Where do my Taxes go?

Aren’t we all wary of paying taxes?

Or we pay it unwillingly, because our employers deduct it before sending in our salary.

Very few would part with their hard-earned money willingly in the form of taxes.

Yes, I’m referring to the Income Tax paid by you, because, well that one hits close to home.

Sentences like “Only 1.6% Indians paid taxes in 2019-20” make it to the headlines year after year.

But did you know “only 3% of the Indian populace is liable to pay taxes”.

Based on the tax structure prevalent in our country, not everyone has to pay taxes.

Taxpayers contribute approximately 1/3rd of their earnings to taxes, but do they even know where that money goes?

Don’t we all think it goes into the pockets of corrupt ministers or is consumed for activities beneficial to the government alone?

No benefit to the Aam-Aadmi.

Let me help convert you into a happy taxpayer by opening your eyes to how exactly your taxes are put to use.

Do you know the meaning of the word “Taxes”?

Taxes: noun

a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc.

More than half the countries of the world rely on Income Tax for 80% of their revenue.

And how does the government spend that income?

There are 3 main reasons why taxes are levied:

1. Public Works: Roads, trains, metros and government salaries – everything public is actually paid for by you.

2. Basic Equality – So that the government can reduce economic disparity – the rich don’t live in golden palaces while the poor starve to death. That is why most countries including ours have a progressive tax structure, where the more you earn, the more you are taxed.

3. Influencing demand for local goods – encouragement of national industries to promote indigenous growth and discouraging imported products. 

Almost 23% of the revenue of the Government of India comes from Personal Income Tax alone. Our Personal Income Tax is responsible for taking care of about 1/4th of our government’s major expenses such as:

  1. States and Union Territory allocations – Taking up 1/5th of the Government of India’s revenue, this is the nation’s biggest outgoing. Every state does not get an equal amount – Which factors determine Uttar Pradesh getting more than Punjab? Mainly 3 things:
    • State’s contribution to central revenue through GST and Sale Tax
    • Demographic population of the state
    • Geographical composition of the state – forest area, agricultural land and so on.
  1. Debt Interest Repayment – The government is just like us in a way – burdened with debt. Actually, a lot of developing nations face fiscal deficit – which basically means that they earn less than they spend. Why? Mainly because infrastructure is still being built – remember by how much your last home renovation set you back? GOI spends 18% of its revenue in interest repayment on debt.
  1. Central Welfare Schemes – This accounts for about 13% of GOI revenue expenditure. Covering everything from healthcare to education, these schemes are focussed on promoting social inclusion and equality. This allocation bolsters a united, democratic India.
  1. Defence – Being in the top 5 military powers of the world also means that Defence is an important expense for the GOI, accounting for about 8% of its revenue expenditure. Almost 2/3rd of this is utilised to run day-to-day operations of our armed forces. So, the best way to salute our troops is to pay our taxes!

While these are the government’s major expenses, how do we as citizens know that our taxes are being channelled in the right direction?

The International Budget Partnership Survey conducts government transparency checks in 117 countries based on 8 key budget documents. In 2019, India ranked 53rd on this list with a score of 49/100 on transparency – better than the global average score of 45. While India ranks well in publishing timely and relevant information, no pre-budget statement and the absence of a mid-year review is very telling.

Nationally speaking, the Controller General of Accounts holds the balance sheet for the GOI. The Indian government is moving towards greater transparency with attempts to publish budget related data in the public domain. We the people need to contribute by honestly paying our taxes.

You know how they say you can’t complain about the government if you don’t vote, it is the same with taxes.

Taxes are not a liability, but our contribution to making our nation great.

This is one lesson that needs to be instilled in the upcoming generation because a change of perspective might be the change that we need to go from developing to developed – in every way.

Just ahead of the Budget Season, let’s take a fresh look at our government and give them the benefit of (good) doubt! While we do our bit.

And you may want to think twice before complaining about the Indian tax system where you pay an average of 35.8% of your income as taxes.

Because, Sweden sits at an average of 57.19% Income Tax. Our Nordic friends part with more than 50% of their income in the form of Income Tax.

So, pay your taxes and contribute to a better, more developed nation.

Happy Tax-Paying!!

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