India’s Ownership Problem – Part 1

We Indians are not as prosperous as we could be because we do not have ownership of what we actually own — our income, property and public wealth. Let’s examine what that means and what we need to do.

We don’t own much of our earned income.

The government taxes a major part of what we earn. And when we spend our after-tax income, the government taxes what we spend. Direct and indirect taxes takes away much of our hard-earned money. Direct taxes are in the form of income and corporate taxes; indirect taxes are in the form of GST (good and services tax) and import duties.

All taxes increases prices and are ultimately paid by us, the people. Even corporate taxes are paid by us because to the corporation, taxes are part of costs which have to be recovered through higher prices for consumers.

The government does tax collection to function but excessive taxes are barriers to production, and hence to the creation of wealth. The Indian tax structure is skewed. For example, by making agricultural income tax free, the burden of taxes falls entirely on the more productive sectors of the economy.

At the top end of the scale, income is taxed around 33%. Spending that after-tax income attracts GST of between 18 to 28%. The idea is that the “rich” can afford 28% on many items they buy. The tax on petrol and diesel is over 100%. Not just the rich but even the poor pay indirectly for that. Fuel prices are included in everything that the poor buy.

The result is that of every Rs 100 you earn, Rs 67 is what you get to take home. Then when you spend, approximately another 20% is taken away as GST. Meaning you get to use only about Rs 53 — or just half of the Rs 100 you earned. The government takes the other half. That means, you work for the government for half of the year, and then for you and your family, you work the rest of the year. Think about it: you are a servant of the government for six months every year.

This doesn’t have to be this way.

Your taxes can be reasonable. You can get to keep most of what you earn. For that, the government has to be small, efficient and effective. We have to stop government waste and government bloat thus reducing the need for high taxes. And we have to increase national income by bringing idle assets into production (which we will address in a later post.) That would lift the burden of excessive taxes from our shoulders.

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