1. Why should you pay taxes?
You often wonder why you should pay any taxes. Some people think that taxes are paid only by the rich. Some people think that if they do not pay due taxes, nobody will notice. Some people wonder why taxes should be paid, since there is little that one gets in return. You may be surprised by the answers to all of these questions. All of us pay taxes all the time. The services that we get in return are significant and valuable. But you also come across many opportunities for not paying your taxes. A shopkeeper may tempt you not to pay the due tax on a purchase if you choose not to take a proper receipt. A house-owner may show reluctance to give a rent receipt where you may be a tenant. Tax evasion and tax avoidance makes tax authorities aggressive and forces them to make complex provisions in law to plug loopholes. Over time, the tax system becomes extremely complex and difficult to comply with. Interaction between taxpayers and tax authorities often leads to corruption and generation of black money, which has many harmful effects on the economy. It is best if each side, namely, the taxpayer, the policy makers, the spending departments, and tax authorities appreciate their relative roles and their place in the common endeavour towards building a better society and a stronger Indian economy. As a taxpayer, you have a key role to play in this common endeavour. It is illegal not to pay one’s due taxes; by voluntarily paying your due taxes, you contribute to the common good.
2. We pay taxes all the time, sometimes without realising it
Rich or poor, knowingly or without being aware, reluctantly or willingly, all of us are paying taxes all the time. As we step out of the house to purchase fruits or vegetables, without realising it, the price that is to be paid is likely to contain a tax component. Fruits or vegetables may be in the exempt list of indirect taxes charged by the government. However, if diesel has been used to transport it from the place of production to the market, a tax might have been paid on that diesel, which would already be part of the price. Many taxes are embedded in the prices of goods and services that we purchase. These are called indirect taxes.
There are, of course, more direct taxes that are clearly visible. A salaried employee will be paying an income tax, which may get deducted from his income every month. Every year he will be filing an income tax return. A company will be asked to pay a corporate income tax. A property owner will be asked to pay a property tax. Direct taxes are paid by individuals and companies. Indirect taxes are collected through dealers registered with the tax authorities although the tax is eventually paid by the consumers of goods and services. As you read the newspaper, not only will you be intrigued by the tax cases going on in the courts of law but you yourself will be paying an electricity duty for the light under which you may be reading the newspaper. The list of taxes is long. There are central taxes such as personal income tax, corporate income tax, central excise duty, customs duty, and service tax. There are state taxes such as sales tax and value added tax, stamp and registration duties, state excise duties, motor vehicle tax and entertainment tax. There are taxes charged by municipalities like the property tax. Even local rural bodies like the panchayats have powers of taxation.
We also enjoy the benefits of services provided by governments, sometimes without appreciating it. As you step out of the house, you would unavoidably walk on a road built by the state government, who finances it by taxes that you have paid. You might take a bus to your college of university and pay a price for the bus ticket, which is much less than the cost of providing that transport service. You would then be benefited by a subsidy, also financed by tax revenues. When you decide to go abroad to pursue higher studies, the government will issue a passport so that you are allowed entry in a foreign country. That service is also run by the government and the expenditure that the government incurs for providing that service is financed by tax revenues. Just as there are many taxes, there are also many services that governments provide. The central government provides services like defence, system of justice, and the currency system. It builds national highways and nurtures universities and institutions of higher education like the Indian Institutes of Technology (IITs). State governments also provide many services. They build state level highways, facilitate setting up of industries, run hospitals and schools and colleges, and build irrigation canals.
3 .Tax is a compulsory payment by law
Taxation is by definition a compulsory payment. It is compulsory by law. There is no one-to-one link between the tax that you pay and the service that you receive. The law has been made because of the special nature of goods and services provided by the government that are financed by tax revenues. The nature of these goods and services is such that they cannot be sold or financed in the same way as private goods that are bought and sold in the market place. When we go to the market, we pay a price according to the quantity we purchase and the type of goods we buy. Whatever we purchase, we have the full right to enjoy the benefits of that exclusively if we so desire. The book that we buy from a bookstore or the meal that we have ordered in a restaurant need not be shared with anyone else. But many services that governments provide are different in nature. In their case, the one-to-one ownership once purchased cannot be applied. These are special economic goods called ‘public goods’. It is difficult to finance them adequately except through taxation, which has to be levied on principles that are different from market principles. In the market, if you do not pay the price, you go without the good. It is your choice. In the case of public goods, if you do not pay the price, you would still enjoy the benefit of the good, because such goods are meant for collective consumption and one individual cannot be isolated from enjoying that service. Since you know that, you may not be willing to pay anything voluntarily. If everybody is allowed that choice, no tax would be raised, and the public good cannot be financed at all. Hence, tax has to be made a compulsory payment.
You often wonder why you should pay any taxes. Some people think that taxes are paid only by the rich. Some people think that if they do not pay due taxes, nobody will notice. Some people wonder why taxes should be paid, since there is little that one gets in return. You may be surprised by the answers to all of these questions. All of us pay taxes all the time. The services that we get in return are significant and valuable. But you also come across many opportunities for not paying your taxes. A shopkeeper may tempt you not to pay the due tax on a purchase if you choose not to take a proper receipt. A house-owner may show reluctance to give a rent receipt where you may be a tenant. Tax evasion and tax avoidance makes tax authorities aggressive and forces them to make complex provisions in law to plug loopholes. Over time, the tax system becomes extremely complex and difficult to comply with. Interaction between taxpayers and tax authorities often leads to corruption and generation of black money, which has many harmful effects on the economy. It is best if each side, namely, the taxpayer, the policy makers, the spending departments, and tax authorities appreciate their relative roles and their place in the common endeavour towards building a better society and a stronger Indian economy. As a taxpayer, you have a key role to play in this common endeavour. It is illegal not to pay one’s due taxes; by voluntarily paying your due taxes, you contribute to the common good.
2. We pay taxes all the time, sometimes without realising it
Rich or poor, knowingly or without being aware, reluctantly or willingly, all of us are paying taxes all the time. As we step out of the house to purchase fruits or vegetables, without realising it, the price that is to be paid is likely to contain a tax component. Fruits or vegetables may be in the exempt list of indirect taxes charged by the government. However, if diesel has been used to transport it from the place of production to the market, a tax might have been paid on that diesel, which would already be part of the price. Many taxes are embedded in the prices of goods and services that we purchase. These are called indirect taxes.
There are, of course, more direct taxes that are clearly visible. A salaried employee will be paying an income tax, which may get deducted from his income every month. Every year he will be filing an income tax return. A company will be asked to pay a corporate income tax. A property owner will be asked to pay a property tax. Direct taxes are paid by individuals and companies. Indirect taxes are collected through dealers registered with the tax authorities although the tax is eventually paid by the consumers of goods and services. As you read the newspaper, not only will you be intrigued by the tax cases going on in the courts of law but you yourself will be paying an electricity duty for the light under which you may be reading the newspaper. The list of taxes is long. There are central taxes such as personal income tax, corporate income tax, central excise duty, customs duty, and service tax. There are state taxes such as sales tax and value added tax, stamp and registration duties, state excise duties, motor vehicle tax and entertainment tax. There are taxes charged by municipalities like the property tax. Even local rural bodies like the panchayats have powers of taxation.
We also enjoy the benefits of services provided by governments, sometimes without appreciating it. As you step out of the house, you would unavoidably walk on a road built by the state government, who finances it by taxes that you have paid. You might take a bus to your college of university and pay a price for the bus ticket, which is much less than the cost of providing that transport service. You would then be benefited by a subsidy, also financed by tax revenues. When you decide to go abroad to pursue higher studies, the government will issue a passport so that you are allowed entry in a foreign country. That service is also run by the government and the expenditure that the government incurs for providing that service is financed by tax revenues. Just as there are many taxes, there are also many services that governments provide. The central government provides services like defence, system of justice, and the currency system. It builds national highways and nurtures universities and institutions of higher education like the Indian Institutes of Technology (IITs). State governments also provide many services. They build state level highways, facilitate setting up of industries, run hospitals and schools and colleges, and build irrigation canals.
3 .Tax is a compulsory payment by law
Taxation is by definition a compulsory payment. It is compulsory by law. There is no one-to-one link between the tax that you pay and the service that you receive. The law has been made because of the special nature of goods and services provided by the government that are financed by tax revenues. The nature of these goods and services is such that they cannot be sold or financed in the same way as private goods that are bought and sold in the market place. When we go to the market, we pay a price according to the quantity we purchase and the type of goods we buy. Whatever we purchase, we have the full right to enjoy the benefits of that exclusively if we so desire. The book that we buy from a bookstore or the meal that we have ordered in a restaurant need not be shared with anyone else. But many services that governments provide are different in nature. In their case, the one-to-one ownership once purchased cannot be applied. These are special economic goods called ‘public goods’. It is difficult to finance them adequately except through taxation, which has to be levied on principles that are different from market principles. In the market, if you do not pay the price, you go without the good. It is your choice. In the case of public goods, if you do not pay the price, you would still enjoy the benefit of the good, because such goods are meant for collective consumption and one individual cannot be isolated from enjoying that service. Since you know that, you may not be willing to pay anything voluntarily. If everybody is allowed that choice, no tax would be raised, and the public good cannot be financed at all. Hence, tax has to be made a compulsory payment.
4. Need for taxes: case of public goods
Governments finance a category of goods, extremely critical for meeting the combined or joint needs of all citizens in the country that would not be provided unless these are paid for by taxes. Such goods are called public goods. Examples of such goods are defence, general administration, and administration of justice. If you are asked what price you are willing to pay for th country’s defence, you might say that this is a servi e not for you a one but for everybody. If everybody pays something, you might also pay something. But let others pay first. The difficulty is that it is very difficult to charge people according to their preferences, as one would in a normal market. It is not possible to divide defence into each citizen’s separate defence nor is it possible to charge them according to how much they are individually willing to spend for the country’s defence.