Why do we pay taxes? Where does the money go?

Soumya Basu
·2 min read

Have you ever wondered why we pay taxes in the first place? Why do we have to file our tax return and sulk about the fact that we have to part with our hard-earned money and give it to the government?

Everyone feels the same!

But you must know that a country runs on taxpayer's money. The tax we pay becomes a receipt for the government. Our government then uses these receipts to fund essential expenditures like the defence, judiciary, public health, police, and infrastructure.

In a nutshell, tax money is used for funding recurring and non-recurring expenditure of the country.

Recurring expenses include salaries for government servants, and non-recurring expenses include building assets like rail, roads, bridges, factories, school, colleges, and hospitals.

India is a growing economy, so we mainly focus on non-recurring assets.

Union Budget

Every year, the union government and the state governments declare respective budgets where they mention the government's expenses and receipts made for the year.

Revenue

Here the government declares the total revenue for the coming fiscal year. There are three types of revenue receipts

1. Tax receipts (53.77%)

2. Non-tax receipts (12.66%)

3. Capital receipts (33.57%)

  • Tax Receipts, which is 53.77% of the total revenue, comes from taxes like income tax, corporation tax, GST, customs, road tax, vehicle tax, toll tax etc.

  • Non-tax receipts, which is 12.66%, includes dividends and interests.

  • Capital receipt, which is 33.57%, includes recovery of loan, disinvestment, debt etc.

So you must understand that we Indians do not pay for all the country's expenses but only a portion of it.

Expenditure

The government also declares its expenditure for the year; Revenue Expenditure and Capital Expenditure.

  • Revenue Expenditure (68.4%): Out of the total government expenditure, 68.4% are revenue expenses.

This includes recurring expenses like running day to day activities of the government, government servants' salaries, operational costs, interest payment against debts, and many others.

  • Capital Expenditure (13.6%): Capital expenditure is for building assets like roads, railways, hospitals, airports, bridges and flyovers, factories, power plants, etc.

If we don't pay our taxes, the government's revenue will fall, and the fiscal deficit (the difference between government revenue and expenditure) will increase, resulting in stagnation of our country's growth. So paying tax is an obligation for us.

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