Taxation has been defined as “that part of the revenues of a state which is obtained by the compulsory dues and charges upon its subjects” by The Encyclopedia Britannica. In this definition, the word ‘compulsory’ definitely looms large; and taxation continues to be one of the widely contested topics in India. There are always people who feel that the government levies way too many taxes on them.
Taxation in India: Where Does Your Money go?
In India, individuals as well as corporations are subject to direct taxes, which generally are higher than 30%. This means that if your annual income exceeds a certain amount, you are liable to pay a third of your income to the government. There’s more though.
The goods and services available in our country are subject to several indirect taxes, thus increasing the net price of the offering. This directly impacts the purchasing power of the people. Some of these indirect taxes are:
• Central Sales Tax (CST): This is approximately 4% on the cost of the manufactured goods.
• Local Sales Tax (LST): This can be as high as 15%, as determined by the state legislature.
• Excise Duty: This is typically between 0 to 16%. However, for some items, such as tobacco, motorcars and air-conditioners, it is as high as 32%.
• Customs Duty: The rate varies from 0 to 30%.
Taxation: The Need to Draw the Line
One of the biggest disadvantages of taxation is that it takes money from wealth producing business people into the hands of bureaucrats. Taxation thus discourages investments.
While there’s isn’t a definitive answer to how much tax is enough, there is a need for the government to un-complicate the taxation system and not rob the people of their hard-earned money. Remember also that countries with zero or low taxes have thrived. Dubai became rich with zero income tax. Singapore and Hong Kong arose from poverty stricken fishing villages to what they are trading with taxes in income below 20%.