Two more days! Today and tomorrow. Then it's over. I'll have completed the 47th year of doing tax work. I'm closing shop for the year!!! Oh, I'll still be reading about and writing about taxation but not one single return will be worked on. For those of you waiting for Part II, the continuation of my last article, guess what - you're going to have to wait - I'll still do a second part of 'the IRS and the Indian Papers' - but not now....

I read, with interest a few days back, about Parthasarathi Shome being appointed as head of the new Tax Administration Reform Commission. Chidambaram's reliance upon Shome is very apparent. Was Rao ' s reliance upon Manmohan Singh in the early 90s similar? Were economic problems, then, considered as 'difficult' as the problems of today?

Did you know that the People's Republic of China is facing very similar problems? How China confronts its economic and tax demons might be quite worthwhile for Mr. Shome and his new commission to study.

Last year, when the new leadership took over for the next five years (almost certain to be two terms for a total of 10 years - unless??????), one thing was apparent: that President Xi and Premier Li were the only 2 of 7 on the Politburo Standing Committee who will be under the age of 70 when their terms are up. Those over 70 cannot be on the Standing Committee. Thus, the question to me is not who will be there next time but what 'legacy' can those 5 single termers leave after they've left office.

Xi, Li and the gang of 5 are tackling something that India needs to tackle as well - trying to reduce rampant corruption. In China's case, the legitimacy of one party rule is at stake. In India's case, unless a serious start is made to reduce the level of corruption, the viability of its truly unique concept of democracy is at stake. Now I realize that many of you will say that I have absolutely no idea what I am talking about but as a 'well educated' outsider looking in, trust me, you guys have some real bad problems - as China does, too. China is starting to address these issues, with its leadership understanding that change in culture takes a lot of time.....but realistically including this time factor in the attempt to change is a very positive, realistic approach.

O.K. now let's go to some 'pure' tax.....

In March, 2013, when the leadership was introduced in China, a three point program was announced. Frankly, I've forgotten what the other two points were but the main part of the new program deals with tax reform.

More people now live in cities in China than in the countryside - the proportion of urban dwellers, twenty-five years from now, is expected to grow by 20 percent. 70 percent of China's population in the cities That is simply mind boggling - a complete reversal from the 70 - 80 percent who resided in the countryside when Mao triumphed in 1949. The cities have financial problems. Social insurance: health, education, old age pensions - all must adequately be funded in order to meet the needs of the expanding cities. Perhaps the current social insurance tax is adequate for future needs but it is the current expenditure to meet current needs that must be financed - and I seriously wonder where the funding will come from.

35 years ago, the Third Session of the 11th Central Committee of the Communist Party of China started a system of delegation, where the provincial and local governments collected taxes and forwarded onto the central government a negotiated amount for the central government to spend upon national defense, national-level infrastructure projects and repayment of domestic and foreign debt (prior to becoming the export market to the world, China actually had debt, not a surplus!). Things changed in 1993, prior to the introduction of the first national tax law in 1994. The division of tax revenues - and who would collect them - was formalized, with a dozen taxes, including tariffs, consumption (business) tax and VAT and enterprise income taxes going to the central government while approximately 20 taxes - including individual income tax, urban land use taxes, vehicle and stamp taxes going to the local governments. The distribution, as a result of 1993-94 changes, was virtually a 60/40 split, with the former going to the central government while the latter percentage went to the provinces and local governments. Alas, a problem developed, because the central government was spending only 40 percent while the provinces and local governments were saddled with 60 of the expenses. Thus, the central government had to pay out balances to the lower rungs of government in order for them to meet their financial needs.

And thus, the lower levels of governments, especially the cities, looked for additional means of monies while waiting for transfers to trickle down from the central government. What did they do? They sold land rights and they went into business, starting labor intensive enterprises which would help reduce unemployment while bringing in revenue.

But what happens when: a) The world economy turns to shambles with exports vanishing but municipal manufacture continuing - resulting in overproduction and warehouses full of unsold goods; b) land right sales cannot be sold anymore because there is no more land to sell; and c) the flow of people to the cities and the commensurate costs of providing for the social needs of this influx has to be financed, while simultaneously, the central government is facing a reduction of revenues?

What happens? Darned if I know! Anyhow, this November, at the Third Session of the 18th Central Committee of the Communist Party of China (there is no such thing as communism in China - that 'label' is a misnomer in this free-market, very capitalist oriented entity) there are going to be some changes made. What will they be?

First and foremost, the excise taxes on expensive real estate in Chongqing and Shanghai, which they mis-label as a property tax, will be extended to at least a half-dozen additional cities. And some cities (like Shenzhen, where there is no more land to sell?) will likely be given the go ahead to actually attempt to figure out how to start some semblance of a 'real' (at least, far more closely resembling) property tax.

Then, a redefinition of distribution between central and provincial/local revenues and expenditures will take place in order to end the annual transfers back from the central to the local governments. And what else? Some cities are going to fail! Detroit in the US has gone into bankruptcy. There are going to be some cities and some municipally owned factories that will go belly-up. This will be 'selective'. I believe that there are a heck of a lot more who will be bailed out but some will fail to send a message that the central government cannot continue to pay off the gross negligence, mistakes and 'arrogance' of some of the local jurisdictions and their factories. And there will be an expansion of the civil service, creating both a monitoring function to see that abuse and corruption is reduced - not done away with - that is impossible, within our lifetime - but a visible reduction to try to lessen the cynicism of the citizenry - because unless this cynicism and skepticism is reduced and elements of transparency start showing, the long term legitimacy of the party in power under one party rule, is at stake.

That same cynicism and skepticism exists in India, today. What is the future of India's democracy in the long term if corruption is not reduced, if transparency does not start replacing some of the opaqueness?

It is going to be interesting to watch China change its tax system. How fast will it implement change? Will it be faster than the inception of a DTC and GST in India? I bet it will be!