Thursday, April 19, 2012

Is India not entitled to tax sovereignty?

Apparently not, according to the US business lobbying industry.  They're putting pressur on Tim Geithner to put pressure on India as it contemplates enacting that controversial post-Vodafone legislation.  As the FT reports today:
A coalition of large American trade associations – mainly from the technology and financial services sectors – sent a letter to Mr Geithner asking him to “raise concerns” about the tax bill in talks with Indian officials during the spring meetings of the World Bank and International Monetary Fund this week.
...The US Treasury declined to comment on the letter to Mr Geithner. He is slated to meet Pranab Mukherjee, the Indian finance minister, this week on the sidelines of the IMF and World Bank gatherings. Pressure from the US lobbying groups will raise the odds that he will press the matter. 
...The pressure on Mr Geithner comes after George Osborne, UK chancellor, made a public intervention on the matter earlier this month on a trip to New Delhi, chastising the Indian government for its proposed changes and warning of potentially harmful effects on trade and investment. 
So now we see how "tax sovereignty" actually works out in practice.   I've long argued that there is no theoretical or empirical basis for the claim that taxation is intrinsically associated with sovereign status, and that the "soft law" nature of international taxation--enforced coordination to standards developed by powerful players through modeling and peer pressure--demonstrates that tax sovereignty isn't minded at all in practice.  This latest move against India's assertion of its sovereign taxing power is further proof.  Who is responsible for all this pressure?

I don't think these folks want to "raise concerns."  I think they want to stop India's democratically elected government from enacting legislation in accordance with its sovereign status as an independent nation, and I find it amazing that they fully expect the U.S. government to help them do that.

This is because of course if businesses really don't like what India is doing, they have a perfectly viable option, which is to do what they say they are going to do, namely, take their assets and go home.  But they do not want to do that.  They want to be able to continue doing business in India at the lowest possible cost to them, and if the Indian government won't play along and give them the tax system they want, these business leaders would like to turn this into a government-to-government conflict so that it is India against the U.S. instead of India minding its own business, writing its own laws, and opening itself to businesses willing to work within its sovereign territory according to its own rules.

Anyone is free to disagree with India's tax policy direction, and anyone is free to express "concerns" about it.  But India's decision belongs to India's people, and it is shameful to see the U.S. business lobby so brazenly insisting on their right to intervene.

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