13. Tax Legislation

Once tax economists have deliberated on a tax matter and proposed a tax structure, they tend to take little continuing interest in the formulation or interpretation of subsequent law. The intensity of this separation is possibly diminishing with time. In that vein, this chapter illustrates the process of introducing tax law, who designs it, who writes it and who ensures its adherence to the rule of law. Broadly, tax law is enacted by the legislature, implemented by the executive and interpreted by the judiciary. If tax law is not designed well, for example if retrospective taxation is introduced to suit government’s will, taxpayers will eventually express dissatisfaction and, if the judiciary is unbiased, courts are likely to interpret the law in the taxpayers’ favour, with taxpayer rights and charters increasingly appearing in tax statutes. Conversely, if taxpayers, in particular multinational enterprises, indulge in sustained tax avoidance by using loopholes available in different tax statutes across the world, global tax authorities will intervene and install cumbersome reporting requirements and mechanisms for the exchange of information amongst themselves. These aspects, together with cross-country experience of tax legislation and a short recounting of India’s pre- and post-independence tax legislative history comprise this chapter.