The New Pattern of Taxation and Its Impact on the Indian Economy

By A. D. Shroff

Summary

This Forum of Free Enterprise pamphlet reproduces the text of a public lecture A. D. Shroff delivered in Bombay on 16 April 1958, attacking the ‘new pattern of taxation’ embodied in the integrated tax proposals (income tax, super tax, capital gains tax, wealth tax, expenditure tax, and taxes on excess dividends) introduced to finance the Second Five-Year Plan. Shroff argues that the integrated scheme — born of an ‘academic approach’ divorced from human nature and economic reality — should be ‘jettisoned into the limbo of oblivion’ if confidence in the economy is to be revived. He contends its twin rationales (maximising revenue for the Plan, which he once called ‘a bottomless bucket’, and plugging every hole of tax evasion) do not hold in practice.

Working through the constituents of the new pattern, Shroff criticises the drastic lowering of the income-tax threshold, the punitive treatment of capital gains and excess dividends, the wealth tax as a ‘severe burden’ on capital, and high excise duties that he says depress demand (citing the 1956 cloth-market slump and the cotton mills’ carrying of high stocks). He maintains that excessive, complex taxation discourages long-term investment, drives away the risk capital needed for rapid and large-scale economic development, and bears most heavily on the middle class — ‘the backbone of society’ — whose plight, he says, the Government fails to appreciate. He also flags the Gift Tax Bill’s restriction on private charitable giving as harmful to schools, hospitals and other institutions sustained by private philanthropy.

Shroff closes on a cautious note of hope, expressing confidence that Morarji Desai, the new Finance Minister, will bring a fresh mind and a practical approach to the problem of taxation. The pamphlet is framed throughout by Forum of Free Enterprise epigraphs — Eugene Black’s line that private enterprise must be accepted ‘as an affirmative good’ and Shroff’s own credo that ‘Free Enterprise was born with man and shall survive as long as man survives.‘

Key points

• Reproduces the text of a public lecture delivered by A. D. Shroff in Bombay on 16 April 1958.

• Argues the integrated ‘new pattern of taxation’ financing the Second Five-Year Plan should be scrapped.

• Calls the scheme an ‘academic approach’ ignoring human nature and economic realities.

• Criticises a lowered income-tax threshold, capital gains tax, wealth tax, and excess-dividend taxation as anti-investment.

• Argues high excise duties depress demand, citing the 1956 cloth-market slump.

• Holds the middle class — ‘the backbone of society’ — bears the heaviest burden.

• Flags the Gift Tax Bill as discouraging private charitable giving to schools and hospitals.

• Ends hopeful that new Finance Minister Morarji Desai will take a practical approach.

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