Truth and lies about the tax system in our country

The Finance Minister and other official spokesmen and ideologues of the capitalist class deliberately hide and distort the reality that it is workers, peasants and other working people who produce the wealth which the capitalists and landlords appropriate, and that the State robs the working people even further through massive and ever increasing burden of taxes.

Spokesmen of the ruling class keep repeating the falsehood that the tax base in our country is too narrow. They talk as if only a minority of people are paying taxes while the majority of poor and middle income people are allegedly benefiting from public services without paying any tax. Through this propaganda, they turn the truth upside down.

Karl Marx on Direct and Indirect Taxation

{From INSTRUCTIONS FOR THE DELEGATES OF THE PROVISIONAL GENERAL COUNCIL. THE DIFFERENT QUESTIONS. By Karl Marx, page 83, Volume 2, selected works of Marx and Engels, Progress Publishers Moscow}

(a) No modification of the form of taxation can produce any important change in the relations of labour and capital.

(b) Nevertheless, having to choose between two systems of taxation, we recommend the total abolition of indirect taxes and the general substitution of direct taxes.

Because indirect taxes enhance the prices of commodities, the tradesman adding to those prices not only the amount of the indirect taxes, but the interest and profit upon the capital advanced in their payment;

Because indirect taxes conceal from an individual what he is paying to the state, whereas a direct tax is undisguised, unsophisticated and not to be misunderstood by the meanest capacity. Direct taxation prompts therefore every individual to control the governing powers while indirect taxation destroys all tendency to self-government.

When bourgeois economists and politicians talk of the tax base being narrow, they are referring deliberately only to the Direct Tax component, which is levied on the profits of companies and on the incomes of individuals who earn more than Rs. 2.5 lakh per year. They conveniently leave out of account the enormous amounts of money being collected from the vast majority of people on a daily basis, including from the poorest, in the form of Indirect Taxes.

Direct and Indirect Taxes

Direct taxes consist primarily of corporate income tax and personal income tax. In 2014-15, Rs. 4.5 lakh crore was collected as corporate income tax and Rs. 2.8 lakh crore as personal income tax. Corporate income taxes are levied on the profits extracted from workers and retained by companies. Most of the personal income tax collections come from salaried workers who earn over Rs 2.5 lakh a year as wages.

Indirect taxes include customs duty, central excise duty, service tax, state value added tax, state excise duty on liquor sales, entertainment tax, etc. In the year 2014-15, the central and state governments together collected a total of Rs. 15.0 lakh crore through indirect taxes.

Out of total tax revenue of Rs. 22.5 trillion in 2014-15, one-third was collected from direct and two-thirds from indirect taxes. Indirect taxes made up 62% of total tax revenue in 2009-10. In five years this share has risen to 67%.

Direct taxes do not affect the prices of commodities whereas indirect taxes raise the market prices of commodities that people have to pay. For instance, when the global price of petroleum sharply declined a year ago, Government of India responded by raising the indirect taxes on petroleum products to such an extent that people did not benefit from the global price decline. The State robbed the citizens of any gain from the global oil price decline, through the mechanism of indirect taxes.

Indirect taxes are collected by those who sell commodities from those who buy those commodities. The sellers collect and pay the tax to the government, while the burden is actually borne by the buyers. It is thus an indirect form of taxation, in which those who bear the burden remain hidden. They are not on the government’s record as taxpayers.

Every seller of commodities is required to make payment of their indirect tax dues every month, even if they have not yet received payment for what they have sold. Capitalist companies therefore add to the price of their commodities not only the indirect taxes, but also the interest cost of making payments in advance of receipts.

Workers and peasants are bearing a major and ever increasing burden of the State’s taxes. However, because most of it is indirect, the people who pay are not being recognised as taxpayers. They themselves are not aware of the rate at which they are being taxed. This lack of knowledge is exploited by the ruling class and official spokesmen, to propagate the myth that the State is subsidising the poor majority of Indians.

At the time of every annual Budget, the capitalist class and its political representatives like to dangle a carrot in the form of raising the personal income tax exemption limit, which is currently at Rs. 2.5 lakhs per year. They present this as being allegedly pro-working class and pro-poor. This is a cruel trick because the amount a poor working family may save by way of income tax from this measure is more than compensated by the ever increasing burden of indirect taxes.


The tax system in our country is in the service of the capitalist economic system which is based on the exploitation of labour by capital. The tax system serves to further rob labour in the interests of capital.

Private ownership of the means of large-scale production enables an exploiting minority to pocket the surplus value produced by the working people. The tax system robs the toilers further, primarily through the mechanism of indirect taxes, which raises the prices which people pay for everything they need.

All the revenues collected by the State, largely from the working people, are spent in the best interests of the capitalist class. Abysmally inadequate amounts are spent on providing the essential services which the State is duty bound to provide, such as school education, health care services, drinking water and sanitation.

Workers and peasants would gain from being recognised as taxpayers. Presently, they are paying taxes but it is being made out that they are not being taxed at all! If indirect taxes are eliminated and all tax is collected directly, it would provide a basis for toiling people to demand as tax payers that the state provides them with services from the tax collected from them.

We, the hardworking people, must fight for the principle that the State must finance its expenditures by laying claim on the social surplus and not by eating into the incomes of the working people. We must demand immediate reduction of indirect taxes and fight for their complete abolition.


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Feb 1-15 2017    Political-Economy    2017   


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