The higher the taxes the greater the evasion.

A government panel headed by a former tax chief and economist has recommended sweeping changes in our tax administration. " The tax department and taxpayer should have a service relationship rather than one of enforcement," says the report. Tax officials will resist this tooth and nail. Their income comes from having absolute power to harass and intimidate ordinary people who do not have the means or the courage to hire lawyers to fight against injustice. An 90 year old man dies suddenly leaving behind several million rupees worth of assets. Since he has always handled the paperwork his 85 year old wife is totally bewildered about how to file tax returns for the year. The taxman is empowered to demand all documents for the previous 7 years. The poor widow provides what she can and is then hit with a demand for millions of rupees in unpaid taxes, which is totally fallacious. The widow goes to a tax accountant who settles everything by paying Rs 100,000 to the taxman, in cash. The widow breathes a sigh of relief but now has to pay Rs 100,000 every year or else further demands will be made on her. A true story. Taxes are so high that it is hugely profitable to pay a bribe. Tax officials become very rich while revenue collections suffer. Falling revenue means that the government is unable to meet its commitments. First, it has to borrow vast sums from banks leaving little for lending to private businesses. This pushes up interest rates for private companies who cut down on investment which reduces employment. Lower employment means fewer people paying taxes and the fall in spending lowers indirect tax collections while lower corporate profits mean lower corporate taxes. Second, to fill the hole in its budget the government increases taxes on everything, which reduces consumption, leading to less profits. When taxes are very high it becomes extremely profitable to evade them so people start dealing in cash to avoid leaving a paper trail. That is why cash transactions in India vastly exceed payments by credit cards, although this is changing slowly. One example known to every Indian is the property market. Because stamp duty and registration charges are so high half the price of any property is paid in cash. This saves on taxes and also serves to hide the source of funds which means it is ideal for money laundering. Yesterday a bungalow was auctioned in Mumbai for Rs 3.72 billion. For 17,150 sq feet it apparently works out at Rs 280,000 or $4550 dollars per sq foot. These are Manhattan rates. This adversarial system was inherited from the British. The British were conquerors and hence our enemies. Our government has to treat us with respect and serve our interest. Taxes must be lower and easy.