India possibly has the world’s worst income inequality, or else, to give a positive spin on it, World’s best income inequality. Only 1 million declare taxable incomes. Yet we make 2 million passenger cars a year. And sell many million more ac’s and fridges. Making possibly the world’s most dishonest country as well. So, here we discuss the mathematics of India’s taxes and Indians.
The number of Indians admitting their annual income above Rs. 10 lakh is shamefully low, lower to a transparently incorrect number being near one million. No party wants to deal with the critical issue of massive domestic tax evasion and even the ruling government isn’t keen on cracking down on the same. It is to say then that much of this has to do with the way political parties get funds and cash for the dispense at elections.
Those having an annual income of over Rs 2.50 lakh are liable to pay Income Taxes, the number for which add up to around 10 million Indians. Rest have to file returns.
The most important question arising is, who are these people?
Q1: About 40% of India’s population i.e., 47 crore, is dependant on farming/agriculturist section and effectively out of 55 crore of non-tax paying population 47 crore Indians are linked to farming, directly or indirectly. Now this community barely meet their ends but it’s not true for 100% of community. Approximately 30% farming community is rich, at least government can tax the big fishes. The biggest question is why government is not taxing them, the Zamindars and owners of hundreds of acres of land. The answer is simple, Politics.
Q2: Rest of 8 crore are linked to Business-big or small, and other activities where government either doesn’t control or very minimal to impose the tax regulation. For example, how many of us people take proper tax invoice from the Kirana store next door? None or minimal. As per rule, the shop owners have to give tax invoices for all transactions which doesn’t happen. So, indirectly, aren’t we all responsible for this situation?
If Subramaniam Swamy becomes Finance Minister then maybe we will have no more income tax as he calls for abolishing income tax.
Income Tax is the worst loot of productive peaceful citizens by a government. Abolishing it would be the moral action any government can undertake.
To say that only 1 million declare taxable incomes in India, is a point up for debate. The recent IT stats published by ITD for Assessment Year 2012-13 show total 3.11 crore tax returns, of which about 52 lakh were for incomes below taxable limit. Yes the numbers are still too low though but for a variety of reasons.
But then , it is time to bring in farmers with more than 10 acres into the tax net? I know farmers who earn more than 1 Crore a year!
Any theory of public finance would tell us that direct taxes are progressive, while indirect taxes hurt the poor more. The corporate and other interested lobbies remain active so that no voices could be raised against increasing the tax rates or widening the tax base. And such voices are immediately dubbed by the pink press and the corporate media as pseudo- socialist, jhola-wallah and anti-development. No wonder, we have such low Tax-GDP ratio among most of the developed and developing economies.
The whole tax scenario seems to indicate that India is on the verge of becoming one of the most iniquitous, caste-stratified and hierarchically divided countries. The treatment of the poor, disempowered and weak by the rich and powerful, mostly from the upper caste and upper middle class, is abominable and of contempt and neglect. The poor remain so mute and petrified of the rich and privileged. We don’t think to be belonging to the same country.
Democracy in India is its own worst enemy, since our People don’t understand the importance, nor on how to exercise democracy in societal benefit.
And the class of Indians that are with 3 cars and 3 ACs, but still want subsidies on fuel and power as a birth right, makes me wonder that its no wonder, India’s GDP per capita contribution to the world is dismal.
The politics of reservations, subsidies, doles, political funding, black money has made IT evasion more desirable and easier – both, legally and illegally.
The Gini index and income disparity is enabled by a systematic corruption and continuation of the reservation system which promotes and institutionalises mediocrity of thinking delivery and intent. The biggest enabler here is the lack of education and morality of people in the real sense where all systems work for the exploitation of the have nots!
Aggregate personal income tax paid directly by individuals is just about Rs. 120,000 crore, barely 1% of GDP. 60% of this is stumped up by just the top 4 lakh (0.4 million) individuals paying tax above Rs. 5 lakh per annum comprising India’s upper and professional class. This Rs. 4 lakh segment also gets 20-25% share of all taxable income in india.
Balance 40% personal income tax comprises tax paid by another 12.6m folks. This is India’s air traveling real upper middle class. Then there are 16m folks who filed but didn’t need to pay. This is the pensioner or the real blue collar lower middle class. Another 20m assessees never bothered filing.
Most likely this is the transient temp staffing employee. Anybody else outside these 29+20m among the 500m working people in India is either on their own or existing at subsistence or unemployed or underemployed and the govt has been lazy in tapping into those “on their own”. If the govt. was serious, it could easily double its personal income tax collections by tapping this segment. The salaried class is more or less juiced out & its also unlikely that the number of employed folks in organised jobs will significantly increase here on or see huge raises.
Majority of people who pay taxes fall between tax bracket of income being in the range of Rs 3 lakh to Rs 5 lakh. out of nearly 3 crore who pay taxes at all out of country’s population of 117 crore. Estimated, around 26% people fall in BPL (below poverty line) category and around 14% earn less then the taxable income, leaving us with approximately 70 crore people. Assuming average family comprises of 5 persons and 1 earning member, that leaves us with 3 crore people paying taxes and taking care of 15 crore people. Now, left ones are 55 crore people. Again assuming that 1 member feeds total 5 members of family, which implies that 11 crore in India are falling under Income Tax bracket but aren’t paying.
The biggest problem we have in India is that the cost of being legal is more than the cost of being illegal. That has nurtured a culture of collective silence against all things illegal. This combined with the ingrained moral hypocrisy (we fear and admire the rich but still abhor the word ‘profit’ as if it were something sinister) has only created a cultural confusion on corruption. Income Tax gets about 14% in the kitty while the rest is from other taxes. Then there is a multitude of losses due to several forms of corruption. Would paying more taxes paint a rosy picture for the country? Moreover, if a govt servant pays tax on ill-gotten income he would be inviting avoidable trouble.