By Sujit Bhar
Taxation has always been a complex and contentious issue in any country, whether it is a democracy, an autocracy or even a monarchy. In a representative democracy (as in India), taxation lies within the purview of the legislature and is “imposed” on the public, mostly sans any general, open consultation; that translates to a lack of consensus. Taxes are legal—in India, the Constitution authorises the government to raise taxes, but also says that each taxation idea must be accompanied by a law, enacted to that end—but how ethical or moral are they?
In the US, the idea of an income tax—a tax as direct as it can be—had initially been heavily criticised and contested on multiple forums. In fact, taxes were among the original triggers that set off the fight for independence among American colonies. Their call was “no taxation without representation”. In India, the neel kar, or the tax on the growing of neel (indigo) plants (a blue pigmentation for fabric, originally a vegetable dye), during the Raj, enlarged into a veritable revolt among farmers. Called the neel bidroho, the peasant movement and subsequent uprising of indigo farmers against the indigo planters (British) happened in Chaugacha village of Nadia in Bengal in 1859. It was a non-violent protest, but was ruthlessly put down by the British.
Today, the farmers’ protest in India, against three laws that were later put on the backburner by the Supreme Court, was basically because the financial implications of these laws on the farmers would be dire. This, too, is a variant of taxation policy, thrust upon unsuspecting people. Morality is not an ingredient of these.
While the first two instances happened in countries which were colonies of another country (in both cases the British), the third was in Independent India. Long after neel bidroho, the farmers in India have raised their voices again, and they have decided to fight, instead of quietly moving out of the way of the administration through suicides.
Where do taxations come from? Surely, if the government has been elected to serve the people of its country, it has to be given the means to do so, and that would mean financial resources. Taxation (including cess) is the only legal route for that.
THE FIRST AMERICAN TAX
Sixty years after the fight against taxes in the US, the first tax, an income tax, was levied to pay for the Civil War. The good news was that when the conflict ended, this tax was repealed. But it was a taste of blood, and the tigers in power would not go back the way they came, so a “cause” was created: “to make up for the loss accrued in the reductions in US tariff”. The effect of that cause was a new income tax, levied in 1894. The proposal was taken to the US Supreme Court and the Court declared it unconstitutional (Pollock v. Farmers’ Loan and Trust Co.3).
The taste of blood, however, lingered, and the 16th Amendment to the Constitution was drafted, saying: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” Another move to the US Supreme Court resulted in the Court now saying that the tax was legal, because the Constitution itself had been amended.
In India, the Constitution clearly gives the state the authority to impose and collect taxes, with the only caveat being in Article 265, which states that “no tax shall be levied or collected except by the authority of law”. This has resulted in the enactment of multiple laws. Direct taxes moulted into indirect taxes and complexities are such in the current GST that even understanding what liabilities accrue is difficult for the taxpayer.
THE QUESTION OF MORALITY
So far so good, but is this moral and ethical practice? US President Franklin D Roosevelt once said: “Taxes, after all, are dues that we pay for the privileges of membership in an organised society.” It makes little sense that people have to assume that there is some privilege involved in paying taxes. At best, it was a great publicity promo.
In 1990, Britain’s so-called Iron Lady, Prime Minister Margaret Thatcher, introduced a “poll tax”. Britain, a country which had mercilessly taxed every colony it ever had, rose in protest, and rioting started. It finally led to the stepping down of Thatcher as prime minister. The Australians, yet to shrug off the yoke of British monarchy, started a mining tax (known as the “super profits” tax on the mining industry) some time back, and the recoil was so intense that Prime Minister Kevin Rudd was deposed by his own party. It is another matter that the lease and massive mining contracts for the Carmichael coal mine in Queensland to Gautam Adani’s firm has now created another peoples’ movement. So, does the mining lobby of Australia hold the country’s moral values to ransom?
The very idea of having to pay a penalty (tax) for working hard to succeed is probably irritating. That’s why we have tax havens today where corporate bodies have moved their accounting bases. These havens, such as Switzerland and the Cayman Islands, offer low tax rates and other facilities, other than steel-bound secrecy. American tech-giant Apple Inc, one of the largest corporate bodies of the world, pays its taxes in Ireland. According to a 2018 report in Fortune magazine, “Apple currently holds about $252 billion in profits offshore, where it can avoid paying US taxes. That’s over 90 percent of the company’s total cash on hand.”
Is that unethical, is that amoral? Or is it that the very boundaries of tax regimes, drawn across our social fabric, are unethical and amoral? This reflects well with Plato’s thought in the 4th century BCE. He thought a while on morality and taxes and said: “Where there is an income tax, the just man will pay more and the unjust less on the same amount of income.” Hence, a broad brush stroke of taxation will yield dissimilar results. How moral would that be? And if “tax evasion”, as it is generally known, can be dressed up as being “legal”—as in BEPS (base erosion and profit shifting) methods—who rides the moral high horse then?
In the idea or “principle” of “tax morality”, the general and legal consensus is so snow-swept white, it can only generate mirth. It says taxpayers are expected to pay their “fair share” of tax in each country where they operate. While the larger concept is about BEPS—a situation blamed for the financial crisis at the beginning of this century—the “fair share” concept, for individuals, is utter nonsense. Today, in this pandemic and mismanagement-hit nation, where income is at its nadir, no tax rates have come down. Dole is not what makes a citizen proud, opportunity does. And taxes have no place in it.
That brings us to the question of reciprocity. If and when one pays his taxes, what happens to that money, and what does he get in return? Roosevelt’s explanation of “privileges of membership in an organised society” is almost quirky. Actually, the government uses most of that money in government expenditure, including the security of our Supreme Leaders, national security, to pay interest on its debts, pay government babus—those who are empowered to torture us—and, today, to try and save the country in this massive national health emergency. If one has been vaccinated, and has paid for it, then has his tax money been spent on things that least affects him? Is that amoral?