It’s an old trick: we are doing this for your own good. Parents use it when they give their children a punishment, organisations use it when they want to increase productivity at zero cost and, of course, governments use it the most because they are insensitive and selfish.

But here’s the thing. At some point you will outgrow parental tyranny and you will quit the organisation that’s exploiting you if it all becomes too much.

Governments, however, can’t be escaped. They are there and they can, if they wish to, as they often do, screw you while telling you it’s for your own good. Even the most liberal governments are guilty of this.

So the GST Council has proposed a huge tax on gambling — euphemistically called gaming now. We want to save you from your addiction, is the reasoning.

It’s not just the rate (28 per cent) but also the incidence. Both are so high that they will drive gambling offshore and underground. The government may well be killing the goose that lays the golden egg.

Then there is also the proposed data protection law. It’s supposed to protect your privacy except guess from whom: the guys who are proposing the law, namely, the government. It and its agents are exempt. They can do pretty much what they want.

This is not the first time, of course. Governments have been doing this sort of thing since they came into being. It’s the old “I can, therefore I will” principle.

This principle is largely rooted in the discretionary power of the government to define things. Definitions, however, should be both context and virtue free. Moral considerations should not enter them. But they do.

Not always bad

Judicial review — we have it in Article 226 of our Constitution — was supposed to take care of this sort of arbitrary approach. But over the years governments have started excluding judicial review in the law itself. Even those great always lecturing democracies of the West have done it. Rationale: national security. It’s what you might call ‘police state lite’.

It must be said, however, that this approach isn’t always detrimental to the citizens. Many times it works to their benefit.

Two examples should suffice. One is locking up criminals; the other is sin taxes. As an aside one might add here that locking up criminals is a costly affair and a part of it is paid for by sin taxes!

Sin taxes, in case you are wondering, are taxes levied on things like smoking, drinking alcohol and gambling. The term sin is indicative of the moral cloak.

These things are supposed to be harmful to you regardless of the consumption level and, therefore, to protect you from yourself, they are taxed at a very high rate so that they become very costly. There’s sound economics behind this.

Governments know that high prices depress demand for most things only temporarily. This is because of what’s called inelastic demand. But over time even with higher prices and lower incomes consumption remains stable.

The new GST rate for ‘gaming’ is based on this experience and expectation. Those who are imposing it — Centre and States — know that after an initial withdrawal, the gamblers will return to their addiction. That’s what is called inelastic demand.

But unless the rate is calibrated to distinguish between small and big punters, the entire business will go underground. This small-big principle is applied to a wide variety of activities, including crime. That’s why the less well off are taxed less and small crimes attract lesser punishments. So why not gambling?

One riposte to this could be that cigarettes and liquor are not taxed like this. You don’t pay less tax if you buy just one cigarette at a time. Ditto for alcohol.

This is known as the problem of divisibility in economics. You have to buy a full container, for example, not just a part of it. This problem has been solved by sharing the container or truck or railway wagon.

A solution along these lines can be attempted for gambling also. The less you bet, the less GST you are charged. What’s likely to happen now, however, is that people will pool in their bets and, if they win, they will share the winnings proportionately.

It’s hard to say if this is a better solution than having two rates depending on the size of the bet. The criterion should be the volumes that could go offshore and underground.

Ideally of course there shouldn’t be a tax on the bet but only on the winnings. This is what sensible countries do. After all, you don’t tax cigarettes once when they are bought and again when they are smoked.