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This year has seen an exceptionally high growth in direct tax collection. In the nine months for which data are available, personal income- tax collection has risen by 42 % over last year compared to an estimated 15% rise in the 2007 -08 budget. Corporate taxes have grown by 37% over the last year between April-December. The reasons for this extraordinary direct tax performance are the buoyant economy, more effective and extensive use of IT for widening the direct tax base and improving compliance.

These positive trends are likely to continue in the future as well, so the present and future finance ministers could be confident that direct tax revenues will remain on a growth trajectory. This is, then, the right time to introduce some changes that will make the direct tax structure more progressive and thereby more inclusive. These changes should also be such that they encourage entrepreneurship and innovation in the economy.

We need to change the existing personal tax brackets with a view to reduce the direct tax incidence on lower income groups and increase the take from the super rich. This would contribute, even if marginally, to improvement in equity.

Most importantly, it will be perceived positively by the professional class that moulds public opinion. This change would entail expanding the lowest band where the tax rate is 10% and which currently applies to annual incomes between Rs 1-1. 5 lakh. The upper limit for this band may be raised to Rs 3lakh (a gross monthly income of Rs 25,000). The second band with a tax rate of 20% could be applied on annual incomes up to Rs 12 lakh instead of the present upper band of Rs 2. 5lakh. The third band with a tax rate of 30% will cover annual incomes of up to Rs 1 crore. With this change nearly all wage earners will be covered and the incentive to evade tax will be minimized.

A new rate of 40% should be introduced on incomes above Rs 1 crore. I think this tax structure will be more equitable than the present one where those earning just above Rs 10 lakh are put in the same bracket as those earning Rs 10 crore. With the ‘crorepati tax’ in place, revenue intelligence and compliance efforts could be very fruitfully targeted on this group and this will yield significant returns. This will also address the present anomaly of the super rich being mostly left out of the tax net.

A personal tax structure with four bands will be dearly more equitable, would encourage compliance and also help raise additional revenues from the highest income earners in the society. It will also reduce the incidence of ‘black money’. Corporate income tax could remain at the present 30% and the suggested four band tax structure will bring the corporate tax rate lower than the highest personal income tax, which is how it should be.

Bringing back the estate duty, in my view, will improve equity, discourage rentiers, encourage entrepreneurship and generate a healthy work ethos in younger generations. This should be pegged at a reasonable rate of about 1- 3 % on estates with a value of more than Rs 5 crore, valued at market and not official rates. The difficulties in enforcing the estate duty are the main reason why this has not been reintroduced although it is generally agreed that it is a good tax on both equity and efficiency grounds and levied in nearly all developed economies. Inability to enforce it cannot really be a reason to not reintroduce it. The suggested rate and floor level above would in any case ensure effective enforcement. At the same time the present wealth tax should be scrapped as it serves no purpose at all and is really a remnant of an earlier regime.

In the current stage of a global knowledge economy, product and process innovations will be key to future economic growth. India currently languishes at the lower end of the R&D expenditure league among comparable emerging economies. The finance minister must raise allocations for public sector R&D and science and technology establishment 10 bring a selected few, which have already shown good performance, like the NCL to international funding levels.

The R&D allowance should be raised to 200% 10 further encourage private sector R&D. Further, the existing situation of different rates of R&D allowances (150% for in-house, 145% for outsourced R&D and 100% for capital expenditure) may be unified at the new rate of 200%. But even this may not suffice to raise the national R& D effort to the desired levels. It may, therefore, be necessary for the government to establish a large R&D fund from which corporates, both in the public and private sector, could receive research grants.

To encourage venture capital funds activity in the-economy, the current positive list of sectors where they can avail of tax exemptions could be replaced by a small negative list of sectors where this will not be available. This would simplify the environment for venture capital funds. It will also complement the fiscal measures for encouraging innovation and R&D discussed above. The finance minister could make a big fiscal push on innovation and R&D as his legacy along with the VAT and a roadmap for the goods and services tax.

Finally, let me suggest a direct subsidy (negative tax) that in my view is today essential to achieve rapid growth and improve inclusion. In all successful Asian economies, better and more equitable access to quality education has played a key role. The finance minister would do well to announce a massive national merit cum -means scholarship scheme for every level of education and try out the system of education vouchers in selected districts.

The outlay on these two measures has to be substantially large, may be Rs 1,000 crore annually, to make an impact. This will also necessitate a serious look into the licensing and regulatory mechanisms in the education sector that have become dysfunctional and encourage rent seeking. With these bold and innovative measures, the finance minister will leave behind a lasting legacy of having pushed India firmly forward on the inclusive road towards building a knowledge economy.

There’s nothing like immigration issues to grab everybody’s attention. Especially when you’re the ruling government of Britain and you need something, anything, to divert attention away from disastrous subjects like Northern Rock.

Yet another set of ‘we’re no pushover, we mean business’ measures were announced last week by the Home minister and Gordon Brown. This one’s got something to do with immigrants being made to ‘earn’ citizenship, and generally guaranteed to be so complex that this country will need more immigration lawyers than plumbers very soon.

Usually, I don’t even try to follow the continuous changes, visitors visas, English, fingerprinting that the Home Office announces (and re-announces, each time with a hike in fees) every other week as Britain edges closer to general elections. Mostly, I ignore it because they either make me seriously mad; or want to fall off my chair laughing.

To cut a very long story short, Britons are fed up of having their ‘country’ taken over by those Johnny foreigners. The essence of the debate is old - there’s too much immigration, it is putting pressure on the free schooling, healthcare and benefit system, and locals feel afraid of losing their ‘British’ identity. What almost every announcement tends to tidily skip around is that UK is a part face of the fact that the biggest influx is from East Europe, and nobody has quite figured out how to handle that one.

But that’s not what I want to talk about this time. Last week’s measures, along with some weird things, have a gem of an idea. There’s to be some kind of migration tax, i.e., migrants will have to contribute towards a fund to defray the costs of the pressures that public health, benefits, and communities have to host them. I always thought that’s what we paid national insurance contributions and council taxes for, but apparently not.

It also says that immigrants will have to notch up ‘community service’ such as coaching local football teams or whatever to qualify for points. The idea is that nobody should be allowed to settle unless they contribute to the society, economy, and the welfare of this country.

Now that is the one that made me sit up and go, wow. What a brilliant idea - if we implement it in India. Ask all foreign workers living and working in India to contribute to the larger welfare of the host country, either in cash or kind.

Consider this. In the UK, and most countries with welfare systems, every immigrant worker has to contribute to what they call here National Insurance, but is actually a contribution to the said welfare institutions which are under pressure.

It’s usually a percentage equivalent to provident fund pay-outs, paid both by the employee and the employer, rising as income rises, but nobody can retrieve it if they leave the country at any time; and definitely not if they leave within 5 years.

In India, because we don’t have any kind of state social security or benefit system, no foreign worker needs to contribute either in kind of cash to the overall welfare of the country. Other than regular taxes.

If corporate hiring trends are any indication, India by now has a tidy number of expatriates, quite a few with fairly long tenures of residence. If the idea of a ‘welfare’ tax, a percentage of income earned in India by foreigners donated to poverty alleviation or public benefit schemes gives India Inc heart attacks, forget it. Let’s say India is not as needy of migrant workers’ money to-sustain its-underprivileged as the UK seems to be. Besides, I don’t have any idea of how much expatriates contribute voluntarily to charitable causes in India, I suspect a lot of them do.

So how about community service requirements? Expats can be asked to contribute a certain percentage of their time and expertise in community work. I’m sure we could find some projects more, umm, critical than coaching local football clubs for people to contribute to.

And while everyone in India is fulminating over yet another UK proposal, that of monetary ‘bonds’ for visitor visas, so much so that immigration minister Liam Byrne made a visit to India to discuss the matter, here’s an alternative. How about a ‘time and talent’ bond on the planeloads of business visitors and short term workers descending on India and clogging its five-star hotels? Say we don’t want a monetary bond; but what if all the hordes of lawyers, consultants, and highly qualified visitors are asked to donate a percentage of their time and expertise to NGO work?

It may sound outlandish, but it would, to quote the British Prime Minister every time they announce changes in immigration laws, be ‘a fair and transparent’ system. Those who want a piece of the growing economic action in India can contribute positively to its welfare needs. Again, I expect quite a few expatriates to do a whole lot of voluntary work, but this would make it reciprocal. And the best part is, nobody can object.

The ulama of the Dar al-ulum at Deoband were the symbols of political radicalism during the anti -colonial struggle in the subcontinent. Most of them were aligned with the Indian National Congress and rejected the two- nation theory. Today, however, the ‘loyalty’ of the same institution is in doubt. In the eyes of its detractors, the seminary at Deobandis supposed to train jehadis or terrorists. Last week, the turbaned men with flowing gowns gathered in Deoband to dispel such false impressions. They put up an impressive show.

Their message was loud and clear; first, Islam is unequivocally opposed to the indiscriminate use of violence; second Muslim institutions had no links whatsoever with terrorist groups; finally, Muslims were fully behind the Indian state in its fight against terror.

The ulama have done well to take an unequivocal stand, particularly because they have been targeted in the print and electronic media for nurturing the monster of terrorism. It must be pointed out, however, that they have reaffirmed what has been an article of faith with them for decades.

Our vibrant Republic is over six decades old. Why, then, is it necessary to express one’s allegiance to the Indian state? Why should Muslims take the lead in raising their voice against terrorism? Others should also do so. As citizens of India all of us, Hindus, Muslims, Christians and Sikhs, distance ourselves from the perpetrators of violence. Nobody has implicated any Muslim institution in an act of terror in India. If the poet Ghalib had been alive, he would have said, phirye hungama ai khuda kya hai (Why, then, is there all this commotion?). On the contrary, there is sufficient documentary evidence of RSS and Arya Samaj schools and colleges spreading venomous propaganda against the Muslims and Christians. Should their mentors sit back and allow this to happen?

One watched the congregation at Deoband with some anguish. It’s encouraging the ulama of different ’schools’ had joined hands over vital issues, but distressing that they had done so under pressure from civil society. They should eschew such public demonstrations and concentrate their energies on the rebuilding and modernization of their institutions, secular and religious.

New Delhi has done well to indicate to Pakistan that executing Sarabjit Singh - on death row for his alleged involvement in the 1990 bomb blasts in Lahore and Multan - is not the best way to deal with the issue. Reports suggest that India has also sought consular access to Mr. Singh who has been languishing in prison for the last 17 years, and appears almost certain to be executed in April.

His family denies he was a spy as claimed by Pakistan and insists he accidentally strayed into Pakistani territory. When Pakistan’s Supreme Court rejected his plea for clemency in March 2006, Mr. Singh apparently sent a mercy petition to President Pervez Musharraf, seeking release on the grounds that he was innocent and wrongly implicated. Indeed, from all accounts, it does seem he was just a poor farmer who strayed from his border village into Pakistan and became a victim of mistaken identity.

It appears a reprieve for Mr. Singh, even at this eleventh hour, could be possible if the Indian government got involved and appealed to Pakistan. This makes sense for more than one reason. It is inarguable that as an Indian citizen, Mr. Singh is no less dispensable to the government than any other and, therefore, no effort should be spared to seek his release. Even if it’s a question of prisoner swap, it will be worth it, given the government’s moral duty to redeem its citizens, whatever it takes. After all, even a State like Israel- that has a no-compromise policy on hostage takers - does sometimes exchange prisoners for kidnapped soldiers. This shows how much it values the lives of its citizens. There’s no harm in India taking a leaf from this, unless it is too embarrassed by its own system of trying prisoners, which is so flawed that the award of capital punishment - however seldom - hardly justifies the long trial preceding it.

In any case, there should be no place in civilized societies for capital punishment as a means of meting out justice or deterring crime. It will be sad if, despite many new-thinking clerics in Islamabad, Pakistan chooses to remain closer to extreme methods of punishment such as the death sentence (that unfortunately, India too has yet to do away with), than the promise of new freedoms.