🧩 The Game of Taxes

Well, it is the season of taxes and it is the end of the Financial year 2021. Get ready to pay your taxes and file your ITR. I would like to throw some light on taxation in India.

Types of Taxes

There are two types of taxes an Indian pays to the government - direct taxes and indirect taxes. GST, for example, is an indirect tax. You pay GST for each and every commodity that you buy. You pay GST for the 5 rupees Dairy milk that you buy in the supermarket. And then the direct taxes - that’s where you pay taxes for the salary you earn and in India, only a small fraction of people pay direct taxes. To highlight the empirical data, only 5.8% population of India pay direct taxes.

And if you sum up the direct and indirect taxes, the effective tax rate is around 43% for those earning above Rs. 5 crores. But in western countries like the US and the European nations, the taxation rate is 60% but it is totally worth the tax they are paying for it. They get free social security such as free education, and free health care, in fact, they will pay if one doesn’t have a job and they get support after their retirement. And hence the 60% tax is totally justifiable. But what do you get for paying taxes in India? You won’t even get proper roads in spite of paying huge road taxes. That is totally unethical to pay so much and not provide what was promised.

Well, I am ready to pay taxes provided the government is ready to take care of my social security such as my healthcare, insurance, and my child’s education.

Fundamental reason

But we need to understand why this is happening fundamentally. As of now, India is only taxing salaried people and not farmers. And hence, the government has no other way but to levy huge fees on the salaried people so that they can maintain an equilibrium in the government treasury as they are not making money from the farmers. See I am not against farmers. But I am not able to accept the notion that rich farmers don't pay taxes. You will be surprised to know that there were 800 thousand of rich farmers who did not pay a single penny as tax. I am not talking about the marginal farmers (small and poor farmers) that they show in the movies. I am literally talking about farmers who earn ~10 million per year and don’t pay any tax. This is seriously insane! What logical sense does it make when a person makes 10 million through farming and pays 0 tax and salaried people who don’t even make half of their earnings end up paying huge taxes? In fact, there are people from other professions who disguise themselves as farmers and escape taxation. That’s why actor Amitabh Bachan don’t pay tax as he owns agricultural land in UP and disguised himself as a farmer.

How to tackle this?

According to the Erstwhile report, if India starts taxing even the top 0.04% of large farmer households as well as farm companies, at the top 30% threshold, then annual tax gains of up to Rs 50,000 crore can be achieved.

But the government won’t do this. Why? It is not that the government is promoting farming. But each political party depends majorly on the farmers and their families during the election. At the same time, the government needs money in the treasury to run the economy. So what do they do? Tax the salaried people. It is easy peasy to tax the corporates and the salaried person as they won’t even stage protests as the farmers do. The government finds it very easy to tag salaried people as rich people and tax them hugely.

The silent killer - Indirect taxes

So all these huge complications with direct taxes. And are the indirect taxes taxed ethically?

Oh, wait wait. You are gonna blood boil after reading this. A litre of petrol in Mumbai is 120 Rs and in Nepal, it is 20-25 Rs cheaper than in India. And here starts the funniest part - India is the one that is procuring crude oil, refining it and supplying it to Nepal. In fact, Indians who live on the border of Nepal get into Nepal, smuggle petrol/diesel at a cheaper rate, come back to India and sell them at a higher rate.

Why all this? India’s taxation on fuel is the highest in the world. India is taxing around 69.3% of fuel. You can understand better from the table below.

How the government defends this? If you ask the government why are you taxing these much on fuel - the government is gonna reply that petrol is a rich commodity and it is used by the rich people and it needs to be taxed. But what they don’t understand is that increasing fuel prices heavily increases inflation by raising the basic commodity prices like milk, and veggies which are directly gonna impact the poor class people.

So if I had to aggregate my views on direct taxes and indirect taxes - the government is taking all means to tax wherever they find a very convenient way. I don’t want this to be a political debate but what I am trying to convey is that - I am ready to pay taxes if

a) all the rich are taxed equally.

b) I am getting proper social security from the government for the tax that I pay.