The Taxation System in India - A Survey
By - Kaashvi Jain - Modern School Barakhamba Road
Table of Contents
Thesis Statement and Introduction
Primary Research: Understanding Public Perception
Survey Methodology
Summary of Responses
Conclusion of Primary Research
Secondary Research: Expert Analysis and Economic Principles
Why Taxes Are Collected Even When the Government Can Print Money
Understanding Fairness in the Tax System
Progressive Taxation: Opinions and Benefits
Inflation: The Danger of Printing Too Much Money
Public Perception of Government Spending
Overall Summary and Key Learnings
Bibliography
Thesis Statement and Introduction
Thesis Statement: Even though the government possesses the power to print its own money, it still collects taxes to maintain economic balance and fund the nation's operations. This reality, however, raises a fundamental question of fairness: If the government ultimately controls the money supply, is it equitable to levy taxes on its citizens?
Have you ever wondered why we are required to pay taxes when the government could theoretically print all the money it needs? It’s a question that many people consider but may not fully understand. Taxes are collected from citizens and corporations to fund essential public services such as schools, hospitals, roads, and national defense. But if the government already has the power to create money, is it truly fair to ask people to contribute a portion of their earnings?
As former U.S. Chief Justice John Marshall once said, “The power to tax involves the power to destroy.” This powerful statement highlights the potential for taxation, if used unfairly, to harm the financial well-being of individuals and businesses. It serves as a reminder that while taxes are a necessary component of a functioning state, they must be implemented and utilized wisely and justly. This project explores why taxation remains an indispensable tool for economic management, how it contributes to a stable economy, and critically examines whether the current system is fair for everyone.
Primary Research: Understanding Public Perception of Taxation and Fairness
Since the core of this project is to question the fairness of collecting taxes when money can be printed, I felt it was crucial to understand public opinion on this issue. To achieve this, I conducted primary research through a small but meaningful survey. I asked a diverse group of individuals—including students, parents, teachers, and working professionals—to share their thoughts on the subject. My goal was to collect a variety of opinions, gauge public awareness, and see how people from different age groups, professions, and income levels perceive taxation and its fairness.
Survey Methodology
I created a survey using Google Forms that included a mix of multiple-choice and open-ended questions. I also spoke directly with some individuals to gather more detailed qualitative responses. In total, I gathered opinions from 35 people, representing a cross-section of society including school students, working adults, teachers, and senior citizens.
Here are the key questions I asked:
Do you think the government should collect taxes even though it can print money?
What do you believe taxes are used for?
Do you think the tax system in India is fair for all income groups?
Would you be comfortable with the government printing more money instead of collecting taxes? Why or why not?
Do you feel your tax money is being used properly by the government?
Should wealthier individuals pay a higher rate of taxes than the poor?
What changes would you suggest to make the tax system fairer?
Summary of Responses
1. Do you think the government should collect taxes even though it can print money?
Approximately 65% of respondents said yes, the government should still collect taxes. They reasoned that printing excessive amounts of money could lead to inflation and destabilize the economy. Around 20% said no, believing that printing money should be sufficient to meet the government's needs. The remaining 15% were unsure or felt it depended on the specific economic situation.
Student Opinion: Most students did not fully grasp the connection between printing money and inflation. A few assumed that if the government can create money, taxes might be redundant.
Adult and Teacher Opinion: The vast majority of adults and teachers strongly agreed that taxation is essential for economic stability. They explained how printing excess money devalues the currency, drives up prices, and erodes savings.
2. What do you think taxes are used for?
Nearly every respondent correctly identified that taxes are used for running the country—paying for schools, hospitals, infrastructure, government employee salaries, and defense. Interestingly, many participants also brought up corruption and the misuse of funds, expressing a belief that while taxes are intended for public services, they aren't always spent honestly.
3. Do you think the tax system in India is fair for all income groups?
The opinions were split:
40% said no, believing the system is not fair. Many pointed out that the middle class feels overburdened, while the wealthy sometimes find legal loopholes to avoid paying their fair share.
30% said yes, feeling that the system is progressive, meaning higher earners pay a higher percentage of their income in taxes.
30% were unsure, admitting they did not understand the tax slabs and regulations well.
4. Would you be comfortable with the government printing more money instead of collecting taxes? Why or why not?
A significant majority (75%) said no. They were aware that printing too much money causes inflation. Only a few people thought printing money could be a short-term solution during emergencies, such as the COVID-19 pandemic. Some students indicated they would be fine with printing money, highlighting a need for greater financial literacy at the school level.
5. Do you feel your tax money is being used properly?
50% said no, citing visible corruption, wasteful spending, and a perceived lack of improvement in public services.
30% said sometimes, noting that effectiveness varies depending on the government or local administration.
20% said yes, pointing to tangible progress in infrastructure like metro systems, digital services, and national welfare schemes.
One adult respondent remarked, “We pay taxes, but when we go to government hospitals, we still need to pay for medicines. So, where is our tax money going?” Another participant appreciated the development of metro rails and better highways but felt that rural areas were still being neglected.
6. Should rich people pay more taxes than the poor?
This question received the most consensus:
85% said yes.
10% felt everyone should pay the same percentage (a flat tax).
5% were not sure. Most people felt that since wealthier individuals have a greater capacity to pay, they should contribute more to society. However, a few respondents argued that excessively high taxes on the rich might disincentivize investment or cause them to move their assets to other countries.
7. What changes would you suggest to make the tax system fairer?
Common suggestions included:
Reducing the tax burden on the middle class.
Ensuring that wealthy individuals and large corporations cannot evade taxes.
Increasing transparency in how tax revenue is spent.
Introducing more comprehensive tax education in schools and colleges.
Imposing stricter punishments for corruption and tax evasion.
Conclusion of Primary Research
This primary research revealed that taxation is not merely an economic function; it is deeply connected to public trust, perceptions of fairness, and the relationship between citizens and their government.
What did I learn from this research?
Taxes are seen as necessary: Most people agree that taxes are essential, even with the government's ability to print money, because they understand that printing money leads to inflation.
A financial literacy gap exists: There is confusion among students and young people about complex economic concepts, which points to a need for better financial education.
Fairness and transparency are paramount: People want a system where the wealthy pay their share and where there is clear accountability for how their money is spent.
Trust in government spending is low: A significant portion of the public feels that tax revenue is not always used effectively, which undermines the perceived fairness of the entire system.
Support for progressive taxation is strong: The majority of people agree with the principle of progressive taxation, where higher earners contribute a larger percentage of their income.
There's an emotional connection to taxes: People feel frustrated when their hard-earned money does not translate into visible improvements in their communities and public services.
Secondary Research: Expert Analysis and Economic Principles
Why Taxes Are Collected Even When the Government Can Print Money
Many people I spoke with during my primary research intuitively understood that printing money is not a simple solution. One person aptly compared it to "adding water to milk—it might increase the quantity, but it weakens the quality." This sentiment prompted me to investigate the underlying economic principles.
According to the book Fair Not Flat by EJ McCaffery, printing money excessively leads to hyperinflation. Inflation occurs when the prices of goods and services rise, causing the value of money to fall. This hurts everyone, but it disproportionately affects the poor and middle class whose savings lose value. McCaffery explains that a fair and balanced tax system provides the government with a steady, predictable income without causing the economic damage associated with printing money.
The Economic Times corroborates this, stating that taxes are the primary source of revenue for the government. This revenue is essential for building and maintaining roads, providing healthcare and education, and funding all other aspects of public administration. Taxation is a planned and structured method for financing a country, whereas printing money is a risky, short-term measure with severe long-term consequences.
Understanding Fairness in the Tax System
A central theme from my survey was the perception that the tax system is not entirely fair. Many felt that the rich can evade taxes more easily than the middle class, suggesting that tax laws may contain loopholes benefiting large corporations and wealthy individuals.
This perspective is echoed in the book America: Who Really Pays the Taxes? by Barlett and Steele. They argue that in countries like the United States, the tax system may appear fair on the surface, but in reality, the burden often falls more heavily on working-class people. The wealthy can employ teams of lawyers and accountants to exploit legal strategies to minimize their tax liability, a practice known as tax avoidance.
Conversely, EJ McCaffery in Fair Not Flat suggests that this problem can be addressed by making tax codes simpler and more transparent. When people understand how the tax system works and can see where their money is going, their willingness to pay taxes increases. Simpler tax systems reduce confusion, close loopholes, and foster greater public trust. This idea is supported by J. Citrin in the National Tax Journal article, “Do People Want Something for Nothing?” Citrin argues that people are generally willing to pay taxes when they see positive results, such as clean roads, better schools, and safe neighborhoods. When they don’t see these improvements, they feel cheated and lose faith in the system.
Progressive Taxation: Opinions and Benefits
Progressive taxation, a system where the tax rate increases as income increases, was a concept that appeared frequently in my research. Most of my survey respondents supported this model, believing it is a fair way to reduce income inequality. Articles in The Economic Times confirm that India follows a progressive tax system, with tax slabs designed to collect more from those with a higher earning capacity.
McCaffery also supports progressive taxation in his book but cautions that if the system becomes overly complicated, it can encourage tax avoidance. Therefore, simplicity and transparency are crucial for its success. An article from Modern Diplomacy cited a survey showing that 70% of people support progressive taxation, which aligns closely with the 85% approval I found in my own survey. This demonstrates that progressive taxation is a widely accepted principle when it is clearly explained.
Inflation and the Danger of Printing Too Much Money
Understanding the consequences of printing money was a key part of this project. Many people I spoke to expressed concern that if the government prints more money, prices will rise uncontrollably, making life difficult for everyone.
This fear is well-founded. Research from institutions like the World Bank and the Brookings Institute confirms that an excessive money supply is a primary driver of inflation and can lead to severe economic instability. McCaffery agrees, writing that printing money may make a government seem powerful in the short term but inevitably creates significant problems down the line. The consensus among economists is clear: responsible fiscal policy relies on taxation, not the printing press.
How People Feel About Government Spending of Tax Money
In my primary research, a recurring theme was that people are willing to pay taxes if they trust the money is being used properly. However, many expressed skepticism and a desire for greater transparency and proof that their contributions are funding public goods.
When people feel they are not getting value in return for their taxes, they lose trust. This can lead to lower compliance rates and public discontent. This is why it is essential for governments to be open about how they allocate and spend tax revenue. Barlett and Steele emphasize this in their book, noting that public anger grows when tax money is perceived as being wasted while the rich avoid paying their share. They conclude that a successful tax system must be built on a foundation of fairness and integrity, not just on revenue collection.
Summary and What I Learned
After consulting various sources and speaking directly with people, I have come to understand that taxation is far from a dry, academic topic; it is a vital issue that affects every citizen. Taxes are necessary for the functioning of a country, even when the government has the ability to print money, because relying on the printing press leads to destructive inflation.
I also learned that fairness is the bedrock of an effective tax system. A good system is not defined by how much money it collects, but by whether it treats everyone equitably. Progressive taxation, where the wealthy contribute a higher percentage of their income, is widely supported as a fair approach. However, for the system to function effectively, citizens need to trust that their money is being used responsibly and for the public good.
This project has fundamentally changed my perspective on taxes. I now understand that taxation is about building and maintaining a social contract between citizens and their government. When that system is fair, transparent, and effective, people are more willing to contribute their part to building a better society.
Bibliography
Barlett, D. L., & Steele, J. B. (1994). America: Who Really Pays the Taxes?
Brookings Institute. (Recent Publications). Articles on Taxation and Inflation.
Citrin, J. (1979). "Do People Want Something for Nothing? Public Opinion on Taxes and Government Spending." National Tax Journal.
McCaffery, E. J. (2008). Fair Not Flat: How to Make the Tax System Better and Simpler.
Modern Diplomacy. (Recent Publications). Articles on Progressive Taxation and Economic Inequality.
The Economic Times. (Recent Publications). Various articles on income tax, inflation, and progressive taxation.
World Bank. (Recent Publications). Reports on Money Supply, Inflation, and Economic Growth.