Debunking the 2% Myth: How All Indians Contribute to the Tax System

There has been a widespread claim circulating on social media and LinkedIn platforms that only 2% of Indians pay income tax, and that this low percentage is a significant factor in India's slower development compared to developed countries where a higher percentage of the population pays income tax. While it is true that around 2% of the Indian population files income tax returns, this statement can be misleading if we don’t consider the broader context of taxation.

Income Tax vs. Indirect Taxes in India

In India, taxes are broadly classified into direct and indirect taxes:

• Direct Taxes: These are levied directly on the income or wealth of individuals and businesses. Income tax is the primary example.
• Indirect Taxes: These are levied on goods and services and are paid by consumers when they purchase these items. Examples include GST (Goods and Services Tax), customs duty, and excise duty.

Goods and Services Tax (GST): GST is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services across India. It has replaced many other indirect taxes such as VAT, service tax, and excise duty, making the taxation process more streamlined and efficient. The GST is applied at various rates depending on the type of goods or services, generally ranging from 0% to 28%.

Other Indirect Taxes:

• Customs Duty: Levied on goods imported into India.
• Excise Duty: Levied on specific goods produced within the country.
• State-level Taxes: These include taxes like entertainment tax, octroi, and entry tax.

Contributions from All Sections of Society

Even those in the Below Poverty Line (BPL) category contribute to the tax kitty when they purchase goods or eat food. Every time an individual buys a product or service, they pay GST, contributing to the government’s revenue. This means that nearly 100% of the population contributes to the tax collection indirectly through GST.

GST Collection in India

The GST collections in India have been substantial. For example, the GST revenue for the financial year 2022-2023 was approximately ?18.10 lakh crore (USD 226 billion). This robust collection demonstrates the widespread contribution of the population to the tax system.

Total Tax Revenue Comparison

India:

• GST Collection (2022-2023): USD 226 billion
• Total Tax Revenue (2022-2023): Approximately USD 358 billion

Germany:

• Total Tax Revenue (2022): Approximately USD 850 billion

USA:

• Total Tax Revenue (2022): Approximately USD 4.9 trillion

While the total tax revenue in developed countries like the USA and Germany is higher due to their larger economies and higher per capita income, it is essential to note that when compared with India’s per capita income, the GST collection alone is a significant figure.

Per Capita Income vs. Tax Burden

Per Capita Income Comparison:

• India: Approximately USD 2,300
• Germany: Approximately USD 48,000
• USA: Approximately USD 75,000

Tax utilisation Comparison

• Germany: Known for its robust public transportation system, universal healthcare, and high-quality education system. Efficient tax utilisation ensures that public services are well-funded and maintained.
• USA: Despite variations across states, the overall infrastructure and public services are more developed, thanks to the relatively lower corruption levels.
• Singapore: With low corruption levels and efficient governance, Singapore uses its tax revenue effectively to provide top-notch public services, including healthcare, education, and public housing.
• India: Healthcare for the majority is out of pocket and every year nearly 6 crore Indians are pushed to poverty because of OOP expense, no social security and widespread issues that hinder development and efficient public service delivery.

To Conclude, while India's tax collection, especially through GST, is significant, the benefits felt by the public often fall short. By addressing the challenges that is the root cause for this, India can ensure that its tax revenue translates into tangible improvements in public services and infrastructure.

Hopefully, after this detailed exploration, people will not continue to say that only a minority are paying taxes. No, almost all Indians are contributing through various forms of taxation, particularly GST. It is crucial to recognise this collective effort and work towards a more transparent and efficient system that truly benefits the entire population.

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