So we are going to have a new income tax law soon. It will replace the old 1961 law.
No matter. The government will still take away some of what you earn. The bottle can be new but the wine can be just as vinegary.
The story of this nasty thing is quite instructive. Few people know, for example, that this new form of extraction started with a Chinese emperor who tried it in the 10th century. The fellow was promptly deposed by the people. After that for 800 years no one had the guts to try it.
But wars have a way of giving second wind to bad ideas and when the Napoleonic wars started at the start of the 19th century, the British government imposed it to finance its fight against France.
However, wars also have a way of ending. So when Napoleon was defeated in 1815, the tax was abolished in 1816. It was a very typically British honourable thing to do.
After all, they had India to loot as a kind of compensatory cess.
But governments are like tigers that have tasted blood. So 35 years after it was abolished, Her Majesty Queen Victoria agreed to bring it back. Empires are costly to run.
This was also the time of electoral reform in Britain but the reforms stopped short of giving the poor the vote. The political class used the income tax to make sure the poor couldn’t vote. Two birds were thus killed with one fiscal stone.
The Americans came late on the income tax wheeze. They started only in 1861 because guess what? They had a civil war going, North vs South.
But this war too ended in 1865 when the North won. They immediately abolished the tax. But blood had been tasted and in 1894 back it came. And has stayed on.
It’s such low hanging fruit that Germany and France got it in the early 20th century. Soon many others followed suit.
India discovers IT
India started even earlier. Or rather, the British did. They imposed it as soon as they took over from the East India Company in 1860 which had been bankrupt since 1803. But, for some reason that’s not clear, they abolished it 13 years later.
Again for unknown reasons they reintroduced it in 1886. And it’s been there since then like a lingering odour.
Along the way it showed how India is very good at adopting such inequities by citing a moral need such as to get the rich to pay for the poor even though the main beneficiaries are politicians.
Indira Gandhi once raised the marginal rate of income tax to 97 per cent. The rich voted with their feet just as they are doing now.
The trouble with income tax is that it makes no economic sense. I mean, well, okay, if you want to finance a war or a famine or a Covid-like crisis. But why have it as a permanent imposition?
I have not been able to find a single economic justification for it. If you know of one do let me know but take care that you aren’t mixing up moral (inequality) and political reasons (development) with economics.
Robbery, regardless of sovereign legitimacy, is still robbery.
A moral duty is necessary, of course, but should the state ensure it, especially if it requires laws as contained in the search and seizure provisions? Gimme your passwords or else? Coercion isn’t very moral, is it?
The rate, not the tax
All this said, the income tax has been around for such a long time now that we must accept it just as we accept vehicular pollution. Neither is going anywhere and both serve some useful purpose. So the real issue is mitigation. That’s why just as everyone agrees that there should be fewer vehicles on roads, so too should the tax rate be less.
This year’s Budget has indeed done that. But it has tried to be too clever by half. It has let off 90 per cent of those who file returns by saying “Hello darlings, you need not pay any tax anymore.”
If this doesn’t expose the political nature of income tax, tell me what does. The reverse is equally true when the rate for those who actually do pay tax is so unconscionably high. That too is just as political.
What’s truly astonishing is the endorsement from the liberal intellectual class. These buddhijeewis also want it to be higher.
This Modi government has four more chances to redeem itself. It should introduce a flat 25 per cent tax for all incomes over a crore per year and 10 per cent for all incomes below that. February 1, 2029, seems like a good date to do it.