When Taxes Undermine Livelihood
Date: 24-07-2025
Taxation, at its core, is meant to be a tool for collective progress — a means for governments to fund public goods and services that benefit all. However, when the burden of taxes becomes so heavy that it begins to choke the very livelihood of citizens, it no longer serves its purpose. Instead, it becomes a form of economic suppression. In India, this concern has reached a boiling point.
When Taxation Becomes Unconstitutional
The Indian Constitution guarantees the right to livelihood as part of the broader right to life under Article 21. When taxes directly threaten that right — by rendering small businesses unviable or pushing informal workers into legal and financial turmoil — they cross the line into unconstitutional territory.
The present Indian government appears more focused on extracting taxes than on providing meaningful public services. Fundamental areas like healthcare and education have been increasingly privatized, effectively excluding large portions of the population from affordable access. Instead of using tax revenues to ease public expenditure, the state seems to be outsourcing its responsibilities — all while collecting more.
The Karnataka GST Crackdown: A Grim Example
Recently, in Karnataka, a state currently governed by the opposition party but following central government fiscal policies, a disturbing trend has emerged. Small vendors are under tax assault.
In Bengaluru, many small business owners — from vegetable vendors to tea stall owners — have started ditching UPI payments in favor of cash after receiving startling GST notices. Their fear? That digital payment data is being interpreted as business income without proper differentiation, leading to tax scrutiny, penalties, and even eviction threats.
One particularly shocking example: a vegetable vendor was slapped with a ₹29 lakh GST notice after UPI transactions totaling ₹1.63 crore over four years. That’s roughly ₹1,000 a day — reasonable for a daily market vendor. But the GST department treated this as taxable business turnover, completely ignoring the reality of low-margin, cash-flow-dependent livelihoods.
Tax notices like these cause widespread panic among traders. Experts warn that this might just be the beginning, as states grow desperate for revenue and begin to treat digital footprints as tax goldmines — regardless of context.
Why Are Taxes So Harmful? #Economics101
Let’s revisit basic economic theory.
Deadweight Loss and Its Impact
Every time a tax is levied, it creates deadweight loss — an inefficiency that arises because the tax discourages transactions that would have otherwise occurred. Here's how it works:
- The seller wants to sell at a lower price.
- The buyer wants to buy at a lower price.
- A tax increases the final price, discouraging both parties.
The result is a reduction in sales and consumption, which not only hurts the individual seller and consumer but reduces overall economic activity.
In theory, businesses "collect" tax on behalf of the government. But in practice, they suffer when end-prices go up. A customer who sees a product is ₹100 but has to pay ₹118 with GST may walk away. Multiply that effect across thousands of customers, and the result is a severe hit to revenue for small shopkeepers — who are already struggling to stay afloat.
Empowerment or Entrapment? The Surveillance Side of UPI
UPI, once hailed as a revolutionary tool for financial inclusion and digital empowerment, is increasingly revealing its darker side — a powerful instrument of financial surveillance. Every transaction, no matter how small, is recorded, traceable, and now being used by tax authorities to scrutinize even the most informal economic activities. Instead of liberating small vendors and daily wage earners from cash dependency, UPI has made them vulnerable to arbitrary notices, legal threats, and financial scrutiny. What was supposed to be a means of empowerment has morphed into a mechanism of control, turning honest digital trails into potential liabilities.
Taxing Innovation: Killing the Golden Goose?
We are in the midst of a transition from Web2 to Web3, a shift that empowers individuals and decentralizes control over data and platforms. Web3 promises a new wave of job creation, innovation, and digital empowerment. Yet, the government’s current approach to cryptocurrency taxation — a flat 30% with no loss offsetting — effectively discourages participation in this emerging sector.
Rather than nurturing this revolution, the state seems to be applying old frameworks to new paradigms, choking growth before it can mature. If Web3 is the future of digital work, then excessive taxation today may push India out of the global race.
Courts Silent, Government Authoritarian
The courts — historically the protector of rights — have been disturbingly silent in the face of this creeping authoritarianism. The judiciary is meant to be a check on executive overreach, but in recent years, it appears increasingly aligned with the government’s interests rather than the people’s.
Rampant taxation, when it destroys small businesses and erodes livelihoods, must be scrutinized as a constitutional violation. Yet, courts have failed to act, leaving citizens defenseless. The judiciary's inability or unwillingness to intervene on behalf of vulnerable traders and vendors has only emboldened tax authorities and deepened public mistrust.
Conclusion: The Price of Silence
Taxation without accountability is not just poor policy — it is economic injustice. When small vendors live in fear, when innovation is punished, when public services are unavailable despite high tax collections, and when courts fail to act — we have a crisis that goes beyond economics.
It becomes a democratic crisis.
India must re-evaluate its approach. Taxes should empower citizens, not disempower them. They should fund services, not replace them with privatization. And they must never, under any guise, rob someone of their right to live and work with dignity.
Until then, the calls for reform — and resistance — will only grow louder.