WHY I PAY TAX...

I may not agree with the way the government funcions.

But it will never deter me from discharging my duties to this country.

I came across a short write up “Why Indian don’t pay taxes” in a newspaper. It listed the government’s failure to provide electricity (so they installed inverters), water (so they installed submersible pumps), security (so they engage private security guards), schools (so they send their kids to private schools), hospitals (so they head for private hospitals) and transportation (so they buy their own cars). It just made me wonder who a representative sample would be, who can have this anguish. Evidently not a person from the lower middle class or lower economic class family. It is the semi-elite upper-middle-class and upper-class citizen who lament in this manner.

A tax is  “a compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions,” defines Oxford English Dictionary. I don’t want to indulge in bombastic definitions given by economists if any. The phrase ‘compulsory’ says it all. There is no choice or debate about it.

“Taxes are unrequited in the sense that benefits provided by the government to taxpayers are not normally in proportion to their payments,” said a definition by OECD in 1996. This, in essence, summarises the relationship between the citizens and the government as far as tax is concerned; that it is a payment for which there is no quid pro quo. You do not get anything in return, certainly not in the same measure.

In the field of economics, tax is also regarded as an instrument to achieve equitable redistribution of income and wealth. In crude words, ‘you rob Paul to pay Peter’ to achieve this. Unfortunately, those who earn higher incomes or have greater wealth will never like this. Hence, they find means to either avoid paying taxes by using the loopholes in the tax-system or evade tax by hiding the source of taxation from the authorities.

Recently, someone I know narrated this to me:

QUOTE

“Bhai, give me a bulb and a three-pin plug.”

“Here, saheb. Anything more?”
“No. How much do I owe you?”
“Bill chahiye?”
“Why do you ask me?”
“If you want a bill, then GST will apply on the MRP...”
“Otherwise?”
“Otherwise, I will pass on a 6% discount to you.”
“But isn’t MRP inclusive of GST?”
“No saheb. That was before GST. Now the tax is calculated on MRP.”
I went to a departmental stores to buy them at MRP.

UNQUOTE

“You ought to have bought it against a bill from that shopkeeper,” I said.

“Why?”
“We could have got that fellow arrested for fraud.”
“Who has the time for all that?”

When I posted this on a social media platform, some of my friends actually supported non-payment of tax. The reasons were somewhat similar to what has been listed at the beginning of this piece. Since I do not get expected benefits for the taxes I pay, I would rather not pay tax. Of course, their responses were more in the context of GST, where such evasion seems possible.

I met a senior government official who works in GST and cited the narration.

“Is it still possible for such shopkeepers to evade GST?” I asked.

“Yes. It is not yet foolproof. But, we are working towards making it tight. All we need is to touch one part of the chain of such evaded tax. Everyone in the chain will be brought to books.”

“How is the collection now, compared to earlier?”

“We had three forms of taxes earlier. Excise duty on production, central sales tax on inter-state transactions and state sales tax on intrastate transactions. So, you had a situation where a commodity was excised at production, taxed across the state border and again taxed in the state of destination when it transferred hands.”

“Yes, I remember.”

“And, do you recall? You were charging central sales tax on excise duty as well and state sales tax on both.”

“Yes. I have done it when I designed the price-structure for my products.”

“Now, all these taxes are brought under one tax called GST. So, the tax the consumer pays is less than earlier. There is no tax on tax.”

“Then why are the traders objecting?”

“Earlier, they could transact without records. Now, you can’t. You pay GST before and get the set-off when you transact further.”

“So?”

“It is now the responsibility of the trader to recover the tax he incurred from his buyer, and when he remits the tax amount to the government, he gets the set-off on what he has already suffered when he purchased.”

“Yes. I know Modvat worked that way.”

“Modvat was later called Cenvat. It was excise duty and was applicable only on production. This is only on transactions.”

“Sounds simple. But are there complications while getting the rebate?”

“Not if the trader maintains proper records as per the recommended formats. Most of the times, the traders want to deal with us without receipts, records, and proof of tax paid and the price charged. When his claim for set-off is rejected, he starts crying foul.”

“I see.”

“More importantly, now, every trader and middleman in services comes under the ambit of GST. Earlier, these dalals were carrying out business at will, with no tax whatsoever paid. Now, we have brought them under the radar. The moment they charge anything from anyone, they come under GST. This is huge revenue to the government.”

“I am not sure the plumber or the electrician who comes to carry out repair-works to my house charges me GST.”

“Does he give you a bill?”

“No. He is just an individual who renders the service.”

“It is your responsibility to ask him for a proper invoice. Then we can charge him GST.”

“But it will escalate the cost of service as well, right?”

“Of course, by the tax amount. Come on, professor. You started this conversation by complaining about the tax evasion by a trader. What are you now trying to tell me?”

“Yes… you are right.”

“If you don’t insist on the invoice, the transaction is illegal. Every time money changes hands, that transaction has to be declared to the government. When you pay an electrician amount for which there is no proper invoice, you are engaging him in an illegal transaction.”

“I know.”

“Let us take the case of a car mechanic, for example. When you give your car to a roadside mechanic and ask him to change a clutch-wire, does he give an invoice?”

“No.”

“Why do you give him the car for repair?”

“Firstly it is convenience. He is right across the road from my house.”

“Then?”

“Then it is cheap.”

“Economics, right?”

“Yes.”

“How sure are you that the fellow will fit a good quality clutch-wire as replacement?”

“Not sure.”

“When you give your car to the company-registered service center, you have the surety of high quality spare parts.”

“They are expensive.”

“Indeed. But they are also of higher quality, aren’t they?”

“Yes. Most likely.”

“So, when anything goes wrong, the company still stands guarantee to the spare part, right?”

“Not sure.”

“Check it out. When repair works are carried out in the registered service centers, the company stands guarantee for the parts as well as the service.”

“Hmm…”

“And, you pay GST.”

“Right.”

“The roadside mechanic does not pay GST because he does not charge you GST.”

“True.”

“You are an accomplice in evasion.”

“But the mechanic would have paid GST on the clutch-wire anyway.”

“Yes. Probably. But, his service is not declared to the government. So, there is an evasion. May not be in the clutch-wire, but in the service.”

“I understand.”

“We have this penchant to trade off quality for cost. It is very high among us. Traders and roadside mechanics work on that mentality to cheat the government.”

“Are you blaming me for the trader’s cheating?”

“Whom else? If you refuse to buy against the kutcha bill, he will have to give you a proper invoice and he has to collect and remit GST.”

“But this shopkeeper seems to have given an invoice which bore the title ‘Estimate’ I heard.”

“That is a fake invoice. Never accept it. Seek a proper invoice, where his tax registration number is clearly mentioned. And, you are right. MRP is including the GST. Nobody can say that he will charge GST over and above the MRP. It is a crime if he does that.”

“But I am still not convinced that I should pay GST to my electrician.”

“Every transaction in this land comes under the radar of the government, professor. No exceptions. But some escape due to certain devious behavior.”

“The consultation-fee paid to the doctor, too?”

“Yes. And the fee to your lawyer as well,” he laughed. “But I know what you are thinking.”

I got some clarity, on my own mind-set, when I came out of his house.

I hate it when money goes out of my wallet. However, I have to pay tax as a matter of DUTY. Isn’t tax also called ‘duty’ in some contexts, such as excise duty, customs duty…?

I paid tax in the 1970s, in the 1980s…and now in almost 2020. For me, who runs the government is immaterial.  I do not regard my tax as a payment to Narendra Modi or Manmohan Singh or Jayalalitha or Edappadi Palanichamy. It is to the government, that is independent of the personalities.

But what about the government’s not providing the basic services and amenities? I shall fight for them. After all, as a law-abiding citizen and tax-paying citizen. I have the right to demand facilities from the government. It has nothing to do with my paying tax.

---o---