Chapter 11

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Finance and Taxation

The existing system of public finance and taxation is highly inequitable and irrational. It will, therefore, have to be radically recast and overhauled. The following are a few important points that ought to be incorporated in the future Constitution of India:

a. National finance shall be suitably decentralised so as to make local self- government a reality. At least one-half of the land revenue collected by villages shall be made over to the respective village panchayats.

b. Details regarding the allotment of the other half of the land revenue among the district, provincial and All-India panchayats shall be decided by a competent commission appointed by the Constituent Assembly.

c. Other revenues necessary for meeting local expenditure shall be raised by the village panchayats by means of taxation in the form of fasli chanda (harvest subscription), private donations, arbitration fees, fines, grazing charges etc. Taxation in the form of direct manual labour by the villagers shall be encouraged.

d. State expenditure on public utility services like health, education and research shall be proportionately increased.

e. A graded tax shall be imposed on agricultural incomes above a specified minimum.

f. Inheritance taxes on a graduated scale shall be levied on property above a fixed minimum.

g. Income tax shall be a provincial source of revenue.

h. Salt shall be free as air.

i. Payment of taxes in kind, especially in the rural areas, shall be favoured.

Redistribution of Resources

The Sovereign Rights Commissions proposed in Section 4 of the Preamble shall, after hearing various interest groups and intense study, restructure functions and resource distribution based on the following principles:

1 A natural resource or a tax should be managed by the government that can do so most economically and efficiently and that creates least administrative problems.
2 Resources should be so distributed that most local governments are self-sustaining and only a few weak ones need support from higher level governments until their economy gets stabilised.
Most natural resources such as land, water systems, forests and minerals should be under local control. Large water management projects can be under state or national control depending upon their impact. Interestingly, while railways should be under national control, airports should be under local governments! Octroi on highways should be under national, instead of local control! Such issues will need careful study.

Financial Year
The financial year commences in Britain on April 1, presumably since winter ends and the working spring season commences. Our rulers introduced the same financial year in India. We have stuck to it after independence. Most programmes get disrupted in March, the middle of the working season, when the financial year ends. Many departments draw huge amounts to prevent lapse, a serious financial irregularity.
Indian political thinkers such as Shukracharya and Chanakya proposed the financial year from Diwali. Even today, traditional financiers open new books of account on Diwali.
It will be best to institute the financial year from the first of October. Agriculture production depends to a great extent on the status of the monsoon. By September, the finance minister can have a fairly good idea of the expected agricultural production and mould the budget accordingly. The working season will not get broken by the financial year facilitating efficient public management.


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