Why Pay Tax – Part 2

Indirect Taxes

This is the real issue in India. While paying indirect taxes, you will not know how much tax you pay to our governments. Most of the traders do not even bother to remit the indirect taxes they collect from their clients. But still we continue to pay such taxes. Most are really useless…

Times of India notes that the share of indirect taxes was about 4.56% of total Indian GDP. One thing we need to remember here is only 10% Indians are paying direct taxes, on the other hand 99% Indians are paying indirect taxes. But still, the collection of indirect taxes is less than that of Direct Taxes. So, where does the remaining money goes? Isn’t there a discrepancy?

You pay indirect tax on most of the products/services you buy, but why should I pay tax on these products? For what fun they are collecting such indirect taxes ranging between 2%-14%?

There are several indirect taxes, however, I am trying to cover only a few of them here...

·         Anti Dumping Duty

Yes, it is required to help Indian manufactures to compete with cheap imports from countries like China, Taiwan, etc. But, this doesn’t help Indian consumers, as you will have to pay more for such products. Indian manufacturers will be happy as they can command better prices and Indian customers will continue to suffer.

·         Custom and Import Duty Duty

I want an electronic gadget or a motor car or a motorcycle or some jewelry, which may not be available in India. Whenever I go out of India, I buy them and bring it to India. As and when I land in any Indian port, customs officials will ask me to pay a tax on such products!! “It is another way of saying, we are incompetent to make such products, better don’t buy from other countries.” If Government is incompetent, why should we pay for it? In most case, the imported product’s price goes up to 300% of its original value. Isn't it insane?

·         Excise Duty

Whenever you buy petrol, tobacco products, alcohol, etc., unknowingly you pay this tax. Petrol costs just about Rs42. But you have to pay a 32% excise duty, customs of 4% and sales tax ranging between 17%-32%, which hikes up your petrol cost to a range of Rs.70-80 per liter. What does govt. do with that money?

·         Sales Tax and Value Added Tax (VAT)

This is the most exploited tax in India. Even govt. is not sure how much money it could generate through Sales tax. As I said earlier, most people who collect sales tax do not remit that to govt. treasury. So, Indian consumers are cheated every day and in every transaction.

·         Service Tax

With the recent amendments to tax laws, the govt. has brought in several services under Service Tax. That means you will end up paying about 12.3% more price for whatever service you avail. But you are not sure of remittance of this service tax to govt. treasury!!

There are some more nonsense taxes like Securities transaction tax, Stamp Duty, Property tax, Dividend Distribution Tax, Estate Tax, Gift Tax, Road Tax, so many more taxes… Is it right to collect such taxes?

If government is collecting Road Tax, why is it collecting a toll to use roads in India? Even after collecting such taxes, why roads still have potholes? Where did the road tax money go?

I buy a property, I am asked to pay a tax on such property purchase in the name of Stamp Duty? Why should I pay a Stamp Duty? Did government help me in buying that property? Did govt. negotiate the price on my behalf? So Why Pay Stamp Duty?

I am using the property I bought with my hard earned money. Now, the municipality is asking me to pay a tax!! What for?

I invest my money in a company’s equity shares. Company pays me a dividend whenever it makes profits. Now govt is asking that company to pay a Dividend Distribution Tax!! Is our govt. pays up whenever these companies make losses? Who will bear that loss? If govt. is not bearing the loss of a company, it has no right to ask for a tax on profit distribution…

Continued….

Why Pay Tax?

Republic of India levies several taxes on Indians citing the reason that the money is required for the Public Spending and for the welfare of the society. But, we don’t see any kind of social/economic welfare of the individuals/society with these taxes, except that it helps a bunch of people supposed to be the people’s representatives in creating more wealth for themselves through several scams.

Many Indians do not like to pay taxes due to several reasons, some avoid tax and some try to reduce their tax burden in both legal and illegal ways… I am just trying to compile the reasons for reluctance to pay taxes. Most of them had valid reasons as well…

Let us first examine the different taxes that are levied on us in India:

Direct Taxes

This is a kind of tax as indicated in its name, directly paid to the Union Government. According to a recent report in Times of India, direct taxes account for 4.61% of India’s Gross Domestic Product (GDP).

As per the World Bank estimates, GDP of India is about US$4.457 trillion as per Purchasing Power Parity (PPP), however, nominal GDP is only about US$1.848 trillion. So now you can actually work out how much we pay as Direct Taxes.

As per the analysis of Union budget, India has witnessed a consistent rise in the collection of such taxes over last few years. Many economists note that growth in the collection of direct taxes reflects a healthy economic growth of India.

• Personal Income Tax:

Boss first of all I get the lowest salary compared to other regions, over and above I am made to pay this Income Tax, that too up to 30% of my annual income? Why should I pay? Did government got me this job? I studied in a private school/College, wherein my parents paid their hard earned money in the name of Donations, Capitation Fees, Annual School Fees, Building Construction Fee, tuition fees, library fee, etc. Government did not pay the salaries of my school/college teachers and govt. did not build my schools as well. As I am claimed to belong to an upper cast, govt., did not offer me any scholarship as well.

I got a Job only because of my hard work, my educational qualifications & my professional skills. Govt. did not help me in finding this job. Neither govt. pays my salary nor it gives me any kind of incentive for working there. So, please tell me why should I pay tax on my income?   

• Corporate Tax

I run a company which is into a legally allowed business activity. I established this company with my own money and also with the help of my family and friends. My company attempts to make the best possible product and it sells its products across the nation.

I faced several hurdles while setting up this business. I had to bribe government officials in each and every step to clear these hurdles, starting from incorporation of company, registering in labor department, registering for Shops and Establishment, obtaining business license, obtaining environmental clearances, etc. Nowhere the govt or its officials helped me in these activities. However, I had to bribe each and every department in the name of Fees under the Table (don’t know, whether these guys get salaries from the govt. or not)… I was somehow successful in clearing all these issues with the help of my consultant.

I had to take loan from a bank to cover up the capital shortage to acquire machinery and for working capital. Here also government did not help me. I had to run behind bankers for over 10 months to get the loan approved. The loan was sanctioned and disbursed after 10 months after giving 150% collateral for the loan amount. By this time, cost of machinery had gone up by 30% and the bank did not consider this escalation in the cost of project and I had to again approach my friends and family for the shortage. Somehow I established my business and started producing the planned products. Now government is asking me to pay tax for the products I manufactured and also on my net income!! With what face they are asking these taxes? Government is not offering me any free sops, it is not paying salaries of my employees, it is not selling electricity and water at nominal rates, it did not help me in setting up my business, it did not support me to run this business. Why should I pay them?

• Capital Gains Tax:

Yes, I have a property, which I bought some time back. Now I need money, so I sold this property. Government is asking me to pay tax claiming that I made a profit by selling my property!!! Does it make any sense? Did govt. help me in buying this property? NO. I bought this with my hard earned money. Why should I part with my earnings on my property with any one?

• Banking Cash Transaction Tax

Funniest of all… I have kept my money in a bank. Bank uses my money to run its business and it pays me a nominal interest for the money. The bank also charges me for the other services it provides. Now this govt. is asking me to pay a tax for transacting with the bank!! It is my money and I transact with bank, who the hell is government to ask for a cash transaction tax? Why should I pay it?

• Wealth Tax

Because of my hard work and also because of my ancestors, I have succeeded in creating wealth for myself and for my family in legal ways. It’s my money and I earned it. Why government is asking for a tax to be paid on my wealth?

• Professional Tax

I am a professional/ a salaried employee… Again my state government is asking me to pay a tax on my profession!! What sense it makes? Why should I pay it?    

To be continued.....