A tax system : Do we all need it?

A tax system : Do we all need it?

"What is this black money?" asked my daughter, unaware that money is coloured. As the debate raged over the reason for the coloration of money on TV, she kept asking why would someone stash money in swiss accounts and not deposit in India that can be easily drawn.

It set me wondering, why would someone not declare income, deposit in swiss account and let it get blackened. I explained to my daughter, while we all earn income, there are a few who do not declare the same to the government and in the process evade tax. Once that portion of money gets unaccounted, it remains so forever its life unless some amnesty schemes are announced or some loopholes are explored like agricultural earning that is not taxed.

Getting back to the moot question, why would someone not like to pay taxes. Even today, if there is a poll done to get an answer on should the governments tax, I am sure there will be an unequivocal answer, yes. Then, why would we not pay. My guess is, there are two answers - a. we all feel that we can get away with it, b. we all feel that the reason for which we think governments should govern and hence collect taxes, is not happening. There will be a minority that feels the reason a but the large sections of us who pay taxes will also feel b is not happening.

What are the ways in which this issue can be handled, my feeling is, big change will happen if governments improve on credibility. And credibility does not mean doing more, it means sharing more and being more honest about what can be done and then doing it. It will be a slow process but has to be done. Next big thing is about the way you think, my contribution to being used for my betterment. Take the case of income tax, it gets paid to an entity that doesn't seem to be doing anything for me, I have no way to learn, if I pay or not, what difference will it make to my life. Then there are myriad taxes, town tax (property, octroi) and state (sales, land etc). Still, the big direct tax contribution that happens is income tax.

What will happen if we reverse the way we pay taxes, income for the local bodies and then indirect taxes for an indirect body like the central government. I think the payment as well as utilisation will become more direct. It will bring in more money as the people themselves will have a direct control over the contributors and offenders and in any case in India, localised communities work better, eg Khaps.I am sure, we need to do calculations but its also a mental changeover.

One more way of getting more to contribute to taxes is by creating a reward mechanism, currently its so loaded in the favour of stick. Like a frequent flyer program, we should create a tax payer program and link the government service to it, so if you are a highest tax payer, you will get a special treatment for getting a passport etc etc. I am sure there are many ways of creating the reward mechanism.

Will this be able to convert all the coloured money to white? not sure, but definitely some move in that direction will happen.