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: Striped of verbiage, the government’s main function is to collect taxes. To do this successfully, it must preserve order and ensure that the economy keeps growing. The more the economy grows, the more revenues the government collects. How much it collects, therefore, is the truest index of its success.
The power of a nation is directly related to the revenues it realises from its citizens. The US is powerful because it collects almost $8,800 per capita. Those who predict the imminent rise of China and India as global powers do not seem to realise that they only collect $390 and $110 per capita, respectively. Specifically, I have in mind one finance ministry official who goes from meeting to meeting with a PowerPoint presentation showing how India will become a world power in a few decades, reflecting a wider self-delusional optimism among the national elite. There is no doubt that the GDPs of China and India will close in on that of the US within three or four decades. But we will still be nowhere near the US when it comes to that raw index of true power: how much money does the State have to spend?
A State has four main tax-collecting streams: corporate and personal income taxes, customs and excise duties. Every year, as the budget proposals for the next year are being written, there is a general clamour from trade and industry bodies for a reduction in rates. While they package their pleas with what purports to be sound economics, the real logic is just that the fat cats want to get still fatter.
Of course, taxes ought to be reasonable —giving the State more money to spend without imposing a backbreaking burden on its private and corporate citizens. Good governance is all about finding this fine balance. Too high an incidence of taxation will not only encourage cheating, it will also make commerce unprofitable, and disincentivise individuals. In this country, there was a time when personal income tax was as high as 98% for the highest slab. One found only few people being honest at the higher slabs. Cheating the State became common. As the rates have become more sensible, this is no longer as common. Ditto for customs and excise duties. The only outcome of the earlier extortionate tax rates that we still see is the continuing incidence...
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