From 50 Years Ago: Tax on Efficiency

It speaks volumes for the inanity of the super-profits tax that even so staunch an opposer of the private sector as the editor of The Economic Weekly is constrained to denounce it as “completely misconceived”. Although you have praised the technical excellence of the Finance Minister’s economic advisers, one must confess that it is hard to share your enthusiasm if this extraordinarily absurd tax is an example of their technical ability. On the contrary, it shows the unreal atmosphere in which the Budget is planned by what has so rightly been called by Shri Palkhiwala, the Delhi intellects.

No doubt, in common with all other sectors – except those that are favoured by the Congress like farmers, khadi manufacturers and bootleggers – the corporate sector is expected to bear some share of the burden that has been imposed on the tax-payer for the nation’s defence…

Yet, poor businessmen in Bombay, who are probably dishonest men, cannot help feeling a little confused at the economic considerations which prompted the imposition of a levy which discriminates against efficiency and limited companies in favour of over-capitalised companies and rentiers; for, under the provisions of the super-profits tax, an individual who has invested Rs 1,00,000 in forming a limited company and makes a profit of Rs 50,000 is no better off than a man who purchases a flat with that Rs 1,00,000 without forming a company and earns a rent of Rs 18-20 without going to all the bother of working for his living…

…it is terribly important to realise that it is not profit, nor the amassing of profit, which is evil, but the use it is put to; what needs to be discouraged is not the making of money but its distribution; the curb should, therefore, be not on profits but on dividends.