Here’s Why Paying Tax to GoI Doesn’t Quite Make Your Money White

What is black money? Money hidden from the government in order to avoid tax.

If you’ve been following any of the debates about black money in India, you probably haven’t paid attention to the fact that by government, everyone means the Government of India here. They’re not referring to State Governments because, as required by the Constitution of India, they aren’t really governments. They’re more like municipalities.

Anyway, the word black notwithstanding, we can call black money bad only if we can prove that paying tax to the government – central, that is – is good.

It’s not any easy proof, I’m afraid. In fact, when you pay tax to the Government of India your money doesn’t exactly become white; it arguably becomes black. I’ll explain.

There are well-known diversity-agnostic reasons why paying tax to the Government of India is not necessarily good. For example, the said government often enriches itself using tax money; it uses the money in a highly inefficient manner; it uses it to do things which aren’t necessarily in the public interest; and so on and so forth.

But making diversity-agnostic arguments don’t suffice for India. We must take diversity and its mishandling also into account. When we do that, the idea that tax paid to the Government of India is good becomes even more difficult to support.

The Government of India as an institution has a distinct Aryan or North Indian hue to it, complete with upper-caste control and official-language status to a language which is foreign to most of India.

It’s not exactly a scientific fact that it’s good for a Kannadiga or a Malayali or a Tamil to pay tax to such a government. It’s only as good as, if not worse than, paying tax to the Government of, say, Bhutan or Bangladesh or Sri Lanka. For South Indians the last one is, arguably, geographically and culturally closer than North India.

It’s clearly better for Kannadigas, etc., to pay tax to their own State Governments instead of to New Delhi or Colombo. India’s State Governments are the people’s “own” governments in the same way as the Government of France is “own” for the French, the Government of Germany is “own” for the Germans, and so on and so forth.

Consequently, although nobody cares to notice, money which India’s State Governments haven’t had the opportunity to tax is blacker than money which the Government of India hasn’t had the opportunity to tax.

In fact, most of the tax collected by the Government of India is tax revenue lost by the State Governments for no good reason, and that actually makes your white money black.

Who is responsible for making it black? Not you, because you’ve done your part by paying tax, what if to the wrong entity as required by law. The credit for making your white money black goes to the Constitution of India.