Tuesday, December 30, 2008

Voter or Taxpayer

The issue is indirect taxation.

In India, we have become so used to indirect taxation that we have lost sight of the fact that each and every Indian is a tax payer. No one is beyond the scope of the tax collector. It is just that we don't know it. Even the poorest of the poor, who buys a bar of soap or any manufactured goods is paying a lot of indirect taxes without realizing it. And since we do not realize that we are paying taxes, we do not expect anything in return. Perhaps that is what the system desires.

On one of the post 26/11 TV debates, actress Simi Garewal heatedly put forward the suggestion that taxpayers should stop paying taxes to a government that can not provide security. By taxpayers she perhaps meant those who pay income-tax. But then she does not know that in reality the bulk of the Government coffers are filled through indirect taxation. Direct tax payers constitute a very small part of the Government's income. It is the various excises and duties and surcharges and service taxes and VAT and this and that which account for the revenue.

Every February end, we see the spectacle of our Finance Minister juggling the various excises and duties on consumables, increasing it on some and providing relief on others, but basically succeeding in increasing the governments revenue by increasing indirect taxes.

Indirect taxation is immoral in the sense that it does away with the idea of accountability of the Government to the taxpayers. As well as creating apathy amongst them who are just reduced to being voters to be approached only at election time. In the mean time they watch uninterestedly while the Government squanders away their hard earned billions on Loan-Melas and other unproductive expenses.

Indirect taxation should be reduced till it approaches zero and direct taxation should be encouraged. The counter argument is that no-one likes to pay direct taxes and this is true to an extent. No one wants to part with his hard earned money right before his own eyes. And if this happens, then one would want to find out exactly how it is going to be spent and whether one is getting value for it. That would usher in an era of a more pro-active and a more responsible and a more awakened citizenry, demanding better governance. Perhaps that would lead India to a better future.


Bones said...

I don't agree with you...Indirect taxation is a must although it is regressive...If one wants the govt. to spend, one has to pay taxes...You yourself said that direct income tax collections constitute a very small proportion of the govt.'s total tax collections - where will the govt. get the money to spend if they don't have indirect taxes? Also, direct taxes which are progressive are easy to evade...
Indirect taxes have certain advantages like
- They are more flexible
- They have less of a distortionary effect on the incentives to work.
- They can be used to change both the level and pattern of demand in the economy to meet a variety of government policy objectives.

Vinod_Sharma said...

Frankly, this is a subject I cannot claim to have any great understanding of to put in a worthwhile comment.

I suppose such taxes are required, as Bones has brought out, to keep the country going. Yes, two issues that need to be kept in mind are that these taxes should compare favourably with norm in developed countries and, more importantly, the money should be well spent. Where India has failed and is continuing to fail is in ensuring the latter.

Sagarone said...

@Bones and @Vinod
Yes I agree that this is a necessary evil. But the proportion of indirect to direct taxation should be brought in line with other democracies. Currently it is heavily skewed in favor of indirect taxes and this brings about complacency in government, as well as lack of accountability, and apathy in the electorate.