Union Budget: Collect more taxes and give less alms

Jun 27 2014, 01:35 IST
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SummaryAn index of a nation’s power is the revenue it realises from its citizens. The US collects $17,464 per capita, while India collects only $284

Stripped of all the verbiage, the main function of a government is to collect taxes. To do so effectively and successfully, it must preserve order and stability; and ensure conditions to keep the economy growing. The more it grows, the more revenues it collects and, therefore, how much it collects is the truest index of its success.

The power of a nation is directly related to the revenues it realises from its citizens. The US is powerful because it collects $17,464 per capita from its citizens. Those who predict the imminent rise of China and then India to the rarefied heights of being a global power do not seem to realise that China collects only $1,600 per capita and India $284 per capita. I have particularly in mind one former finance ministry official who goes from meeting to meeting with a PowerPoint presentation of how India will be a world power in a few decades, giving rise to much self-delusional optimism among the national elite.

There is no doubt that the GDPs of China and India will close in on that of the US in the next three or four decades. But we will still be nowhere near the US when it comes to that raw index of true power. How much money does the state have to spend? How much money a government has determines how much a government can transform our lives and influence the world too.

A state has four streams of collecting taxes. These are corporate tax; personal income tax; sales tax and levies; and customs and excise duties. Every year as the budget proposals for the next year are being written, there is a clamour from trade and industry bodies like CII, Ficci and Assocham pleading for a reduction of the rates of all these. While they package their pleas with what purports to be sound economic logic, the real logic is that the better-off just want more and give less.

Of course, taxes ought to be reasonable and balanced to give the state more money to spend without imposing a backbreaking burden on its private and corporate citizens. To find this reasonable and fine balance is what good government is all about. Too high an incidence of taxation will not only encourage cheating on taxes but also will make industry and commerce unprofitable and disincentivise individuals. There was a time in this country when personal income tax was

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