Taxation might sound like a dull, complicated financial subject, but I see it differently. As a writer, I look at tax not as a burden but as a necessity—one that sustains the growth of a country like India. Whether you belong to the poor, middle, or upper class, taxes are the foundation of a functioning government and a developing nation. But why exactly do we pay tax in India? And is it really fair to tax everyone, regardless of their financial situation? These are the questions I often find myself thinking about.
1. What is Tax and Why Do We Have It?
The idea of taxation is as old as civilisation itself. I often wonder how people must have felt back in ancient times when kings or rulers collected some form of tax. Did they also feel it was unfair, or did they see it as a means to keep society running smoothly?
Today, I perceive tax as the money we contribute to keeping our country functional. It pays for education, healthcare, roads, defence, and social welfare schemes. Whether it’s direct tax (like income tax) or indirect tax (like GST on goods and services), every rupee collected is meant to benefit society in some way.
2. The Challenges of Establishing Fair Taxation System in India
Now, here’s something that always crosses my mind—can there ever be a “right” tax rate? With 8 billion people in the world, each having unique perspectives, no tax system can ever be universally fair. What I think is reasonable might feel excessive to someone else. For instance, a 28% tax on cars might seem fine to me because I don’t own one, but someone who depends on it for their livelihood may feel otherwise.
I recently came across the Laffer Curve, which suggests that if tax rates are too high, people find ways to avoid them, and if too low, the government lacks funds for development. This made me realise how tricky it is to strike a balance for effective tax in India.
3. Why Direct and Indirect Taxes are Essential for India
I often hear people complain about taxes, and I get it. But when I think about everything the government does with that money, I start seeing taxation in a different light. Here’s where our taxes go:
- Welfare schemes for the poor like PM-KISAN and MNREGA
- MSME support programs to boost small businesses
- Infrastructure projects such as highways, metros, and railways
- Public services like education, healthcare, and sanitation
- Scientific research in space, medicine, nuclear power, and technology
- National security—funding the police, defence forces, and border security
Without tax, none of these would be possible, and that’s a reality I can’t ignore.
4. Tax Revenue as a Guarantee for International Loans
Something I’ve learned over time is that a country’s ability to borrow money depends on its tax revenue. It makes sense when you think about it—if India can show international lenders that it has a steady income stream from taxes, it can secure loans for infrastructure projects at better interest rates. It’s like applying for a personal loan; the bank checks if you have a stable income before lending you money.
5. The Importance of Tax in Covering Crude Oil Imports
I just thought about this—how does India afford to pay for over 85% crude oil it imports? A big chunk of our tax revenue goes into covering this expense. In financial year 2023-24 India’s crude oil imports were valued at $132.4 billion which is fall of 16% compared to $157.5 billion in 2022-23. This decrease in crude oil import bill can be credited to increasing ethanol blending in petrol, CNG and EV adoption.
If we didn’t have enough tax collection, we’d struggle to pay for this gigantic import of oil, leading to inflation and economic instability. Just for information, $132.4 billion converts to about ₹11.5 lakh crores which can easily cover India’s defence budget, railway budget and education budget for financial year 2025-26.
6. Fiscal Deficit: When Tax Revenue Falls Short
Here’s something that blew my mind: even after all the taxes collected, the government still comes up short. If the government spends 1 rupee in a financial year, all tax revenue combined only brings back 75 paise. The rest? Borrowed from different sources like government bonds and financial institutions.
This made me realise that taxation alone isn’t enough—we also rely on strategic borrowing to keep the economy moving. You can go through this Union Budget 2025-26 document from official government source to understand this year’s budget.
7. Taxes Pay for National Security and Law Enforcement
I think about this every time I see news about national security—our tax money funds the very institutions that protect us. Without it, we wouldn’t have:
- Police forces and intelligence agencies
- Defence research and modern weapon development
- Procurement of arms, fighter jets, naval fleets, and cyber defence mechanisms
- Border security forces to safeguard India’s sovereignty
This makes me appreciate taxes, at least a little more.
8. Consequences of Abolishing Taxes
Sometimes, I imagine a scenario where taxes are completely removed. What would happen? Well, Sri Lanka, Pakistan, and Bangladesh have all suffered economic collapses due to bad taxation policies and excessive debt. If India stopped collecting taxes, we would have no money to pay salaries, fund social welfare, or invest in infrastructure. We’d be forced to borrow until we’re financially enslaved to international entities.
9. The Misguided Comparison with Smaller Prosperous Countries
I often hear people comparing tax in India with taxes to those in Dubai or Singapore, and it frustrates me. The UAE makes money not just from oil but also from tourism, real estate, and financial services. India is an entirely different beast, with a massive population and diverse economic conditions. Expecting us to follow the same model just doesn’t make sense. We will discuss more on this topic separately some other day.
10. Advocating for Fair and Effective Taxation
One thing I believe strongly is that tax in India should be fair. The 2025-26 budget introduced zero tax on income up to ₹12.75 lakh, which is a good step. But taxing essential goods like refrigerator, ACs and two-wheelers at 28% GST? That seems excessive to me to a country that relies on fridge and AC to tackle harsh summers and two wheelers as primary vehicle. I feel items these should be taxed at 18% GST to reduce the burden on the middle class.
I’ve noticed that India’s taxation system involves multiple layers of taxes, creating a “tax on tax” scenario. For instance, companies pay import duties on cars, after which buyers face a hefty 28% GST plus an applicable Cess on vehicle purchases. On top of that, there’s road tax, Tax Collected at Source (TCS), and even GST on vehicle insurance, further increasing the overall cost of ownership.
Similarly, individuals pay income tax, followed by tax on interest earned from already-taxed savings, as well as short- and long-term capital gains tax.
The government should review this multi-layered taxation system and introduce reforms to ease the financial burden on taxpayers.
11. Tax in India is Fine but Not Extortion
While I understand the importance of tax in India, I also feel that overloading the middle class with taxes feels like extortion. One major issue is income disparity—many high-income individuals are taxed heavily without an equivalent rise in benefits like social security, public amenities, or infrastructure improvements. This has led to a steady increase in High Net Worth Individuals (HNIs) leaving India permanently.
Over the past few decades, we’ve seen a growing number of wealthy individuals surrendering their Indian citizenship in search of better living conditions, lower tax burdens, and a more predictable governance system. If this trend continues, it could lead to a significant wealth drain, impacting India’s long-term economic growth. This is another reason why tax in India should be balanced or social amenities and infrastructure must be improved at exponential rate.
12. Hatred for Taxes is Useless and Energy-Draining
I see so many social media rants about tax in India, and I get where they’re coming from. But what I’ve realised is that blindly hating taxes won’t help. People waste countless hours debating on news channels, engaging in heated social media banter, and complaining endlessly about taxation—only for it to lead nowhere.
Instead of wasting energy on this, wouldn’t it be more productive to channel that frustration into something meaningful? A petition system, mass appeals for tax reforms, and structured lobbying could bring about actual change instead of just venting frustration online.
Conclusion
Tax in India is, and always will be, a complex and sensitive subject. There is no denying that a country needs taxes to function, but the question remains—how do we make it fair for everyone? High tax rates on the middle and upper-middle class, wealth drain due to HNIs leaving India, and the growing frustration over tax policies are issues that need immediate attention.
Instead of blindly criticising taxes, we need a proactive approach. Demanding transparency in how tax money is spent, pushing for rational tax policies, and advocating for reduced tax burdens on essential goods should be our focus.
Now, I leave you with some important questions to ponder:
- Should the government introduce a better balance between taxation and benefits for taxpayers?
- Is there a way to prevent HNIs from leaving India by making taxation more rewarding?
- How can we, as citizens, ensure that tax revenue is used effectively?
- Can a structured petition system lead to real tax reforms?
The key is to stay informed, raise our voices, and work towards a fair taxation system. What do you think?
