Ground Zero: Taxes

For the past many days, I have been spending just about a dollar a day on my three excellent meals here on Main Street, Hassan, Karnataka. Idlis for breakfast for 12 rupees, three fluffy set dosas for lunch for 15 rupees, and a huge serving of fragrant lemon rice for dinner for just 15 rupees. That adds up to 42 rupees - or a little less than a dollar. It was Sudha Shenoy who first drew attention to the inappropriateness of international comparisons of per capita incomes. Read this important paper on the implications of Austrian Capital Theory for underdeveloped economies here. And don't believe in all the nonsense you hear about "poor people in India living on a dollar a day." I am managing quite fine.

But talk of taxation! Whereas three excellent meals come for 42 rupees, one miserable beer costs 80. One gives me no buzz, so I have another. That comes to 160 rupees for beer.

Then look at cigarettes: 20 perfectly ordinary cigarettes, not even king size, cost 70 rupees.

And just down the street is the Income Tax office of Hassan.

Then there is the huge petrol tax. What what I observe of the traffic from my window, it seems quite apparent that poor people pay the petrol tax. Here, most people are on two-wheelers: scooters, motorcycles and mopeds. Yes, there are many mopeds here. All these people pay the petrol tax - which is very high here in Karnataka.

And look at what we get in exchange for these taxes. This morning it rained quite hard and I noticed that Main Street, Hassan, does not have a proper storm water drainage system. What "scientific knowledge" is used to build these roads?

There are two words that come to mind while describing India's roads: "slow" and "unsafe." This - in exchange of all those taxes.

Today, the Deccan Herald carried an interview with a big man from New Delhi, the IT Secretary, and they discussed "e-governance." When asked what "government services" had been computerised, his immediate answer was "Income Tax."

The same newspaper carried an ad issued by the Bangalore Income Tax Department on its back page - saying that they were opening 90 "counters" to collect this tax. That's right - 90 counters. The ad warned of "long queues." At the bottom of the ad were these words: "Another step in the service of the taxpayer." Talk about Newspeak!

From the point of view of The Market, these onerous taxes are extremely harmful. As a tourist, I could have spent on a lot of other goodies the market has to offer if all my money was not squeezed away by the beer and cigarette taxes. If people pay hugely for petrol, they do not have much left over for other things. All the other players in the market lose. Demand, the driving force, goes down. This is another implication of Jean-Baptiste Say's "Law of Markets" - a pillar of classical economics that Keynesians know nothing about - and you can read my brief column on this law here.

I hear news that in New Delhi they have thought up a new tax - a Goods & Services Tax. The newspaper editorials are already hailing this new tax as the next great idea that will save the country - just as they trumpeted the case for VAT some years ago. The finance minister was quoted saying that this new tax will transform India "from a 1 trillion economy to a 2 trillion economy." The reporters lapped it up. This idiotic statement was widely reported.

Yes, taxes are a harsh reality in socialist India. The cops are a harsh reality too. As are the roads. Harsh realities all around.