This document discusses taxation models and participatory development models. It provides background on issues with taxation such as complexity, exemptions, and tax avoidance tactics. It then discusses strategies for more efficient, equitable and effective tax policy including removing loopholes, broadening the tax base, implementing anti-avoidance rules, and reviewing tax treaties. The document also discusses principles of taxation, consumption taxes, and forms and variations of participatory development.

1. TAX MODELS
&
PARTICIPATORY DEVELOPMENT
MODELS
Chidananda Jena
Email: chidananda.jena@gmail.com
Skype/ YM: chidanandajena

2. BACKGROUND of TAXATION
2
 Incomprehensible & Complexity increases the cost of
compliance of marginal tax payers and administration
 Intractable conflicting rulings by different courts
 Range of exemptions broadened every time
 Share of indirect tax is high in total tax revenue
 Debt & Aid is high in comparison to tax revenue of Govt
 Regional economic federations misused to avoid customs/
import duty
 International taxation/ double taxation avoidance
agreements misused to avoid tax on profit-Treaty shopping
 Transfer pricing round tripping to accommodating parties
 Rent seeking & Avoidance by Experts- subsidizing rich–
inequitable
 Lack of Transparency of Tax Administration and Policy

3. Tactics Adopted for Tax Avoidance
3
 Under invoicing of Import & Over invoicing of
exports
 Transactions modifying classification of Income
 Changing Constitution and Shareholding
 Mis-classification of Commodity and Services
 Cash outflow as black money through hawala
 Treaty Shopping and Conduit/ chain of Associated
Entities to benefit from chain of tax relief
agreements between different nations

4. STRATEGY
4
 Efficient, Equitable and Effective Tax Policy and Process
 Remove ambiguity in law to minimize tax avoidance,
simplify language
 Keep pace with aggressive tax planning & court ruling
on interpretation of ambiguous provisions
 Technology & process reengineering to reduce cost,
become citizens friendly & eliminate corruption
 Tax policy to encourage self assessment and penalize
evasion
 Marginal tax rates to be lowered, Base further
broadened to achieve horizontal equity
 Progressive income tax and consumption tax to achieve
vertical equity

5. STRATEGY
5
 Minimize exemptions residence/ non-residence
 Review tax treaties with tax havens
 Stringent Anti-Avoidance Rules
 Arrest paper transaction from across the border Vs real
Transaction- Create agency like Interpol
 Timely watch and review all regional and bilateral direct
and indirect tax agreements
 Sensitize public & build Citizen Tax Police Force
 UN Model of Source precedence over Territory/ Residence
 Tax Research to bring out Tax Avoidance outflow Vs Aid
 Tax Gain by developed countries for export of high cost
defence machinery and aircrafts etc and its burden on
poorer nations

6. Principles of Taxation
6
 Equity/ Fairness
 Horizontal- equal tax for same income in similar condition
 Vertical- Progressively increasing tax for higher income
 Convenience-Place, medium, mode, manner & time should
not be an extra burden
 Certainty- Provisions in Tax laws on time, reason and amount
of tax due understood equally by tax payer and collector
 Economic- Cost of compliance and administration
 Simplicity- Understood by marginal tax payers and does not
lead to litigation
 Ability to Pay-

7. Characteristics of Taxes
7
 Progressive- Tax increases with income-vertical
equity
 Regressive- effective tax decreases with income
 Proportional- effective tax rate remains same with
increasing income- kind of regressive tax

8. Role of Taxation
8
 Finance Govt. expenditure- recurrent revenue
(salary) and capital (development)
 Regulate demand & supply in economy in inflation,
control import to manage CAD and FOREX
 Improve competitiveness of local industries, small
entrepreneurs, disadvantageous geography and
sectors
 Protects society from harmful products
 Reduce in-equality by progressive tax

9. Consumption Taxation
9
 Consumption Tax is neutral on savings, inflation and
time of spending & efficient
 Complication of Income Accounting (capitalization,
depreciation, amortization, inventory accounting,
market discount, original issue discount, etc.)
 Pure consumption tax is regressive
 Progressive consumption tax can be suitable
replacement of income tax

10. Progressive Consumption Tax
10
 Personal Expenditure Tax (PET)
 Income-Savings(including changes in past savings, loans & assets)=Expenditure to
be taxed on progressivity
 all financial flows must be listed
 Tax credit for low consumption households
 Top PET @40% to achieve RNR
 Two Part Consumption Tax
 Households on Wages
 Business on Cash Flow as in VAT & deduct all expenses including wages & capital
expenses
 Current VAT is disaggregated to tax paid by business and households
 Wage and Investment from wage to purchase machinery is deducted by business,
setting off tax paid on wage
 Economy wide no tax liability on wage not consumed, no further household tax on
earning on investment
 Unexpected burden on past savings-fairness concern

11. Progressive Consumption Tax
11
 Hall-Rabushka Flat Tax
 Firms are taxed at a single flat rate on business cash flow
 Workers taxed @ same rate on wages above a substantial
exemption, progressivity for high-paid workers
 Lowers the overall tax rate on wages
 Bradford X Tax
 Set of graduated rates on wages and refundable tax credits for
low wage earners-progressivity
 Highest wage tax rate applicable as single flat rate for business
 Progressivity by imposing highest tax on business owners
 Top X Tax @ 35% to achieve RNR
 Capital Gain on home not taxed unlike in PET
 Two tax profiling wage and business unlike one tax of PET
 Treatment of negative cash flow

12. PET Vs X Tax
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 Capital levy at the beginning
 PET imposes tax on bond & equity holders
 X Tax imposes tax on equity holder for the entire capital, spares
bond holder
 Destination and Origin Based
 PET- destination- consumption by domestic residents
 X Tax- origin- domestic production
 To make X Tax destination based- impose tax on import and refund
tax in lieu of export- two new tax system
 Transfer Pricing
 Problem remains on origin based X Tax
 Discourage investment in the country if product is exported
 Encourages investment outside USA, understate the value of idea
paid to American, pay less tax, make more profit and later transfer
dividend to American

13. Flawed Analysis
13
 The United States, like other industrialized countries,
has experienced a rise in inequality during recent
decades. The Congressional Budget Office (2011)
reports that the top 20 percent of households
received 59.9 percent of national income before
taxes and transfers in 2007, up from 49.6 percent
in 1979, and that the share received by the top 1
percent rose from about 10 percent to about 20
percent.

14. Main cognations of Democratic Budget
14
 Direct participation of general people in budget formulation
 Strategically formulation of district budget gradually moving towards local government
 Avoid sector wise budget formulation and allocation of budget. Budget allocation should be
district or areas wise where sectors will be included within
 Sectors of National, Concurrent and Local budget be separate-Education, health, women,
children, agriculture for local; Industry, Infrastructure, Mining, Disaster Mgt as Concurrent,
Taxation, Defence, Aviation, S&T, Information & Broadcasting as National
 The complementary sector of national and local budget needs to be identified
 Increase capital and investment according to the demand and characteristics of local areas
 Allocation of budget in district, upazilla/block, union/village should be according justified tax
earnings
 To ensure balanced national development more priorities to the relatively poorer areas
 Local and national disparity should be considered
 Efficient participation of members of the parliament
 Detailed financial statement of districts should be placed in national parliament

15. Participatory Development
15
 give the poor a part in initiatives designed for their benefit-
alternative to mainstream “top-down” development
 Social Movement Perspective
 eliminate unjust hierarchies of knowledge, power, and economic
distribution
 empowering process for people to handle challenges and influence
the direction of their own lives
 Outsiders and primary stakeholders equal partners to initiate
process, take part in analysis, make joint decision of targets, plans
and mode of achievements
 Ownership and control of the process with primary stakeholders
 Institutional Perspective

16. Participatory Development
16
 Institutional/Project-Based Perspective
 Inputs and opinions of relevant groups, or stakeholders in a
community, as a tool to achieve a pre-established goal defined
by someone external to the community involved
 Four key stages of a development project: Research, Design,
Implementation & Evaluation
 participation as “process of empowerment” Vs “an end in
itself” -intrinsic rather than instrumental
 bottom-up approach extensive discussions, conversations,
and decision-making with the target community
 UNESCO’s Finding a Voice Project employs ICT for
development initiatives-community creates content

17. Forms of Participatory Development
17
 Passive Participation- intimated about decisions,
feedback minimal
 Participation by Consultation- answer to questions of
experts, feedback are used by experts, but decision
making by experts
 Participation by Collaboration- participate in the
discussion and analysis of predetermined objectives set by
the project- does not influence much-horizontal
communication and capacity building among all
stakeholders
 Empowerment Participation-primary stakeholders are
capable and willing to initiate the process and take part
in the analysis

18. Variations of Participatory Development
18
 Manifestations
 GTZ describes participation as “co-determination and power
sharing throughout the program cycle”
 Enabling "mutual learning" is another way-communication, respect,
listening and learning between development workers and those they
serve
 local communities making, rather than only contributing to, important
decisions
 Invited Vs claimed spaces for PD
 Benefits
 Ownership
 high start up costs, they will be less expensive and more sustainable
in the long run
 better address local needs and more relevant to local populations

19. Chidananda Jena
Email: chidananda.jena@gmail.com
Skype/ YM: chidanandajena