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Tax Incentives Have Distorted Our Economy. Remove Them and We’ll Win.

I went on a twitter rant about how we deal with incentives:

What do you think?

Note: These are obvious simplifications; there is probably a good reason for every tax incentive. But there is such a thing as too much incentive, and like reservation for the “creamy layer”, it’s horrendously ineffective at some level. I believe that India has the chance to demonstrate to the world how a lower incentive system will work better.

By the way, you know why it’s so much more difficult to export than import? Because of duty drawbacks and export exemptions. If you export so much, you get x% back from the government. People abused this by exporting empty boxes. So now, every physical box has to be packed in the presence of a government official. Take away that incentive, and you’ll find that people squeeze out the margins from operations, and things get better with no bribe to be paid to a government official which is no longer a bottleneck for higher volume exports. And imagine the savings on government payroll when they don’t need that many people policing exports and signing cheques to release for exemptions.

I’d love to hear your thoughts!

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