There have been many absurd taxes in history: Peter the Great imposed a tax on souls. Romans imposed tax on pissing. In the US, sex was to be taxed $2—but it didn’t come. In New York, buying a bagel is tax-free, but not if you eat it in the shop. Haunted houses can be taxed if music is played.
As economies and societies change, many bizarre levies like hat tax and beard tax disappear. In India, a new class has emerged since economic reforms failed—the neo-poor. It was once called the middle class. They are the ones who pay a bewildering array of taxes to keep the country going. It’s not income tax or sales tax that is killing spending—VAT, service charge, luxury tax, special taxes and indirect taxes on commodities, octroi, educational cess, professional tax, entertainment tax, taxes that cost more than the price of air tickets, gift tax, and now inheritance tax revived in Budget 2013. A middle-class citizen has to pay service tax and processing fees on even a personal loan (service tax of 12 per cent plus 2 per cent education cess and 1 per cent secondary and higher secondary education cess)—the very logic of borrowing is that he doesn’t have money. Even loan interest attracts service tax. The Delhi government has imposed tax on stents—when a heart patient gets an operation done, he has to pay tax to save his life. In many Delhi salons, you pay luxury tax for a haircut. When a middle-class family goes shopping, they pay more taxes than the actual price of the product. For a meal in an air-conditioned restaurant, they have to pay air-conditioning tax: never mind that it is the restaurant that bought the air-conditioners and is paying the electricity bill. Mobile phones have become pricier because of higher duties. By piling up taxes, the UPA is killing spending which is imperative to have money circulating in the market. This has created a sub-economy that deals only in cash.
What Indian politicians—perhaps with the exception of Narendra Modi—have not realized is that India’s voting demographics has changed. The countryside and caste is a dwindling vote-bank. The middle class is no longer the stereotypical salaried employee driving a Lambretta, with a PSU bank account and post office pension savings. Instead, it is an aspirational idea. Technology provides the 300-million neo-middle class—irrespective of habitat—with immense communication power: there are 900 million cellphones in India. The rural young see themselves as part of emerging urban India, or wish to be. They are redefining poverty and have found a new middle class voice. They see themselves as members of the 300 million and growing middle class who crave the cachet of brands and aspire to live in cities. The countryside is changing. Smart microgrids, cheap drinking water, telemedicine, fertility alerts on SMSes and digital films on developmental themes are transforming the mindset of 600 million rural Indians. With massive migrations to cities and the mushrooming of satellite cities in rural areas, Indian urbanization stands to rise up to 37 per cent by 2025 according to a McKinsey report—318 million to 523 million in 2025.
This is the vote bank, which pays 10.5 per cent service tax for a haircut. Brought up in the compassionate ideology of immediate post-Independence socialism, which was later perverted by corrupt protectionism and the politics of patronage, the Congress party that initiated economic reforms has not identified its approaching nemesis. MNREGA and the Food Bill, funded by neo-poor taxes, aren’t going to save it. Only death and taxes are inevitable. The Congress is writing its epitaph. And India is being taxed for its death duties.