Tax – Government’s share from our lives. | Trade Samaritan

Tax – Government’s share from our lives.

T A X is a three letter word but carries the weight of an African Bush Elephant, supposedly the heaviest animal on our planet.

‘The hardest thing in the world to understand is the income tax.’ – Albert Einstein.

Benjamin Franklin said, “Certainty? In this world nothing is certain but death and taxes.”

Tax comes in our life from the very day we are born (tax on the nursing home bill) and stays with us as an integral part of our life till the day we die. In fact it stays even beyond as our legal heirs grapple with the sums (big or small) we end up leaving behind for them. Most of us want to keep the complications at the bay and decide to take leverage of the professional services available in the market to manage the taxes. It is predicted that Americans will spend more on taxes in 2014 than they will on food, clothing and housing combined.

Imagine keeping a tab of every penny that went from our pocket towards tax, every time you eat at a restaurant, buy something or fill gas in your car, for instance in the United States 18.4 cents is the Federal excise tax paid by the consumer for one gallon of gasoline

The nomenclature may be slightly different in various countries but these are the broad categories of tax.

  • Income/Payroll Tax
  • Property tax
  • Capital Gains tax
  • Transfer Tax
  • Sales tax
  • Gift tax
  • Excise Tax
  • Toll Tax
  • Gift Tax
  • Estate Tax

There could be several sub-heads under the each tax category, for example Sales Tax for Goods alone can be Manufacturers Sales tax, Wholesalers Sales tax or Retail Sales tax. Tax is levied on almost every single gross receipt and income and ironically sometimes from both sides, ie consumer side on the spending and the provider side on the income. For instance a consumer will pay sales tax on his/her restaurant bill and the owner will pay income tax on the same receipt. The most important question on our mind is what does the Government do with all the tax money?

Be it any country, the Government does not have any income of its own but has to run the country and pay its employees. Usually the expenses incurred by the Government can be categorized into 3 broad categories

  1. Mandatory Expenses
  2. Discretionary Expenses
  3. Interest on Sovereign debt, if any

Military, Emergency services, Railways, Fly overs, Industries, Schools , Colleges, Hospitals, Metros, Stadiums, Power Plants, Electricity, Sewerage & Drainage Systems, Water Filtration and distribution to your houses, Export & Import of FMCGs and Food Items, Railway Stations, Bus Stands, Airports etc. are managed out of the tax income.

The demographic factors prevailing in the country seriously and drastically influence the Government decisions on spending. In second largest populated country like India, Government is struggling to meet even its mandatory expenses, it has too little/almost nothing left for discretionary expenses. These countries also encounter a higher rate of tax evasion and avoidance as the citizens of the country on account of high unemployment rate and illiteracy, citizens are dissatisfied with the Government and end up evading tax. Government is yet to succeed in its attempts of providing education and health services to its citizens.

On the other hand, we are witnessing some radical regulations being adopted to reduce the gap and bring in equality of income and standard of living. France has adopted this policy for a span of 2 years with an aim to bring down its huge public deficit.

In France, high earners are being taxed at 75%. Individuals earning 1 million euros and above will pay 75% tax on their income.

The highest tax rate in the UK is 45% and is applied to individuals in the higher income bracket.

In the UK, citizens earning equal to/more than £150,000 pay tax at 45%.  The tax rate in the UK still attracts controversies. France, Italy, the Netherlands, Ireland and Spain too have some of the highest tax rates for individuals whereas the rates are slightly on the lower side in countries such as Romania, China, India, Uruguay and Brazil.

An average household in the highly taxed countries find it difficult to carve out savings from their income. So besides fulfilling all the mandatory and interest expenses, through discretionary expenses, the Government’s aim in such a scenario is (should be) to secure the future of such households by offering at least the medical facilities, social security/pension and affordable credit. This boost the confidence of its citizens and reduces the issues associated with tax compliance.

To every household ‘Tax’ should not seem like a heavy African Bush elephant but as light as a butterfly, which is pleasant and brings happiness in everyone’s life.

Finally, Dalai Lama says that all humans born on this planet have equal rights towards whatever this planet has to offer then why is there so much of inequality? Why can’t people who have more give away some of their share to those who have less?

‘Tax’ is our contribution to the progress of our economy.

Happy Taxes!