ago, he seems to take more radical measures to eventually make India a pleasantly tax free country, thereby taking India’s ‘ease of doing business’ to decisively attractive levels for the world capital markets and the multinational companies. Imagine a country like India with vast land, labour and market resources, offering an ease of doing business like that offered by Singapore. There could not be a matching opportunity of this type of situation anywhere in the world for international investors – short term or long term. By bringing India’s entire monetary system online and over the board, wiping away the parallel black economy, the biggest opportunity for India would be to also make it totally tax collection free (except import duties). Before the last few days only 20% of the estimated daily average transactions of 2.7 lakh crore (around 40 billion USD) is taking place via banks- says Anil Bokil of Arthkranti, a Pune based financial think tank. The think tank also propagates the idea of doing away with all high denomination currency notes in India and force the country to use visible and legal methods of transacting like- payment gateways, mobile payment apps, online payments and similar. By having a single banking system to collect revenue for the government which can be done in the form of a nominal transaction tax on daily transactions, it is possible for the government to stop collecting any direct or indirect taxes.
What does a tax free India signify anyway?
No country in this world as large and as populous as India has been able to offer a tax free environment for doing business till date. In fact this situation itself is one of the barriers to making India a tax free country. Traditionally India has not experimented with new ideas untried anywhere in the world, as we have consistently shied away from entering into an unknown territory with respect to policy of governance. Electoral reasons for a large democracy like India could be one of the reasons for India being a follower of the ideas of governance more so in the case of economic governance. However in last few days, we have seen our prime minister demonstrating that India is ready to enter unknown territories by experimenting with untried ideas elsewhere.
However what does a tax free India signify to its future? It can do a lot to make India a truly dynamic and reasonably rich country with less corruption and most sought after destination for business and tourism. A tax free India means a larger number of activities happenning here in terms of businesses, manufacturing, infrastructure and tourism. A better ease of doing business would ensure that big global operations are designed to be wound around what is on offer in India in terms of land, food, raw material, labour, engineers, managers, simplicity of business policy environment and a corruption free interaction with regulators. Add to these is a very large emerging market for new products and services in India. A tax free India also means simplicity in revenue collection for the government thereby ensuring reduced salary bill for government staff and bureaucracy. A tax free India encourages enterprise, innovation, hard work and incentive to produce quality in services and goods. After all, only the best can fetch a premium.
A tax free India also makes it mandatory for all players to comply with important rules and regulations in the country to govern the society, while taking care of the environment and resources available. A tax free environment encourages, tourism, increased shopping, and better entertainment for the world. It also have the potential to bring necessary cultural changes in the Indian society for example potentially a reduced ‘power distance’ which is quite high in Indian culture at present. A tax free India would also make India an apex economy in today’s world, if not the top most economy. We would definitely be able to better the example of China.