Rupee to Result: A Thought Experiment. 'Farm to Fork' in Taxation?

“Taxation is the biggest scam in life”

“I’ve paid my taxes… the roads should be fixed any day now… wink wink”

“Looks like the middle-class is the slave-class for any government that comes to power”

“We pay taxes, but all we get is s*****y roads and corruption”

Anguished sentiments like these are becoming increasingly louder. The disorder & chaos around us makes us cynical; the cynicism reaches a crescendo each year when the budget is announced. Taxpayers in expectation of 'relief' - trumped up mostly by their own community (& to an extent the media) - feel let down when their dreams vaporise by the end of the Finance Minister’s speech.?

But should we expect any relief? Perhaps not. We aren’t an affluent nation, and every rupee counts. Despite blustering speeches, every government has to manage a tight budget. For decades, India has run a fiscal deficit, meaning tax collections alone have never been enough to cover expenditures, forcing us to borrow. Vishal Krishna & I have discussed this in earlier conversations. Furthermore, it's not in the Finance Minister’s portfolio to ensure that tech parks in Bangalore aren’t deluged when it rains - the responsibility lies elsewhere.

All these matters, though concerning, aren't the focus here & let me not digress. The core of this article is a thought experiment. Can we emulate the concept of 'Farm to Fork' in Taxation? Can taxation be personalised to a degree which connects tax (rupee) to projects (results)?

Taxation as a Social Contract

The real issue is the growing frustration among individual taxpayers. Since 2020, individuals have contributed more to direct taxes than corporations. Naturally, we expect that our contributions lead to tangible improvements: clean air, water, affordable education, and healthcare — in short, a dignified society with an improving quality of life. We expect our elected representatives to deliver, because we’ve paid for it.

Taxation is fundamentally a social contract. Citizens pay the government, expecting services in return. Unfortunately, governments often fail to uphold their end of the bargain. While we, as citizens, face penalties for late tax payments, we remain largely voiceless when it comes to how our tax money is spent. We have a life to lead - & we’d certainly be concerned about being fined or imprisoned for not paying taxes in time - & this is how the violence within the system forces us to uphold our end of the contract.

Without doubt, national defence, nuclear energy, and environmental conservation are essential. But for the average taxpayer, what also matters are everyday concerns: reliable transportation, safe neighbourhoods, quality education, and public healthcare. One would certainly applaud the success of our scientists being able to send rovers to Mars or Moon on a shoestring budget (& more power to them!), but the very same scientist also needs (& deserves) a footpath to walk without having to worry about being run over.

Can taxation be personalised?

If the government relies more on personal taxes, maybe it’s time to personalise how those taxes are spent. This leads to the core idea of this article: Could we create a system where taxpayers can choose which specific projects their taxes fund, tracking the progress from the contribution of each rupee to the delivery of results?

Imagine this: we tweak the way Cess collected from individuals is applied. Currently, individual taxpayers pay 4% Health and Education Cess, which amounts to ?44,000 crore, according to Budget 2024 estimates. What if taxpayers were given a say in how this money is used?

In their tax returns, individuals could choose from a curated list of projects—such as the Bangalore Metro Rail Project, the Raja Ramana Centre for Advanced Technology in Indore, or the India Centre for Lab Grown Diamonds at IIT Madras (these are actual projects forming part of budget documents). A taxpayer in Bangalore might select (or rather ‘instruct’ the government to direct his Cess to) the Metro project, feeling a personal connection and ownership of the public infrastructure. This would go beyond passive tax payment, fostering pride—‘this metro was built with my money’

Personalising tax contributions could also enhance transparency and accountability within the bureaucracy. Projects might no longer be at the mercy of mightier forces operating behind closed walls, to be indefinitely delayed. Personalisation might spawn local communities that would protect & maintain what they’ve built together. Perhaps, such initiatives could also advance the use of technology in reporting project status. As a 'shareholder' in the project, the taxpayer (& the general public too), could track the status of the completion on a dashboard, raise questions if the project is delayed, and maybe get brownie points by finding his name on the patron's scroll.

Further, a significant concern for state governments is that Cess collections are not shared with them. By allowing individuals to direct their Cess payments, projects with local relevance could receive more attention, directly benefiting taxpayers’ lives. This could breathe life into the idea of democratising tax decisions

Potential drawbacks?

Of course, no system is without flaws. Personalisation risks a narrow focus—taxpayers may prioritise their own comforts over broader national needs. For instance, someone may prefer investing in their local roads while ignoring pressing issues in other States. That's why this approach should be limited to a small component of overall taxes, such as the Cess, which represents less than 1% of the receipts budget of the government. Could we also deepen the reach of this idea by carving out a small % from GST? While less than 5% of Indians pay direct tax, nearly everyone pays GST. But this is a far tricker issue & I don’t have ideas yet - maybe the doyen of GST, A Jatin Christopher Sir does??

Would such personalisation go against the grain of ‘equality before law’? This point emerged in a discussion with my friends Ankush Shetty Pradeep Kamath CA Nikhil Kawad Jain ; by giving taxpayers a choice to prioritise their projects, are we giving them more ‘power’ than non-taxpaying citizens? The impassioned arguments put forth by each of us made us forget for a moment that we were discussing a thought experiment! Nonetheless, it is a point worth considering. Could this create a system in which taxpayers are ‘lobbied’ or ‘coaxed’ so that a particular project gets the funding it needs? Maybe. And it would be worth it - honest taxpayers do deserve the gratitude of the entire populace. As our PM has said himself, ‘taxpayers should be honoured in true sense’. If such entitlement could stem the migration of taxpayers / HNIs out of India to tax havens, a minor 'privilege' offered to them wouldn’t be so bad after-all.?

Another challenge is deciding which projects appear on the picklist. With nearly 800 districts across India, it’s impractical to offer projects for every region. Moreover, some taxpayers might face dilemmas: a scientist in Hubbali might have to choose between supporting a metro project in Bangalore (closer to his home) or an advanced technology centre in Indore (closer to his heart). But either option would be better than money being poured into an unknown project at an unknown location to be finished at an unknown time in the future.

Taking a cue from Thomas à Kempis's book 'The Imitation of Christ' - I can only propose, and appeal to Her benevolence to dispose.Nirmala Sitharaman