The most reliable source of revenue for the government is “tax”, and the act of charging tax is Taxation. Taxes are classified into two categories: Direct Taxes are those that are levied on the income or profits of a person and include Income Tax, Property Tax, and Entitlement Tax among others; indirect taxes are those that are charged on goods and services which include GST, VAT, Excise Duty among others.
Income tax is the most common direct tax levied on a person’s earnings. The more you earn, the more income tax is charged. In short, it’s a natural crime to profit or grow. Say, once a person’s salary exceeds INR 15 lakh, they are required to pay 30% of their salary as income tax, so if a person earns more, almost one-third is paid in tax. In layman’s terms, a direct tax is also a compulsive penalty for earning more. Presently, out of 136 crore people in India, around 8 crore Indians diligently pay taxes (as per 2019–20 statistics), i.e., merely 5% of the population. Therefore, the government charges maximum tax rates to get the most out of the hard-earned money of these 8 crore people.
Instead of liberalizing the system of direct taxation, the government continues to expropriate people’s direct income. That’s why we see 95% of the population evading taxes rather than formalizing their income. This is the bad economics and good politics of incentives, isn’t it?
A survey by accounting firm PricewaterhouseCoopers (PwC) has found that the take-home salary of a high earner in India is less than that of salary earners in the UK, Canada, the US, China, and Russia. This evidently exposes the skewed tax structure of India. Due to these high tax rates, many business personnel, who probably generate revenue multiple times that of the salaried middle class, very shrewdly and tactically hide their personal expenses as their company’s expenditures and pay only a negligible portion of their revenue as tax. In taxation terms, it is called tax evasion. There are many causes for this, including very high tax rates, a lack of integrity on the part of the citizens, the presence of an informal economy, a lack of simplicity in the tax legislation, and inefficiency in tax administration.
Well, only the smarter ones can afford to manipulate their tax payments and flexibly evade the Orwellian radar. Technically, it’s in the genes of human nature to find an escape when they’re oppressed. As for the common person, s/he is under great panoptic surveillance throughout.
Having discussed Direct taxes, let us understand the contradictions and harsh impact of Indirect Taxes. An indirect tax is charged on consumption. In layman’s language, it’s a natural crime to consume. So, if you are eating a cake for Rs 300, the government has eaten a pastry out of it already. Since indirect tax is the same for both the rich and the poor, it can still be deemed unfair to the poor.
Indirect tax is applicable to anyone who makes a purchase, and while the rich can afford to pay the tax, the poor will be burdened by the same rate of indirect tax. Thus, indirect taxes are totally regressive. Also, given the small tax base of India’s economy, indirect taxes are like rubbing salt in the wounds of the salaried. Furthermore, sellers cannot always calculate and collect the exact fraction of tax applicable on all commodities that they sell, as GST (Goods and Service Tax) varies from 5% to 28%. Hence, they consciously charge more than the tax amount so they do not collect lower indirect taxes. While a small number is isolated, this has a cumulative effect and increases the price of goods and services.
The impudent nature of the government also knows no bounds: Once the government charged GST on the menstrual pads, it had to roll back the proposal after protests from women’s groups. Menstrual pads are already avoided by many women due to the stigma associated with period talk; taxing the pads was a completely illogical idea.
Apart from this, we are charged other taxes too, like the following: Property taxes: these increase with an increase in the price of the property. As a result, if a person wants to buy a flat in a good society in a prestigious neighborhood, they must also deal with the issue of high property taxes. Similarly, there is Stamp Duty and Registration, usually in the range of 4–7% (in Maharashtra). So, if you buy a flat for, say, INR 2 crore, then you need to pay a stamp duty of INR 8–14 lakh. Then, there is toll tax, entertainment tax at 18%, excise duty at 12.36%, and many more.
When we combine direct and indirect taxes, nearly 50–55% of a service-class employee’s salary is spent on taxation! The middle class is frequently sandwiched between the elite and the poor classes. Mark Twain rightly said, “A tax is a fine for doing well, and a fine is a tax for doing wrong.”
Just because people pay taxes does not mean the government will use them honestly. Unlike voting, people do not have a system of direct democracy for the tax system. Basically, we do not have the freedom to tax choices. We end up paying even for those economic actions, for which we may not be directly or indirectly responsible. Thus, the tax structure lacks the science of accountability here.
Some Pointers To Reflect Upon:
– Shockingly, in Mumbai, the city with Asia’s richest municipal organization (with a budget of Rs 40,000 crore), tax money worth Rs 15 crore was spent on the repair of potholes, but they continued to be death traps. Heavy rain coupled with potholes, bad roads, and infrastructure work has spelled doom for motorists. Over 16,000 potholes were founded in the year 2022. There have been 5,626 pothole-related deaths between 2018 and 2022. At times, some of these potholes are impudently as large as craters on the moon.
– As per a report published in The Lancet, the lack of healthcare facilities has been highlighted in India, where around 2.4 million Indians die of treatable conditions every year, the worst situation among the 136 nations studied. Corruption in healthcare became even more relevant during COVID-19, as embezzlement of healthcare funds, using expired vaccines, fraudulent health contracts, etc. have life-or-death consequences.
– The National Highways Authority of India (NHAI) is facing severe criticism for constructing a cement road beneath the Y-shaped Sadar flyover. Residents and shopkeepers on the stretch have pointed out many flaws and substandard or incomplete work on this road. Another example of this is that three road construction projects in the Meluri sub-division of Phek district have come under the scanner, with the contractor and PWD officials being accused of “fraudulence.” Regarding two of these projects, the Rising People’s Party (RPP) filed a complaint letter to the OC, Meluri Police Station, alleging that the contractor “siphoned” approximately Rs 65 crore “in complete violation of the terms and conditions laid down in the work orders.” The funding for these projects comes from the taxes we pay. But where is the product? Why can’t we see it?
There Are Many Tax Scandals That The Country Is Unaware Of, And They Remain Concealed From The Public. They Are:
– B.S. Yediyurappa has become Karnataka’s chief minister again despite being the very image of corruption in the state. Accused in land and mining scams, with diaries recovered from his possession showing hefty amounts being paid to top BJP leaders, judges, and advocates, Yediyurappa today stands tall, acquitted of most of the charges. These hefty amounts are nothing but the hard-earned money of the middle class, which they are being deprived of.
– Similarly, before the Karnataka elections in 2018, the CBI quickly concluded its investigations into mining scams worth Rs 16,500 crore against the Reddy brothers of Bellary without pursuing the cases to their logical ends. The Modi government let the Bellary brothers go free for such audacious plundering of India’s wealth, that is, our taxes, because the BJP needs them to win over a forest service officer who was the whistle-blower in this case and was sacked by the Modi government earlier this month for exposing the fraud.
– Additionally, a Rs 110 crore scam in the PM-Kisan Nidhi scheme was exposed in Tamil Nadu.
– Also, the Punjab City Center Scam, in which crores of rupees are alleged to have exchanged hands, was exposed through a sting operation conducted by a private TV channel recently.
– Then, the Mumbai Sales Tax Fraud, which is a scam worth INR 10 billion, cannot be ignored. How do they get such huge sums of money? It is by manipulating our very own taxes!
First, many of us are not aware of the concept of tax havens. They are any country or jurisdiction that offers minimal tax liability to foreign individuals and businesses. By attracting foreign individuals or businesses, even if they are only charged a nominal tax rate, the country may earn substantially more in tax revenues than it would otherwise. Therefore, they benefit by attracting capital to their banks and financial institutions, which can then be used to build a thriving financial sector. Dubai’s open, tax-free business model, which dates to 1905, has contributed to the success of the city—and the UAE (they have recently started with a minimal 5% income tax rate). Singapore, the Netherlands, and Switzerland, among many others, are examples of tax havens that are thriving and flourishing as better economies than India ever could.
Taxation is a legal robbery now. Gone are the days when the hoi polloi would organize themselves and revolt against the oppressive tax regime. We stood for the philosophy of “no taxation without representation” in British-India, but we are currently kept busy fulfilling basic necessities so we wouldn’t revolt too much. In the words of Benjamin Franklin, an American statesman, “Nothing is certain except death and taxes!”
(With inputs collaborated and coauthored by Ms. Avishi Taparia, a grade 9 student of VIBGYOR, Mumbai)