Taxes are our contribution towards nation building and there is no reason we should not do this.

Some of our friends are getting jittery over recently introduced “Krishi Kalyan Cess” and claim that this government is hell bent on sucking the blood of middle class and making their life miserable. Before coming to the mathematics of taxation let’s see the background and legacy which NDA government has received from its predecessor –

jaitley budget Mathematics of Tax

  1. NDA government accepted recommendations of 14th Finance commission and 42% of the Central Government’s revenue is distributed among States/UTs. Earlier it was 32% and therefore central government is now left with lower share in overall tax collection.
  1. FM got a huge debt as legacy and Rs. 492,670 Crores (which is 24.9% of overall expenditure of central government) will go towards SERVICE OF INTEREST ONLY in this financial year.
  1. We are a country of more than 125 Crores people but not even 1.25 Crores people pay Income Tax (not even 1%). Considering the fact that public expenditure needs to be pushed in a global slowdown environment, what option finance minister is left with?

And most importantly, why not earlier governments took steps in the right direction to curb the malpractices for bringing more people in tax net and increase the tax base.

union budget 2016 sarun jaitley Mathematics of Tax

  1. Previous finance minister Mr. Chidambaram set an ambitious target of reducing the fiscal deficit but nothing was planned to increase the revenue. Now there are only two ways to contain deficit viz. increase the revenue or reduce the expenditure. Giving the fact that some of the expenditures like defense, interest, salary/pensions etc. can’t be reduced and only possible reduction was in developmental expenditure which would have jeopardized the our India Story forever. Now if finance minister is taking judicious decisions to increase the revenue then what is wrong in this?

 Now let’s see the mathematics of taxation.

imp taxes india Mathematics of TaxFor the sake of simplicity let’s take the example of Petrol prices in Delhi. Crude oil landing cost in India is app. Rs. 27.87 per litre (USD 52 per barrel Plus Rs. 5.95 per liter for ocean freight etc.). Now Excise Duty collected by Central government is Rs. 21.48 per liter and final price is Rs. 65.6 per liter which includes Delhi State VAT of Rs. 13.95 and commission to petrol pump of Rs. 2.3.

So the entire tax component per liter of petrol is Rs. 35.43 out of which Rs. 22.97 (Rs. 13.95 as state VAT + Rs. 9.02 as 42% share of state governments in Centers revenue) goes to state government. In a way Central government receives only ~ 35% of the tax collected on per liter of petrol but we keep on blaming finance minister for each & everything.

Let’s take another example. If a family goes to a restaurant for having a dinner and spends Rs. 1,000 as base charge & service tax then he will have to pay Rs. 60 as service tax and Rs. 132 as State VAT. Please note that service charge levied by restaurant is not a tax and it is in lieu of tip to waiter. Now applying the same mathematics, share of state government comes to Rs. 158 out of total tax collection of Rs. 192 and therefore central government is getting only 18% of the total tax collected! And we blame central finance minister for each & every penny we pay as tax.

modi jaitley Mathematics of Tax

 We expect our government to provide better civic facilities, we expect our country to become a superpower but we are not ready to pay for it. Taxes are our contribution towards nation building and there is no reason we should not do this.

By- Shshank Saurav (Chartered Accountant and Anti-Money Laundering Specialist)

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