People ride a motorcycle past a painted advertisement for India's ruling BJP at a village near Modinagar in Uttar Pradesh. | Photo: Anindito Mukherjee | Bloomberg
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I am sure you have received a helpful email and an SMS from our friendly Income Tax department reminding you to file your returns by the end of the month. In one of those coincidences, the email arrived while I was going through this year’s Union government budget. An overall look at the second Modi government’s first budget reveals an underlying commitment to raise revenues, mainly in the form of new taxes. In the face of a slowing economy, higher taxes can exacerbate matters.

Writing in Business Standard, Debashish Basu complains, “While the government wants to extort more money from cash-rich companies and rich investors, it is responsible for the economic slowdown, no job growth, very little incremental investment, and huge increase in its own spending.” As Basu enumerated, this year there is “the tax on dividends, the tax on buyback…and a tax increase of 3 percentage points for individuals with an annual income of Rs 2-5 crore and 7 percentage points for those earning more than Rs 5 crore.”

Basu cites a strongly-worded opinion piece by T.V. Mohandas Pai and S. Krishnan in Financial Express, who argue that “(t)he government has failed to protect citizens and business from a tax system that has run amok with a broken assessment system and a broken appeal system! No major country has both broken. Tax officials seem to think of everybody as evaders and themselves as vigilantes!”

As a fiscal conservative, I am generally against raising taxes. Money in the hands of citizens and investors does a lot more for India than money that passes through the hands of governments. Given the narrowness of the tax base, it is unfair to levy more taxes on those who are already paying taxes without making greater attempts to bring more people and firms into the tax net. The Goods and Services Tax (GST) is supposed to do that, but, given complexity and other things, it seems to have under-delivered. It clearly needs to be simplified.

Also read: Stocks crash after Modi govt stays super-rich tax on foreign fund trusts

If raising taxes on goods, income, profits and beneficial economic are bad, what option does the government have? Can there be “good taxes”? Yes. They are taxes on the bads.

As an example, let me propose a tax on honking. Every time you honk your car, you pay a tax. The more you honk, the more you pay. The louder you honk, the higher your tax rate. Every motorist in India thus becomes a tax payer. There were around 25 crore registered motor vehicles in India in 2017, more than three times the approximately 7 crore income tax returns filed last year. A honking tax will bring 25 crore people into the tax net.

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We will get into the mechanics later, but let’s assume that the average monthly honking tax collection per vehicle is Rs 100. This will yield annual revenues of Rs 30,000 crore, which is half of what India spends on the Mahatma Gandhi National Rural Employment Guarantee (MGNREG) scheme. In fact, by creating honking tax slabs based on the number and loudness of honks, it is possible to raise even more. After all, it is only fair that those who can afford louder horns and honk more often should pay more.

So, make it compulsory to install a honk meter in all vehicles. Allow a basic number of free honks per month and per kilometre to account for safety. Honking meters can be designed to capture the duration and loudness of the horns. Motorists can self-assess their tax liability and pay online by keying in their vehicle registration number, odometer reading and honking meter reading. Petrol bunks and automobile service centres can be authorised to verify the readings on an annual basis.

Also read: Higher taxes are killing India’s nascent hedge funds

I know you are immediately thinking of ways to avoid paying these taxes. That’s normal. Before you ridicule me, note that among my readers are tax department officials who are, rest assured, thinking of ways they can prevent avoidance and punish evasion. They are nice people and will send you SMS reminders to help you comply. Of course, not all the potential honking taxes will be collected, but as long as tax revenues collected exceed the cost of collection, it makes sense.

I know you are already hating me, but why do I call this a “good tax”? Because excessive honking is a “bad”. It creates sound pollution, what wonks call a “negative externality”. Taxing a bad is a good thing, because at the margin, people will do less of the bad thing because they will have to pay for it. Just as the honking tax raises revenues, if it is set at the correct level, it will reduce honking. The government will have more money and we will have quieter, more peaceful roads. It’s a win-win.

We can tax other bads too. Like air pollution, water pollution, parking on public roads and so on. We could call it the Bads and Disservices Tax (BDT). Now, depending on where you honk, the power to tax might lie with the Union or the state government. If you are driving along the national highway in a particular state, both the Union and state governments might claim your honking tax. So, we will need to set up a federal BDT Council to work out what should be taxed and how the taxes should be split between the Union and the states.

Also read: Modi govt’s tax for super-rich snares unsuspecting foreign investors

You are right to wonder if I am being serious. Am I? Well, not too much. Am I being sarcastic? Certainly not. But in a country where the government takes its share of your salary even before you get yours (Tax Deducted at Source, or TDS), why do you think a tax on honking is an absurd idea?

The author is the director of the Takshashila Institution, an independent centre for research and education in public policy. Views are personal. 

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