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What will happen if there are no taxes?

Updated on: 07 Aug, 2023 04:48 PM

You've worked day and night last month on that big project for your boss and finally its payday. You walk in the office happy and proud. The accountant hands you your pay-slip and your mood sinks when the amount of TDS deduction catches your eye. Why? Why should the government be allowed to charge so much when they can't even provide basic amenities to people? Why do you have to travel in crowded public transport, carefully make your way through open potholes and bad roads just to reach your place of work? Why should there even be a taxation system? It does not seem to do anyone any good.

Do you know that the Indian government amassed around 6, 96, 200 cr. in the form of direct tax revenue in FY 2014-15? It seems a very big number to digest but at the same time, the government also spent near about 17, 74, 777 cr. in 2015. That averages out to 14000 Rs. per year per person.

In the short run, abolishing taxes may seem like a very good proposition. Almost every product or service availed by the consumers have some form of tax associated with it. Whether you buy a television or a car, whether you take the services of a CA or pay for a night's meal at a restaurant, a part of your spending is in the form of tax to the government. Therefore, if taxes were to be abolished all of a sudden, in the short run, everything will get cheaper by a very significant margin. The economy will thrive and people will have more spending power as they have more money in their hands.

If India was to become a tax-free zone, foreign business will come flocking to our country. Import and export will be cheaper as the government will not be taking its share in the form of custom duties. No excise duty will mean more and more companies will set up their manufacturing base in India! That's real progress. Right?

In a few years, this model of growth and booming businesses will suddenly start to deteriorate. As the government gets strapped for funds, it will have to make significant changes to all its public expenditure policies. This will include massive downscaling of staff in government offices and heavy cut downs in the provision of basic amenities. Subsidies, infrastructure development, rural development, census, education programs will gradually become a thing of past.

In the fiscal year 2015, the government of India planned to spend around 2, 47, 000 cr. for defense purposes. With no taxes to support this kind of expenditure, maintaining an army for border security and national defense will not be possible.

Eventually, when the government will start to fail in providing and maintaining decent roads, power, water, defense facilities, many businesses will start to flee. The big businesses which will stay will start to make micro-economies of their own by developing basic facilities around their own factories and channelizing them to nearby "villages". As more time passes by, these businesses will have to maintain a private army for defense and security. India will ultimately be divided on trade lines and commerce.

For the government to sustain itself and its people, taxes are vital. India being a developing nation with a very large population to support can't simply do without taxes. There is always room for reforms in taxation policies and changes are happening rapidly. But welfare to the masses cannot be delivered on empty pockets. In the long run, as India grows into a developed nation, tax rates will eventually come down to nominal levels and the economy will be able to sustain itself.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.