Laffer Curve

Capital First’s V Vaidyanathan says making tax structure for businesses progressive rather than flat will lead to rapid nation building

The role of the government is to create a more conducive environment for private players to thrive and contribute to infrastructural development, and to do so, the government should consider a progressive rather than a flat taxation structure on profits, says V Vaidyanathan, the Founder and Chairman of Capital First.

Addressing the audience at #leadingedge2019, Outlook Business’ flagship event, Vaidyanathan stated that the ‘leading edge’ of existing developed nations is the fact that they are by-and-large private-sector economies. And in order to replicate that developmental model in India, and to leverage the full potential of the private sector, the government should create a “facilitative” environment for enterprises of every size to build and sustain, through a progressive rather than flat taxation structure. “Small enterprises will get to pay lower taxes, and larger enterprises like ours, like the top two thousand listed on the Bombay Stock Exchange perhaps, can pay the peak tax rate, in line with our existing tax rate,” he explained.

Predicting that India’s GDP will reach $5 trillion, and the country’s private consumption will grow from $1.3 trillion today to $3 trillion by the year 2025, Vaidyanathan opines that to augment India’s rank in the ease of doing business index, the rate of taxes can start from 5 per cent in order to support the smaller players, and gradually increase to the highest bracket, based on the profit clocked by the enterprise.

“While the large corporates stand to feel a marginal pinch, a small scale entrepreneur would derive substantial benefits from this scheme. They already face issues like their unit costs being relatively higher, not being able to attract the best manpower. This would be some way of enabling the small entrepreneurs, and one can even hope that many of these people will go up the curve and start paying their slated taxes,” he said.

Vaidyanathan says it is imperative for the private sector to play the ‘central role’, and for the government to play the role of a ‘neutral umpire and compiler,’ which would reduce the risk of chronic capitalism emerging, and encourage small entrepreneurs to develop, so that the entire ecosystem benefits.