The affirmative principles of tax policy are settled doctrine. Equity, fairness, certainty, simplicity, neutrality, predictability, efficiency, transparency and adequacy. This is the modern tax-policy canon, descended from Adam Smith’s four maxims and distilled by the OECD’s Ottawa framework, it is accepted globally.
India’s problem has rarely been ignorance of what should guide tax policy, but an unwillingness to name what should not. Here are five anti-canons that tend to write our tax laws today, and must be barred from writing them tomorrow.
One, revenue maximization must not be the basic motive: It is the result of good tax policy, never its premise. A statute drafted with collection targets as its architecture will choose the widest base of suspicion and the harshest machinery to work it, and then underperform because taxes built to extract behave worse than taxes built to be paid.
This is not rhetoric but the logic of tax design itself: from Ramsey to the Mirrlees Review, the optimal-tax system was found to treat the revenue a state needs as a constraint to be met at the least cost to the economy. A good system raises revenue but must not be the principle a tax rests on.
Every mature canon lists adequacy last, not first. Indian drafting inverts the order and this shows in provisions that block credit, deny refunds and presume evasion, each of which is defended in the name of revenue needs but erodes the very base that revenue grows from.
Two, tax policy must not be made in isolation: It is not a self-contained machine; it is one gear in the economy’s transmission. Tariff structures are trade policy. Input credit oils manufacturing strategy. Refund speed is an export incentive. Rate schedules shape consumption patterns.
Drafting tax provisions without asking what they do to global supply chains, capital flows and competitiveness is to miss the forest for a single heavily-guarded tree. The question before any finance bill should be what a clause does to the economy that pays it, rather than just how much it could add to state coffers.
Three, the state must not play ‘heads, I win, tails, I amend’: When the taxpayer loses, the matter is closed; when the state loses, the statute is retrospectively rewritten. That asymmetry is the single greatest destroyer of tax certainty India has produced. Vodafone won at the Supreme Court in 2012; Parliament amended the law back to 1962 to undo its victory, and it took a lost treaty arbitration and nine years before that amendment was finally buried.
Similarly, when the Supreme Court held in 2007 that offshore technical service fees fell outside India’s net, Parliament rewrote Section 9 of the Income Tax Act retrospectively to override it. When courts held that the first rewrite had not done so, it was done a second time. A state may disagree with a verdict; it may prospectively change the law. What it must never do is rewrite the past.
Four, the state must not be penny-wise with the economy: Collection efficiency matters, but a nation’s progress is not measured by what its tax department gathers, but by what its people collectively build. A rigid administration that squeezes working capital for small firms, litigates every startup’s valuation and treats each refund as a concession wins the quarter and loses the decade.
The state that prospers is large-hearted with all that’s productive: jobs, manufacturing depth, the aspirations of young firms. The geopolitics of supply chains are not externalities to tax policy, but its report card.
Five, cadre management must not masquerade as tax administration: This is the anti-canon nobody wants to name, because those who know it best are the ones to administer it.
The number of commissionerates, the choice between a commissioner in every city or one per state, the design of faceless versus territorial assessment—these are often settled by the arithmetic of posts, promotions and anxieties of the tax administration, instead of by what the economy needs.
Administrative geography drawn to fit a cadre’s career pyramid is not neutral: every additional jurisdiction is an interface, and each of it is a compliance cost the economy pays.
The five share a theme: each keeps the state from placing its convenience—its targets, silos, face, pride, promotions, etc—above the economy it serves. Well-known affirmative canons all point one way: tax is the price of civilization, collected so that society may flourish.
The anti-canons are how that price becomes a penalty. India knows how to write the principles on the wall. The harder reform involves striking out what has been writing the fine print.
The authors are former officers, Indian Revenue Service.