Uncle Tom, I and Taxation Blues

When it comes to owning a sprawling property like Brinkley Manor, there is no way I can compete with Bertie Wooster’s miserly Uncle Tom, or, if you wish me to be precise, Thomas “Tom” Portarlington Travers. I do have a humble roof over my head which serves its purpose rather well.

Nor do I have a dynamic wife like Aunt Dahlia who, when she loses a sum of 500 pounds while gambling at Cannes, might ask me to replace the money in order to keep financing her magazine, Milady’s Boudoir. Simply because I do not have ample resources at my command. 

My lair can also not boast of someone like Anatole, God’s gift to our gastric juices. Guests who get invited over to my place often try to come up with the flimsiest of excuses to escape the trauma of having to put plain dal-roti-subzi-chawal down the hatch.  

Nor am I a collector of silver cow creamers. I merely collect books, movies and music albums.  

But when it comes to an aversion to payment of taxes, my thinking absolutely matches that of Uncle Tom.

The Psychology of a Taxpayer

I daresay it is not greed that makes one detest the payment of taxes. Rather, it is the disproportionately high rate of taxes which one objects to. Services delivered by the government barely touch one. Our roads continue to be as bumpy as ever. Our power supply often keeps us on tenterhooks. Our public transport systems offer services which are rarely punctual, seldom tidy and often substandard. Quality medical care only enriches either the hospital owners or the insurance companies. Premium education is a rare commodity, accessible only to the well heeled.    

Above all, the taxation systems are designed to promote dishonesty. Evasion becomes the norm. By dodging taxes, a lay citizen has the power to cock a snook at the revenue authorities. What could be a sweeter revenge than to have been able to resort to some sharp practices to generate some black money and thereby contribute to the parallel economy of the country? In such matters, our ingenuity knows no bounds. Give us a tougher system and we shall always be one step ahead of the government of the day in browbeating it, appear to say the denizens. 

In fact, by resorting to such practices, a citizen may as well be contributing to nation building in his own humble way. One, the parallel economy is well isolated from the formal financial systems, thereby acting as a shock absorber to the jalopy of the formal economy when it runs into a speed breaker like that of the infamous 2008 meltdown. Two, politicians of all hues badly need unaccounted funds to keep winning elections all the time. Thus, we, the people, stand a better chance of keep electing governments which we deserve. Three, the shadow economy keeps greedy banks in tax heavens in the pink of health, partially fulfilling one of the key dictates of our scriptures, namely Vasudhaiva Kutumbakam. Four, such professions as accountants, lawyers and management seniors keep thriving in a perennial state of blissful existence, guiding one through the taxation maze.

I wonder if the tax rates are deliberately kept high so the above mentioned objectives of diverse stakeholders keep getting met. Also, the compliance maze is so designed as to invariably need a bevy of professionals to keep interpreting the fine print year after year. 

Perhaps, the sage advice dished out by Chanakya a few centuries back is willfully neglected. It may be recalled that in his seminal work Arthashastra, he had opined as follows:

Ideally, governments should collect taxes like a honeybee, which sucks just the right amount of honey from the flower so that both can survive. Taxes should be collected in small and not in large proportions.

What we have instead is a group of honeybees which collects not only the honey but also keeps a sharp eye on the soft petals and other tender parts of the flower.   

Our revenue authorities would be quick to point out the miniscule base of the tax-paying public being a reason for high taxes. Uncle Tom may not concur, though. Instead, he may recommend the following: a relentless focus on the employment generating businesses, thereby ensuring a steady income in the hands of a majority; predictable taxation systems which enthuse investors; use of modern technology to connect the dots between the direct and the indirect tax bases.  

However, these are not low hanging fruits. Our politicos typically have a five-year vision which prompts them to continue to be in an election mode most of the times.     

The Great Indian Milled Class

Unlike Uncle Tom, I did not make a fortune doing business in the Far East. I belong to the great Indian Middle Class, famed for the manner in which it upholds such values as honesty, truthfulness and fairness in its dealings with others. Those who belong to this segment of the society also uphold family values and social harmony.

Having slogged for over 35 years in the private sector as a salaried employee, I have always been a sitting duck for tax collectors of all kinds. Scriptures have taught us the value of perseverance and patience. Take away our Standard Deduction and we would simply squirm and keep quiet. Reduce the rates of our bank deposits and some of us may merely write a protest letter to the editor of our daily newspaper. Keep threatening us with a change-over of our hard-earned savings parked in a public provident fund account from the Exempt-Exempt-Exempt category to the Exempt-Exempt-Tax category, and few of us might make some ineffective noises.

Keep inflating our personal transport costs and we shall meekly accept the same. We ignore the fact that close to 45% of the fuel prices get cycled back to the government of the day. Home makers amongst us may keep twiddling their thumbs trying to balance their domestic budgets, but unless there is a direct threat to political power, nary an eyebrow is raised. We eagerly look forward to the next round of elections in the country so at least a transient relief may come our way.

Not to forget the Great Spiritual Tax which does not discriminate between the haves and the have-nots. It is designed to make us suppress our desires, focusing only on our bare needs. Thus, it makes all of us a wee bit more spiritual. A CEO pays as much tax on a bottle of shampoo as his liftman or driver does.

In general, the only long term satisfaction we may have is that of educating our children well and facilitating a smoother life for them in the times to come.

The Exorbitant Price of Honesty

Honesty does not come cheap, though. Recently, when I enquired about the kind of taxes applicable if one were to sell a property and send funds abroad, I was baffled. The mind was boggled to its soggy core. If I were lucky enough to find a buyer who would agree to do a 100% transparent transaction, the dreadful tax implications left me shivering from the top of my head to the base of my feet.

The buyer would need to shell out close to 11% by way of registration charges. As to the seller, a slice of close to 23.6% will need to be paid by way of compliance to the mandarins in the taxation department. If this were not enough, the bank would be happy to provide foreign exchange only if the seller would agree to an additional cost of 5%, by way of a higher education cess. The plea that a 4% education cess would already have been paid as a part of the 23.6% and that a further 5% contribution towards improvement of higher education in the country made no sense may simply fall on deaf ears. The only assurance provided was that of the total damage of 28.6% suffered, the seller may get some refund in due course of time. Thus, between the buyer and the seller, the transaction would get shaved off by a whopping 39.6%. Add to this the legal costs and the speed money which smoothens our lives in general, and we are talking about a cost in excess of 40%!

I am not too sure if the government ever played any role in the organic appreciation of the value of the property over a period of some 20 years when it would have remained in my family’s investment basket. However, I am certain that those framing our taxation rules have undergone an advanced diploma at an academy run by Shylock somewhere on the outskirts of Venice. Chanakya, were he to discover this harsh reality, would surely be found turning in his grave.

A vast majority amongst you would be quick to point out the need for a prospective seller to promptly consult some sharp minds in the realm of finance, so that much of this excessive cost may be avoided. What else could a mentally negligible nincompoop like me do?

But what about one’s humble contribution to the mighty task of nation building? Also, is there a merit in inviting a jaundiced view of the authorities concerned, leading to some nasty notices in the letter box six months hence?

Indeed, it is at times such as these that one’s commitment to honesty and transparency gets tested. Scales fall from one’s eyes. It dawns upon one as to why the real estate market continues to be a shady one, perpetually contributing to the parallel economy of the country.

A Sense of Detachment

Just as P. G. Wodehouse once wrote in the Vanity Fair, I also imagine sitting in my poverty-stricken home and wondering how a tax bandit, having entered my house uninvited, would wave a gun at me, rummage through my pockets and empty these out. He now wears a mask which reminds me of the popular OTT serial Money Heist. Alas, he does not realize that I am not the Royal Mint of Spain.

Nevertheless, he would be leading me to cultivate a sense of detachment from my hard-earned money, much along the lines of what Lord Krishna advises in the Bhagavad Gita. Hope when he leaves me, I shall be in a carefree state of mind.

Next time I get invited to Brinkley Manor, I shall surely ask Uncle Tom about the tax expert he consults!

(For details on the tax blues faced by P. G. Wodehouse, please check out Tony Ring’s book: https://www.amazon.com/You-Simply-Hit-Them-Extraordinary/dp/1870304225)

(Illustration courtesy Suvarna Sanyal)

Related Post:

Remembering Chanakya (Kautilya The Great)

https://ashokbhatia.wordpress.com/2016/09/09/psmith-and-mike-discuss-the-great-spiritual-tax-of-india/

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Psmith and Mike discuss the Great Spiritual Tax of India

Psmith put the newspaper away. A sigh escaped him.

“Nothing makes sense”, he muttered.

For the space of about twenty-five seconds, Mike, sitting across a small table on a sunlit balcony in Mumbai, India, sat in silence.

“What is wrong with you?”, asked Mike, with a concerned look on his face.

Some time back, Psmith and Mike had been posted to the Mumbai branch of the New Asiatic Bank. It had taken them some time to get used to the hustle bustle of the noisy metropolis, often reeking of stale fish.

They had a centrally air-conditioned apartment all to themselves at Worli in one of the high-rise buildings overlooking the Arabian Sea. Being a Sunday, both were in a relaxed state of mind.

“How could people be so very excited about being taxed differently?”

“Who is excited? What are you referring to?”

“You would know that India is soon set to hop on to the Goods and Services Tax (GST) bandwagon. What the poor guys do not realize is that life is not going to be a bed of roses, as it is being made out to be.”

Mike continued to concentrate on the designer tea-pot in front of him, a complete picture of the model gown-wearing bank officer on his weekly off day.

“It is good to notice the concern you display for the citizenry which managed to slip out of British control some seventy years back. Perhaps, you are upset that it took them so long to realize that their entire country needed to be a unified market?”

“No. What I object to is the fundamental flaw in the GST. It is un-Indian. It is just too simple.”

Mike looked up in surprise. “What do you mean?”

“Comrade Jackson, no Indian tax system could be that simple. A universal tax percentage applied to everything so you know how to calculate it is just not right. It is handing over the power of understanding a tax to the people. Does this not take away the basic right of Indian taxation: confusion, opacity and obfuscation?’”

“But, surely, that should be good news?”

“Not for the few bespectacled gentlemen who try to figure things out, buried under the weight of those heavy tax books in some library of a government department. They would be rendered simply rudderless. They would resent this sudden deprivation of their tremendous power – of being the select few who could interpret and explain away the laws, the bye-laws, the rules, the notifications, the rulings by various tribunals and councils from time to time, and what not. I sense a revolt of sorts brewing up soon enough.”

“Oh, you mean to say that the bureaucrats would not be too pleased with the new taxation system?”

“Elementary, my dear Jackson. They would surely not relish the prospect of losing their power over the people. Also, the only way they can earn the extra money required to keep their families grinning from ear to ear.”

“Hmm…you do have a point there.”

“Not only this. Should a simple taxation law come into play, imagine the number of taxation experts who would be rendered jobless. Their care-worn clients would no longer be spending hours in their plush offices, trying to figure out the nuances of filing quarterly returns. They would instead be sitting in a fine dine restaurant, treating their lissome secretaries to a sumptuous dinner, while having told the spouse of a pressing need to attend a crucial meeting at the office.”

“But you would agree that the GST idea is indeed noble, simple, global and logical.”

“Which is why I suspect there is so much resistance to it. The government has been trying to sit people down and explain to them why the current system of taxation is the work of some mad people who happen to grace the opposition chairs now. Of late, it even decided to reach out to the latter and ensure that they were no longer sulking at the party presently in power walking off with all the credit for having brought in this landmark change. And note that the party in power now had itself obstructed the same change when it happened to be in the opposition.”

“But what do you think is so very exciting about the present system? I think it is known as Value Added Tax. They have several other taxes as well.”

“Well, for one, that should be known instead as Value Reduced Tax, simply because you have less value once you have paid it. Then they have excise, individual state taxes, octroi tax, entry tax, professional tax, luxury tax, entertainment tax, sleeping peacefully at night tax, Bengali sweets tax, South Indian dosa and idli tax, North Indian chhole bhatoore tax, West Indian poha and shri khand tax, did-not-tell-your-wife-and-came-to-Pondicherry tax, Clean India tax, farmers’ mental happiness tax, road accident tax, child-not-doing-too-well-at-school tax, mother-in-law irritant tax, enduring the politicians tax, having-to-watch-inane-movies tax, waiting for delivery of public services tax, and many more in the same genre.”

“Ah, life could be surely simpler!”

“But the good point here is that the common citizen can never afford to be lazy or complacent. The Indian tax system has always been designed to keep the common citizen on his toes. Agile. Confused. Uncertain. Feeling illiterate. There has always been an element of surprise. He opens a letter and finds that he has a tax due. And he starts asking himself, ‘What tax is this? I was not aware a tax like this existed. Do I need to pay it? Is there no way to avoid paying it?’ And off he goes to seek some solace from his tax consultant who is happy to demystify the affair and get another excuse to raise a bill on the hapless wannabe tax-evader.”

“You appear to be quite impressed with the Indian taxation system!”

“Yes, Comrade! They have an excellent system which matches their age-old spiritual values. Anything that makes you feel small, negligible and illiterate is bound to flatten your ego in no time. You could even be a director of our bank. But when you get a tax notice which you do not understand, you feel all of a twitter. You take a more benevolent view of humanity in general. Even your driver and your lift operator seem like angels in distress, facing similar challenges in life. You realize that there is no escaping the taxation system. It is as immortal as a soul is said to be.”

“But what makes you think the GST is likely to be simpler, when it comes to the fine print? I was told that it would need even the humble barber to file as many as forty odd returns to the government every quarter?”

Psmith slid out of his chair with a disgruntled sigh, and dusted his dressing gown. “Perhaps there is something in what you say. I propose that we call the new system as the Great Spiritual Tax instead. It would make all businesses across all the states and territories of India equally worried. They might even turn to spirituality and seek divine intervention to set their house in order. It would not be wrong to surmise that a commercial crisis has indeed arisen. A period of great anxiety has begun, especially so for small businesses.”

Mike looked up with some surprise.

“Let me explain,” said Psmith, raising his hands. “Once the new system takes over, all businesses would be required to register. Whether for manufacturers, distributors or retailers, it would be virtually impossible to escape the tax net. The luxury of doing business based on fake bills would no longer be theirs. In fact, past transactions could also come in for greater scrutiny. Besides, the Income Tax sleuths would be easily able to figure out the real income levels of businessmen of all hues, sizes and shapes. The entire business eco-system would totter.”

“Are you trying to say that the size of the Indian parallel economy would shrink?”

“Quite possible, Comrade Jackson. Your keen intelligence reaffirms my faith in your unique abilities. However, I doubt if this could be good news for the country.”

“How do you say this?”

“If you would delve deep into your memory cells, you would recall the 2008 financial crisis which engulfed the world. Do you think the Indian economy suffered as much as our so-called advanced economies then?”

“I do not think so. The Indian economy showed greater resilience then.”

“If so, allow me to point out that one of the major factors discovered and held to have helped India then was the existence of an underground economy.”

“Indeed?!”

“I do believe so, though I confess I am not an expert at such matters. Take the informal economy away and what do you get? A rigid and formal economy which has a much higher dependence on formal debt markets. The risk of overstating debts grows manifold. Next time round, when another Lehman Brothers show up on the horizon, the Indian economy could be found in deeper waters. Having a thriving parallel economy helps.”

“You surely surprise me. You sound like an ardent advocate of the parallel economy!”

“On the contrary, I do not. My point is very simple. Why should we allow only our businesses to suffer when the political parties themselves continue to enjoy the fruits of an underground nature? Why not clean up the Indian political act as well and provide a level playing field to all her citizens? Why should the Indian politicos be spared of a taste of their own medicine that they prescribe for the toiling masses?”

“Whatever, the Indian GST is now already on a roll. The bill has received the assent of the President of India. The only hope you can entertain is that of the implementation getting goofed up and the process getting delayed somehow. My understanding is that if the steps of setting up a GST Council, an agreement on a basic tax rate and the detailed procedures take longer than a year, the implementation deadline might as well get shifted to April 2018. If that happens, the government itself may keep it on the back burner for some time.”

“Oh, you allude to the risk of embracing unpredictable consequences of adopting a new taxation system in the run-up to the 2019 parliamentary elections!”

“Yes. In fact, yet another challenge before them might be that of the absence of internet connectivity all over the country. Even if the GST Network gets perfected, how would they ensure that a dealer in, say, Sikkim, can secure a registration in Kerala? It is good to hear of a seamless market, but a smooth roll-out would need a strong internet backbone all across.”

“Well, sure enough, their best men would be working out the finer details and smoothening the road to implementation. The stakes are high indeed. The reputation of the present government rides on how it handles a challenge of this nature. But what you are missing on, Comrade Jackson, is the key factor of human ingenuity. When it comes to paying any taxes, it knows no bounds.”

“But I am not quite sure if there could be an easy escape route for any business, as you yourself had rightly pointed out just now.”

“But we underestimate the propensity of human beings to go to any lengths to avoid paying any taxes. Innovation is the name of the game in this case. Sure enough, the Indian tax experts would now be burning the proverbial mid-night oil, getting ready to advise their anxious clients about some new creative practices they could adopt under the new tax regime. Given the level of primal hate harboured by all businesses towards the act of paying any kind of taxes, advisors in the business of tax avoidance would be twiddling their thumbs, endeavouring to figure out ingenious methods of beating the new system at its own game.”

Mike smiled.

“As always, you have hit the nail on its head. But this is a universal fact which governments all over the world have to cope with. Is there any other thing you are not too comfortable about?”

“Yes, though I do not know how your intuitive faculties are so very advanced as to guess this. I do not quite see eye to eye on the strategy of dumping more and more indirect taxes on the hapless citizenry, while not working aggressively to expand the direct taxes base.”

“I really do admire your depth of thinking on the subject. Do you refer to recent reports that merely one percent of the people pay income tax in India?”

“Indeed. What an irony!”

“Perhaps, you imply that politicians of all hues lack the courage to take some unpopular steps. Rather than chasing more people to pay income tax, they prefer to use the indirect taxes route which is relatively invisible?”

“Yes. Perhaps they follow the advice of their sage Chanakya who famously said that taxes should be collected by inflicting the least possible pain on the citizens, much like a bee would collect nectar from a flower in bloom!”

“And what do you think our own bank would have to undergo?,” Mike asked.

“Serious matter. Under the new dispensation, we shall need to register in all the states and union territories. Perhaps, even in districts, where we have branches. This is going to be a compliance nightmare. I hear some talk of all the banks lobbying for a facility to register with a centralized agency which would pool, reconcile, analyze and audit our transactions. If so, this agency could distribute the revenue earned through us to different states where the transaction has occurred.”

Mike rose from his chair and stretched his arms. His gaze drifted off to a couple of fishing boats bouncing up and down on the bluish-green waters of the Arabian Sea.

“These are deep waters, indeed. I wonder why we are discussing such matters on a lazy Sunday morning? I rather think I’ll nip down to Haji Ali and take some fresh air into my lungs,” said he. “You couldn’t come too, I suppose?”

“On the contrary,’ said Psmith, ‘I could, and will. A stroll will just restore those tissues which the gruelling discussion of the last half-hour has wasted away. It is a fearful strain, this taxation toil. Let us trickle towards the place mentioned by you. Comrade Jackson, lead me to this picturesque dargah of yours of which I have heard so much.”

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A 16-point Agenda for the 16th Lok Sabha of India!

The heat, the dust and the vitriol thrown up by the campaign for general elections in India has already started fading away from public memory. Media has had a field day, what with rival claims being made by the contestants in the fray. Quite a few voters have been at a receiving end of a different kind; of freebies, money and liquor. In some pockets, sheer muscle power has been on overt display. Some armchair revolutionaries are disappointed; when it comes to real issues, whether in the realm of economy, diplomatic relations or delivery of public services, very little light has been generated in the past few months.

The denizens desperately hope to collectively bring in a stable and strong government at the centre. They also realize that it is the right time to set the agenda for the 16th Lok Sabha.

Here are a few things which our new representatives need to consider:

1. Boosting infrastructure across the board, especially in the farm sector.
2. Containing inflation.
3. Giving an impetus to manufacturing, especially to check projected imports of IT products and selected white goods in the years to come.
4. Simplifying investment processes with clear goal posts.
5. Boosting revenue and simplifying indirect taxation by introducing GST in a time-bound manner. Bringing in DTC so as to reform direct taxation.
6. Revamping our definition of growth which should include not only economic growth but also social indicators like the Millenium Development Goals. Eventually, like one of our neighbours, a Gross Happiness Index should become the cornerstone of public policies.
7. Upgrading skill development mission and related programs so as to reap the benefits of the demographic dividend.
8. Instituting Power and Coal sector reforms.
9. Redefining basic principles of natural resource allocation.
10. Judicial reforms.
11. Law and order reforms.
12. Political reforms, especially in the areas of poll funding and decriminalization.
13. Curbing the parallel economy; building sector reforms and rationalization of stamp duties.
14. Implementing women’s reservation in all legislative bodies, public services and institutions. Enabling women’s education, empowerment and safety.
15. Focusing on IT-based enablement of citizens. Building on Aadhar card to improve the delivery of services to citizens. Replacing ‘narrow band’ by broadband. Special focus on the greying population.
16. Restoring the dignity of our legislative bodies.

A heartening feature of the 2014 election campaign has been the higher voter turnout. The aggregate turnout so far in the first 7 phases for 438 parliamentary seats has been 66.20%, significantly more than 57.41% figure in 2009 general elections. It appears that the silent majority wants to register its aspirations more effectively. This is a clear indication that our politicos need to sink their differences and work together for improving the quality of life of all its citizens.

Concerned citizens eagerly await the future contours of their ‘tryst with destiny’ to emerge on the 16th of May, 2014. Irrespective of the shape and composition of the new government which takes charge, a vigorous thrust in the areas mentioned above alone can ensure that India performs better and improves upon its image and stature in the comity of nations.

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