Income Tax Evasion in India – Why do we love to evade taxes ?

Taxation as a way of running the government has been in practice since ancient times. Manu smriti and Arthashastra are two references which delve deeper into the taxation system from the kingly era.

In those times, tax was collected on behalf of the king, from traders, artisans and agriculturalists based on their income and capacity to pay taxes. Gold and silver coins or services and goods were common forms in which taxes were paid to the king.

There was seldom any aversion to payment of such taxes as they were generally calculated fairly and used very wisely for the betterment of the citizens.

With the reform in government from kings to politicians, in present day, taxes are seen as burdensome and unfair and hence something we all try to evade one way or another. However, our propensity to evade taxes is much like the very reasons why we try to tell white lies, jump a red light and play this constant tug of war with our ethics and morals. Humans have this unfortunate tendency to cheat. We all have it in varying degrees. And add to that public acceptance of such tendency, we become confident and at times even take pride in our acts of deceit, like evading taxes.

Evading taxes is considered quite the norm, just like littering is, in India. One person throws trash out the window of a moving bus, the rest follow suit. One person finds a genius way to not pay tax and the rest follow suit. So when the cheating propensity becomes a way of life, a way of doing things, it is considered permissible, when in fact, it is not.

Consider the recent demonetization drive of the government, which should have ideally transformed the cheating mentality of people and invoked a sense of responsibility to comply. However, most people who have been the highest evader’s of taxes, were trying to cut corners and find ways in which they could hide their stash of cash so as to save on the taxes.

So why do we not even whimper at such acts? Because we tend to find justification in the following reasons

Primary Reasons

1. Everyone is doing it so are we- cheating propensity
2. Excessive greed to have it all
3. Inefficient government and its unethical ways of using tax money
4. Low cost of punishment due to non compliance
5. Slow judiciary system responsible for number 3

Secondary Reasons

1. Tax compliance is low because it is difficult to understand the complex tax laws
2. Red Tape with IT department
3. Tax rates are unfair (higher amongst middle class and lower income groups and lower amongst the higher income strata)
4. Middlemen who help with tax evasion for a bribe which is much less than the actual tax one would end up paying (especially those who own businesses)

Of the two, the primary reasons are the ones mostly responsible for our indifference towards paying taxes. Of course we expect that our government uses our tax money judiciously for providing us basic infrastructure (roads, parks, etc), protection (army, navy, air force), healthcare (government run health care agencies), education and subsidised housing and food, yet in recent times we often find their intentions going wayward.

However, in such a situation, instead of over working our jugaad mentality to find loopholes and fool the system we must try to fill those loopholes that abuse the system. If we want our government to work for us, we must try to work on ourselves, our moral and ethical quotient and decide how long do we want to cheat the system. By doing so, we are not only harming our but also future generations to come.

And in order to work on ourselves, we need to adapt to the following

• Follow the herd not to join in their wrong doings but their righteousness. We need to shun this mentality of he is doing it so am I except for when the act is morally justified.
• Don’t bend the system, follow it. Don’t bend the law, follow it. Don’t bend your conscience, upgrade it.
• If there is a lapse or failure by the government to fulfil basic needs of the people, or if some members of the government are crooked, don’t resort to evading taxes, rather resort to changing the government. For e.g. if our child is not learning properly at a school, we don’t stop sending the child to school, rather we try to change the school or fix the issue with the teacher. Likewise, democracy is our biggest asset and we need to exercise it wisely
• Which brings us to our right to vote, we need to exercise it precariously and make an informed decision so that the people we elect to power are capable of utilizing our tax money to its full efficacy, by implementing tax reforms.
• No pain, no gain; if we want change, we need to endure, which may be at the cost of sometimes paying higher taxes or more taxes. For e.g. if we want a clean India, we ought to shell out the Swatch Bharat tax. Some may question, well we don’t see India much cleaner, well but compliance of law is a two way street. It is imperative for both the law maker and the citizens to abide by it and not litter. Until we stop littering, we will never feel that the swatch bharat tax is showing any results.
• Change begins with you, with each one of us, so even if others are not abiding and trying to evade taxes, if each one of us understands that we can bring a change and stick to our principles and morals, others will join in too. Even if they don’t, you have nothing to lose.