Saturday, March 10, 2007

Your taxes at work

It's been a rather rapid learning curve on Indian income tax, as I collect the papers to file my father's final tax return. (Death and taxes. And the taxes survive death!) India has an abysmal tax base. (Here's a 2004 BBC story.) Some 20 million people pay tax. Out of one billion plus. That's two percent. (I've heard it might have gone up to 35 million. Woo hoo!) India's bossy, everything-is-my-business, nose-in-every-corner government taxes the heck out this 2 (or 3.5) percent. After all, it's their hard-earned rupees that support the massive superstructure of the (still officially, in the Constitution) socialist Indian state. Apart from the income tax (paid largely by the salaried class, with tax deducted at source), there is a new service tax (I believe just hiked up to 12.5%? 14%?), a general sales tax, phenomenal capital gains taxes, huge corporate taxes, excise taxes, even octroi (a tax on the movement of goods into municipal jurisdictions), and now, most recently, a dividend distribution tax. The system is maddeningly complex. Nearly a full one-third of the cost of an airline ticket is tax. Almost half of what one pays for gas at the pump is tax. Last year there was an attempt to get tax payers to report not just their incomes, but also their annual expenses on the standard IT return form, called, with no sense of irony I'm certain, Saral; Easy. (However, there is no estate tax in India, and all dividend income from shares is tax free, to encourage investment by the middle-class.)

I was also stunned to learn that only 50% of one's annual donations to charity can be claimed as a deduction on one's income taxes, with a ceiling somewhere in the range of Rs. 1 lakh I think (~$2500). Boy, great way to encourage charitable contributions!

Everytime one does something, the overweening Indian state takes a bite out of it.

(One TV commercial, for some tax-free bonds I think, captures this state of affairs rather hilariously. It shows various people being served food -- in a restaurant, from a street-vendor, at a fast food joint -- with the servers taking a bite out of their food before serving it to them. "Taxes taking a bite out of your money?" goes the tag line ... )

As the Indian fiscal year winds to its close, and households [well 3.5% of them at least] start thinking about their final IT return (oh yeah, I should mention that unlike the US, Indian taxpayers pay the IT department four times a year, based on their estimated annual tax liability. And if one doesn't, then the IT department will expect that at the end of the year, with interest. Remember that with the rising whine-levels as April 15 approaches. Ok, 16 this year. [17 in ME and DE I think.]) ... anyway, in the middle of all of this, a the news of a huge tax-scam and money-laundering operation breaks. A Pune based horse-trader (i.e. a bookie) who has some unaccounted wealth of 35,000 crore rupees, or ~$8 billion!. Baap re!

And, as everyone knows, these tax-rupees end up, pretty much, being just robbed from the state by its servants, the politicians. So, in a sense, the Indian state takes its chunk out of its citizens' money, and then, well, loots them. (A bench of the Supreme Court, just this week, in exasperation, suggested that the corrupt should be hanged from lamposts as a lesson!)

Ajay Varma, one of India's leading bloggers (India Uncut), has an eye-opening, they-would-be-funny-if-it-all-wasn't-so-sad series of posts on his blog called, "Where your taxes go." He's compiled some of these together into a column that was published in the new financial magazine, Mint (which is published in cooperation with the WSJ). Your maid funds Unani.
These are good times for Unani. In his latest budget, the honourable P Chidambaram allocated Rs. 563.88 crores for the Department of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy. I kid you not, I am not making this up for your satirical amusement. That departments exists. And you work your ass off, and make sacrifices, so that it can be funded. You and your maidservant.

On my blog, I have a section called “Where Your Taxes Go,” where I document strange instances of how our taxes are put to use. There is much there that is trivial and amusing—a moustache allowance for a havaldar in Lucknow, compensation for a bank employee mistakenly declared dead, salary for an 11-year-old teacher, relocation of monkeys from New Delhi to MP (only Rs. 25 lakhs). There is also much there that underscores the irresponsibility of our politicians—toilet refurbishment allowances for Jharkhand legislators, parliament hold-ups that cost 20k a minute, the 90 lakh free TVs that the DMK promised in Tamil Nadu to get elected there. Most of us are so used to government wastage that we shrug this off. “Pata hai yaar,” we say together in a gruff chorus of a billion nonchalant voices. “So what is new? Gorment is like this only.”
Arrey Boss, definitely kuch Gandhigiri mangta, kya?


PixelChick said...

Yep, the havadar mush allowance seems excessive, but I can't quite agree with Varma's first paragraph. I actually don't have a problem with alternative medicine systems being funded by taxpayer money.

I would rather India funded it herself, than Americans researching it, discovering something of worth, owning the knowledge and coming back to sell it to us.

Gashwin said...

Oh I don't think that there shouldn't be funding for alternative medicines as well. I suspect Varma zeroed in on this department because it sounds so bizarre. The point in the whole thing is: does the state actually do anything with all this money? Anything worthwhile? Other than keeping a bloated bureaucracy employed?

All governments waste money. The Indian state seems to be one of the worst offenders.