Whenever the question of taxes arises, most people respond in the negative, as they feel it is complicated and burdensome. This prevalent sentiment exists due to a lack of education. Most people are unaware of how the money from the tax collection in India is spent by the government and as the country is in a constant state of disarray, most people cannot see the taxes paid put to good use. However, consider the sheer volume of people in the country compared to the number of actual taxpayers and one can easily understand why India is still known as a “Developing Nation”, instead of being in league with the “Developed Nations” of the world. In a country of over 1 billion people, only over 6% of the population pay taxes.
Currently, the tax collection in India through direct (income tax) and indirect taxes (service tax, excise, GST) are utilized for welfare schemes, subsidized LP gas for cooking, free/affordable health care at government hospitals, education at minimal fees at municipal and government schools, roads, water, electricity etc. However, as the money collected compared to the size of the population is significantly less, the amount available results in poor execution of the mentioned government services.
Additionally, 9% of the revenue collected is utilized by National Defence to keep our country and us, the citizens, safe. This amount only constitutes for 1.67% of the nation’s GDP, which is alarming as it was 1.5% of the nation’s GDP in 1962. Another large portion is also used to not only run employment programs, administrative services and the judicial system, but the government also has to pay the salaries and perks/bonuses to each employee at every level. Therefore, considering the amount of expenses the government has to bear, the amount collected barely covers the expenditures, let alone leave any amount remaining to improve the standard of living of the citizens, such as better roads, electricity, green projects, education, healthcare etc.
As per Budget 2018-19 the government only collected Rs 22.71 lakh crore in excise, customs and both direct and indirect taxes, which barely scratches the surface for meeting the expenditures of the nation. So, where does the government get its money from then? Currently, the government has borrowed Rs 76.94 lakh crore, which is three times more than what it was ten years ago. So, just as we borrow money from the banks to purchase a house or car for example, the government borrows from nations such as U.S.A. to cover the expenditures of the nation. Moreover, 18% of the revenue is used to pay the interest on the borrowed amount and also to pay the interest due on government bonds from public funds.
Consider, a constant raise in the percentage of citizens paying taxes over the next decade, which would result in a significant raise in the amount collected in direct taxes (income tax). This increase in taxes collected in direct taxes would not only allow the government to better spend the amount collected but lead to a reduction in indirect taxes. Indirect taxes such as those levied on petrol affects all classes of citizens, however its impact is felt more severely by the lower class as it cuts directly into their earnings. If every citizen, whose annual income exceeded Rs 2.5 lakh were to dutifully pay his/her income tax and pay it on time over the next few years, it would result in a larger taxpayer base and the benefits could be enjoyed by everyone in the country with a reduction in the percentage of indirect taxes paid.
Moreover, if the percentage of people who fall into the 30% tax bracket were to increase because this group was paying their taxes due responsibly, it would help the government and thereby the nation in leaps and bounds. The government has been striving to motivate this class of taxpayer to file their tax returns with campaigns such as recognizing and issuing a certificate of appreciation to each taxpayer in this category. Currently, the judicial system is burdened with costs of litigation to both the government and individuals who have not filed or under reported their income. By removing this cost to the government, the funds could be used towards the betterment of the nation in welfare, employment, healthcare and education schemes.
Government Spending in Other Nations
Developed nations of the world such as Canada, spends 11.5% of its GDP on healthcare, roughly about $6,604/per person. The United Kingdom pours most of its money into pensions of both state and civil of 165.8 billion pounds per year, which accounts for 20% of its spending per year. Finally, the United States spends about $416 billion on infrastructure, which includes drinking water, waste management and transportation.
An increase in tax collection in India means less borrowing from other nations and more funds available for the better of the nation. Most of the youth of the country dream of studying, earning and living abroad in a developed nation, leading to the country losing out on some of the most brilliant minds of the nation. One of the main reasons, for this brain drain is the promise of a better lifestyle in developed countries, such as Europe, USA, Canada etc.
The Brain Drain
With an improvement in the collection of taxes by the government, the state of our education system, employment opportunities and funding for innovative projects can be drastically improved with the money being directly poured into these sections. If the most brilliant minds graduating from the nation’s universities and colleges had opportunities to develop green technologies, for example, within the country, instead of going to developed nations, where it is actively pursued, the standard of living for each person could improve as new innovative methods could be developed to produce enough power to provide electricity to every household. While, the present government is making efforts to promote and encourage such projects by spending 0.25% of its annual budget accounting for Rs 5,036 corre, such as the joint efforts of India and France announced recently in March 2018, the amount of funds allocated is a fraction of the amount spent by other countries, such as China, which is leading in researching, developing and implementation of renewal energy.
So, how does paying taxes help improve the state of the nation and world? The answer is simple. The more money the government has at their disposal, the more it can allocate funds proportionately to help every level of citizen in the country with electricity, water, power, education, healthcare etc. The future generation need not pursue dreams of living and earning abroad, if our nation were to transition from being a developing nation to a developed one. This can easily be done, by improving the living conditions of the people of the country. Just as you seek to earn more to live a better life and use the surplus remaining after monthly expenses to pursue other interests, so can the government.
Movies, depicting a modernized and clean India need not be fiction, if every citizen were to dutifully file his/her tax return and pay all taxes owing. The perception of taxes being burdensome can be easily tackled as there are tax experts, such as those at H&R Block India, who are readily available to help you file your tax returns regardless of the simplicity or complexity of your tax situation.