In 2017-18, I did something that surprised even myself. I spray-painted 3 words on a public wall: #TaxationIsTheft. The media covered it, and surprisingly, with a degree of sympathy rather than condemnation. That graffiti weren’t just youthful rebellion—it was born from teaching economics, watching small business owners, spend more time filing tax returns than planning their business growth. It was frustration crystallized into 3 words, which was initially endorsed by a former US Presidential Candidate Ron Paul.

Today, as I watch India position itself as the world’s fastest-growing major economy, I find myself returning to those 3 self-explanatory words. Not because I want to vandalize property again, but because the fundamental question remains unanswered: when does taxation cross the line from necessary contribution to systematic extraction?

As we’re aware that only about 3% of our 1.4 billion citizens pay ‘income tax’. According to the Income Tax Department’s data for Assessment Year 2023-24, approximately 8.2 crore individuals filed income tax returns. However, the actual number paying meaningful tax—after accounting for exemptions, deductions, and zero-tax brackets—is far smaller, hovering around 2-3% of the total population.

To put this in perspective: a schoolteacher in Pune, a software engineer in Bangalore, and a small business owner in Gujarat are effectively funding the nation’s expenditure while 97% of the population contributes nothing to direct taxation. Data from the Income Tax Department reveals that the top 10% of taxpayers contribute nearly 80% of all income tax collected.

Now, here’s the uncomfortable question: what do these taxpayers receive in return?

As Nobel laureate Angus Deaton observed about developing economies: “The quality of public services is often inversely proportional to the tax burden on those who pay.” This rings painfully true in India where we have more taxes than friends. Roads develop craters within months of construction. Government hospitals as well as schools struggle with basic supplies, shortage of labour and infrastructure deficits.

The implicit social contract—citizens pay taxes; government provides services—appears fundamentally broken.

India’s tax system isn’t merely unfriendly; it’s bewilderingly complex. The Income Tax Act of 1961 has been amended over 4,000 times since its inception. That’s not legislative refinement—that’s a regulatory maze that grows denser each year.

Consider the Goods and Services Tax (GST), introduced in 2017 as India’s “biggest tax reform since independence.” Prime Minister Narendra Modi called it “Good and Simple Tax” at its launch. Yet today, the classification disputes are legendary: pizza base attracts one rate, pizza with toppings attracts another. Paratha is taxed differently depending on whether it’s considered bread or a cooked snack. This isn’t tax policy—it’s bureaucratic improvisation elevated to law?

According to the World Bank’s Doing Business indicators (before the index was discontinued), Indian businesses spent approximately 275 hours per year just on tax compliance. That’s nearly 7 working weeks diverted from production, innovation, or expansion to paperwork and filing.

Here’s where public choice theory—an economic approach to political science pioneered by Nobel laureate James Buchanan—becomes illuminating. Public choice theory examines how politicians and bureaucrats, like all individuals, act according to their incentives rather than abstract public interest. Complex tax codes aren’t accidental; they create opportunities for administrative discretion. Discretion creates scope for negotiation. This benefits those who administer the system while imposing costs on ordinary taxpayers.

As Buchanan himself wrote: “The political process is more often driven by the concentrated interests of the few than by the diffused interests of the many.” In taxation, this manifests as complexity that empowers tax administrators while exhausting taxpayers.

When I painted that graffiti years ago, India’s tax-to-GDP ratio hovered around 16-17%. Today, it has climbed to approximately 18.5% (combining direct and indirect taxes). While this seems modest compared to Scandinavian countries exceeding 40%, the comparison misleads. Scandinavian taxpayers receive world-class infrastructure, comprehensive social security, and efficient public services. Indian taxpayers receive promises.

More critically, the structure of Indian taxation actively discourages long-term investment and entrepreneurship.

Take capital gains taxation. Until 2018, long-term capital gains on equity investments were completely tax-free—an incentive for patient capital formation. Then came a 10% tax on gains exceeding ₹1 lakh. In the Union Budget 2024, Finance Minister Nirmala Sitharaman raised long-term capital gains tax to 12.5% and short-term capital gains to 20%. Additionally, the indexation benefit—which adjusted gains for inflation—was removed entirely.

As economist Ajay Shah noted in his analysis: “Removing indexation while raising rates amounts to taxing nominal rather than real returns. This fundamentally alters the risk-return calculus for long-term investors.”

Consider a practical example: An investor who purchased shares in 2010 for ₹10 lakhs and sold them in 2024 for ₹30 lakh has a nominal gain of ₹20 lakhs. However, adjusted for inflation over 14 years (averaging around 6% annually), the real purchasing power gain is significantly lower—perhaps ₹8-10 lakh. Without indexation, the entire nominal ₹20 lakhs is taxed. This isn’t taxation of wealth creation; it’s taxation of inflation.

Corporate taxation presents similar challenges. While headline corporate tax rates were reduced to 22% (or 15% for new manufacturing units) in 2019—a welcome move—the effective tax burden remains substantial when including Minimum Alternate Tax, various surcharges, and embedded indirect taxes throughout supply chains.

The start-up ecosystem faces particular absurdities. Until recently, Section 56(2)(viib)—notoriously called “Angel Tax”—meant that if a start-up raised funds at a valuation deemed too high by tax officers, the investment itself was taxed as the start up’s income. Imagine: an entrepreneur convinces someone to believe in their idea and invest, and the government treats that faith and risk capital as taxable income. While the provision has been modified for certain categories in 2024, years of uncertainty have already damaged investor confidence.

Venture capitalist Mohandas Pai articulated the frustration: “You cannot have an innovation economy when the tax department treats every valuation as suspicious and every investor as a tax evader until proven otherwise.”

What’s the alternative?

Libertarianism—the political philosophy emphasizing individual freedom, property rights, and minimal government intervention—remains largely unexplored in mainstream Indian policy discourse. We’ve been conditioned across generations to accept that government must control, regulate, allocate, and redistribute. That taxation is simply “the price of civilization,” as Justice Oliver Wendell Holmes famously said.

Frankly speaking,

Government actors aren’t benevolent philosopher-kings operating above self-interest. They’re individuals responding to incentives like everyone else. Politicians seek electoral victories and power. Bureaucrats seek larger budgets and expanded authority. Special interest groups seek protective regulations and favourable treatment. The ordinary taxpayer—dispersed, disorganized, and individually powerless—becomes the easiest to exploit.

This framework explains why tax systems often become more complex and burdensome rather than simpler over time.

Consider fuel taxation: As of early 2025, taxes constitute approximately 45-50% of the retail price of petrol across most states. The central government levies excise duty, state governments levy VAT, and both are adjusted frequently. When global crude prices fall, governments typically raise taxes and pocket the windfall rather than passing savings to consumers. When crude prices rise, taxes remain high. Citizens lose in both scenarios.

Economist Milton Friedman observed: “The government solution to a problem is usually as bad as the problem.” His preferred alternative was allowing maximum economic freedom with minimal intervention.

A libertarian approach to taxation in India would involve:

Simplicity: A flat tax or minimal progressive structure with few slabs and zero exemptions or deductions. No special provisions that require armies of accountants to navigate.

Transparency: Real-time public tracking of every rupee collected and spent, perhaps using digital public infrastructure India has developed for other purposes.

Limitation: Taxation only to fund genuinely public goods—defense, rule of law, basic infrastructure—not redistribution schemes that primarily serve electoral purposes.

Voluntary mechanisms where possible: Greater reliance on consumption taxes that allow individuals to control their tax burden through spending decisions, rather than coercive income taxation.

However, India’s political economy makes such reforms extraordinarily difficult. The formal-economy middle class remains too small to form a decisive voting bloc. Electoral competition increasingly centers on competing welfare promises rather than tax reduction. Subsidies and targeted benefits mobilize voters more effectively than abstract economic freedom.

The Paradox of Right-Wing Governance Since 2014

Here’s what troubles me most: India has had a government widely described as “right-wing” and “pro-business” [since 2014], yet the fundamental philosophy of governance remains statist and interventionist.

The Ayushman Bharat health scheme, while admirable in intention, represents classic welfare-state expansion funded by taxpayers. The PM-KISAN scheme provides cash transfers to farmers regardless of economic need. The National Food Security Act covers over 800 million people with subsidized grain. Production Linked Incentive (PLI) schemes direct tens of billions in subsidies to select industries and companies.

None of this is economically libertarian. None of this represents trusting markets and empowering individuals. All of it expands state control and requires greater fiscal extraction.

Why does this matter? 

Because it reveals that socialism versus capitalism isn’t really about left versus right in Indian politics—it’s about which groups receive state patronage. As political scientist Pratap Bhanu Mehta has observed: “The Indian state’s core function has become distribution rather than regulation or service provision.”

Both major parties compete on welfare promises. Tamil Nadu, Karnataka, Chhattisgarh, and other states offer free electricity, free bus rides, free laptops—each trying to outbid the others. The costs are invariably passed to the shrinking base of taxpayers who fund these electoral competitions.

Investors—whether domestic entrepreneurs or foreign corporations—respond to signals about property rights, regulatory stability, and tax predictability.

India’s signals have been mixed at best. The country’s rank in the World Bank’s Ease of Doing Business improved dramatically under the Modi government, climbing from 142nd in 2014 to 63rd in 2020. However, rankings tell only part of the story. The qualitative experience of dealing with tax authorities often paints a different picture.

The retrospective taxation saga exemplifies the problem. In 2012, India amended tax laws retroactively to claim taxes on Vodafone’s 2007 acquisition of Hutchison Essar—a deal involving foreign companies transacting offshore. The message this sent was chilling: property rights and contracts in India are subject to ex-post government reinterpretation.

As the Economist magazine editorialized at the time: “Retroactive taxation is not just bad economics; it’s a betrayal of the basic promise that governments make to those who invest in their economies.”

Though India rescinded some retrospective tax demands in 2021, the reputational damage persists. Foreign Direct Investment, after peaking at $84.8 billion in FY 2021-22, declined to $70.9 billion in FY 2022-23 and approximately $67 billion in FY 2023-24.

For entrepreneurs within India, tax uncertainty manifests differently but no less damagingly. Income tax notices for minor discrepancies, demands for documentation spanning many years, assessments reopened without clear justification—these create an environment where business owners spend more energy on defensive compliance than on growth and innovation.

The Moral Dimension!

Let me return to my graffiti: #TaxationIsTheft.

Is it actually theft?

Political philosopher Robert Nozick argued in “Anarchy, State, and Utopia” that taxation of earnings from labor is equivalent to forced labor—taking hours of your life without consent. That’s the extreme libertarian position.

A more moderate view holds that taxation becomes theft when it’s coercive, arbitrary, excessive, and spent on purposes the taxpayer never consented to support.

By this standard, significant portions of Indian taxation are problematic.

I never consented to fund lavish government offices while schools lack basic facilities. I didn’t agree to subsidize electricity for wealthy farmers while my neighborhood faces power cuts. I didn’t vote to transfer my income to schemes designed primarily to win elections rather than solve problems.

Yet my income is seized—before it even reaches my account, through Tax Deducted at Source (TDS)—and allocated according to political calculations I have no say in.

The 3% who pay income tax are essentially hostages to a system that offers no exit, limited voice, and decreasing loyalty. Meanwhile, the 97% who pay no income tax vote for politicians promising them more of other people’s money.

This creates what economists call a “moral hazard”—those who benefit from spending don’t bear its costs, while those who bear costs have limited influence over spending.

Where Does Your Money Actually Go?

Let me make this concrete with a typical example.

A software engineer in Hyderabad earning ₹15 lakhs annually pays approximately ₹1.4 lakhs in income tax after standard deduction. Add 18% GST on restaurant meals, 28% on automobile purchases, 12% on clothing. Add fuel taxes of roughly ₹25-30 per liter. Add property tax if they own a home. Add road tolls on highways theoretically already funded by taxes. Add education cess, health cess, agricultural cess.

Conservatively, this person surrenders 30-40% of their income to various government levies.

What do they receive?

They commute on roads that develop potholes within months of repair. If they fall ill, they use private healthcare because government hospitals are overcrowded and under-resourced. Their children attend private schools because government schools often suffer from teacher absenteeism and poor infrastructure. They hire private security because police response times are unreliable. If they’re a woman, they think carefully about venturing out alone after dark, given that conviction rates for crimes against women remain below 30% according to National Crime Records Bureau data.

Every essential service—healthcare, education, security, justice—must be purchased privately. The state demands taxes as though it provides these services but largely doesn’t.

This is why my graffiti resonated. This is why #TaxationIsTheft captures a felt reality even if it overstates the philosophical case.

What Reform Could Look Like

Imagine a different approach.

Imagine income tax as a simple flat rate—say 10%—on all income above ₹10 lakhs, with zero deductions or exemptions. Imagine GST with a single rate of 12% on everything except unprocessed food and essential medicines. Imagine property taxes funding local governments directly with full transparency about collection and spending.

Imagine every rupee of tax revenue tracked on a public digital ledger, visible to every citizen in real-time—exactly which department, which project, which expenditure. India has built world-class digital public infrastructure for payments (UPI) and identity (Aadhaar); we could do the same for fiscal transparency.

Imagine halving the number of government schemes and ministries, returning functions to private enterprise or genuine civil society where appropriate. Imagine replacing complex subsidy systems with direct cash transfers to the economically vulnerable, phased out as they rise out of poverty.

Imagine regulations reduced by 80%, freeing entrepreneurs to create and compete rather than merely comply.

This isn’t fantasy. Variants of these ideas have been implemented in Estonia (digital governance and tax transparency), Singapore (simplicity and efficiency), and Switzerland (localized taxation and spending).

But India’s political culture makes such reforms extraordinarily difficult. Our informal economy is vast. Our middle class, while growing, remains too small to dominate electoral arithmetic. And frankly, political elites across the spectrum benefit from the current system’s complexity and opacity.

So what can we—the people who pay taxes and feel unheard—actually do?

First, organize and speak up: My graffiti worked not because of its artistic merit but because it articulated what many felt but few said. Taxpayers need to become more vocal, more organized, more politically active. Form associations, demand accountability, ask uncomfortable questions at public forums.

Second, use every legal avenue to minimize your tax burden: This isn’t unethical—it’s rational self-interest. Tax planning, exemptions, and legal deductions exist for a reason. Use them.

Third, support businesses and leaders who champion economic freedom: When entrepreneurs criticize excessive regulation or taxation, amplify their voices. When politicians propose genuine reforms (rare though they are), support them publicly.

Fourth, educate others: Discuss public choice theory with friends. Explain how incentives shape behavior in government just as in markets. Challenge the assumption that government spending automatically serves the public good.

Fifth, participate in democratic processes: Vote, certainly, but also engage with elected representatives, file RTI applications, attend municipal meetings, and demand granular accounting of how your taxes are spent.

And,

My graffiti have long been painted over, replaced by advertising or new construction. But the message endures because the underlying reality endures.

India’s tax system, despite periodic reforms, remains extractive in character. It takes from the productive few to fund a complex apparatus that delivers inadequate services while consuming resources in its own perpetuation. It discourages investment through uncertainty and complexity. It embodies the fundamental socialist premise that bureaucrats allocating other people’s money will serve the public interest better than individuals making their own choices.

As economist Friedrich Hayek warned: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” India’s tax system, with its 4,000+ amendments, countless rules, and administrative discretion, exemplifies this hubris—the belief that clever bureaucrats can design perfect tax extraction and allocation.

I’m not an anarchist. I recognize that collective goods like defense, rule of law, and basic infrastructure require collective funding. Taxation at some level is necessary. But necessary doesn’t mean unlimited. It doesn’t mean complex beyond comprehension. It doesn’t mean disconnected from services received. And it doesn’t mean those who pay have no right to demand accountability, efficiency, and restraint.

Until we fundamentally rethink the relationship between taxpayers and the state—until we shift from extraction to consent, from complexity to simplicity, from control to freedom—the message remains relevant.

#TaxationIsTheft may be provocative, even inflammatory. But sometimes a stark phrase is needed to start an honest conversation.

And that conversation is long overdue.

Views of the author are personal and do not necessarily represent the website’s views.

Dr. Jaimine Vaishnav is a faculty of geopolitics and world economy and other liberal arts subjects, a researcher with publications in SCI and ABDC journals, and an author of 6 books specializing in informal economies, mass media, and street entrepreneurship. With over a decade of experience as an academic and options trader, he is keen on bridging the grassroots business practices with global economic thought. His work emphasizes resilience, innovation, and human action in everyday human life. He can be contacted on jaiminism@hotmail.co.in for further communication.

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