India Taxation Reform

[tandav]

In 1947 soon after independence India initiated massive land reforms that distributed land to the land user and not the land owner (shift from zamindari and ryotwari system) to ownership by land users. However governance did not demand that the land user pay a fair share of taxes for the land being utilized which prior typically 16% of produce from the land. Suddenly from a nation of taxpayers India became a nation of non taxpayers.

The State tried to fund itself by complex energy sapping license raj which tried to extract wealth by regulating and taxing industries and / or exploiting natural resources. The lack of resources due to poor tax collection implied that state could not invest in infrastructure. While the state supported the PDS and other welfare schemes that lead to a massive increase in population in last 80 years (350 million in 1947 to 1460 million in 2027 it was unable to adequately invest in education and skilling of the growing population and today a large fraction of Indian citizens are functionally illiterate and mostly unskilled. Unlike the Tiger economies of East Asia that focused on basic education and skills with compulsary 10+2 education which went on to become manufacturing centers India remained rural and agrarian far longer than other nations due to such systemic barriers to Urbanization.

Even today the vast majority of taxes in India is collected from mostly Tier 1 Cities: Mumbai, Delhi, Bangalore, Hyderabad, Chennai, Kolkatta, Ahmedabad. This forum is to explore data on how taxation policies and utilization of taxes can be improved to deliver more progress.

[Mukesh.Kumar]

Self delete. Repeated post

[Mukesh.Kumar]

In 1947 soon after independence India initiated massive land reforms that distributed land to the land user and not the land owner (shift from zamindari and ryotwari system) to ownership by land users. However governance did not demand that the land user pay a fair share of taxes for the land being utilized which prior typically 16% of produce from the land. Suddenly from a nation of taxpayers India became a nation of non taxpayers.

The State tried to fund itself by complex energy sapping license raj which tried to extract wealth by regulating and taxing industries and / or exploiting natural resources. The lack of resources due to poor tax collection implied that state could not invest in infrastructure. While the state supported the PDS and other welfare schemes that lead to a massive increase in population in last 80 years (350 million in 1947 to 1460 million in 2027 it was unable to adequately invest in education and skilling of the growing population and today a large fraction of Indian citizens are functionally illiterate and mostly unskilled. Unlike the Tiger economies of East Asia that focused on basic education and skills with compulsary 10+2 education which went on to become manufacturing centers India remained rural and agrarian far longer than other nations due to such systemic barriers to Urbanization.

Even today the vast majority of taxes in India is collected from mostly Tier 1 Cities: Mumbai, Delhi, Bangalore, Hyderabad, Chennai, Kolkatta, Ahmedabad. This forum is to explore data on how taxation policies and utilization of taxes can be improved to deliver more progress.

++1 Tandavji. Very apt topic selection.

Indian taxation is a mess. No wonder we see high black money, flight of capital.

I would propose that we discuss the topic covering #PersonalIncomeTax, #CorporateTax, #IndirectTaxes in detail. Just start your post with the correct hashtags so that we can read accordingly later on.

1. #PersonalIncomeTax- Only about 2% of individuals pay tax though about 7% file tax returns. Agriculture is not taxed still. Personal income tax ~20% of Central Revenues
2. #CorporateTax- Again about 20% of Central revenue. Again heavily skewed to top percentile of companies who contribute about 50% of corporate tax. India is still considered a high tax geography
3. #IndirectTaxes- GST, Customs Duty and Union Excise contribute 15%, 4% and 6% of central revenues.

The remaining government revenue is Capital receipts (10%), and borrowing (25%). It is this borrowing which is also an invisible tax as it can lead to inflation through money printing, deferred taxation.

For too long taxation has remained a holy cow. Though we are moving to direct taxes, India needs to do a lot to make it more equitable.

Already a lot of urban salaried people are questioning the need for having close to European levels of taxation but poor service delivery. The issue is not only linked to economics but also social issues in India,

[tandav]

#INDIRECTTAXES

Link below shows GST Collection mapped to HCES consumption data gives very interesting insights. Here GST paid is mapped to B50 (Bottom 50% by Income), M30 (Middle 30% by income), T20 (Top 20% by income).
https://docs.google.com/document/d/1HxP ... it?tab=t.0

Band Pop. BandIncome BandSpend BandGSTPaid GST/Capita GST Fraction GST/Income GST/Spend
CR LCR/YR LCR/YR LCR/YR Rs/YR % % %
B50 73.20 68.93 57.63 3.35 4574.59 18.13% 4.86% 5.81%
M30 43.92 78.9 59.03 5.76 13117.03 31.18% 7.30% 9.76%
T20 29.28 128.72 73.63 9.36 31983.95 50.69% 7.28% 12.72%
TOT 146.39 276.55 190.29 18.47 12620.06 100.00% 6.68% 9.71%

Note that the T20 numbers include spend by the E2 (Elite 2% Income tax payers) who also probably pay a a large fraction of GST in the T20 band due to purchases of high value cars and other items attracting GST CESS upto 45%.

The key issue for India is that public spend per capita is > Rs 50000 /capita per year. The major problem is Taxpayers (defined as those paying more tax than government spend) of India are a minority probably only 3% of total population. These taxpayers are mostly employees of SME, MSME, Corporates. The taxes collected from the 3% productive few are spent across India in various infrastructure and welfare scheme without much accountability of outcomes. Most voters are net tax beneficiaries via PDS, MNREGA, MSP, Fertilizer subsidy, Freebies schemes (Free water, roads, electricity, Ladli Behna et al) and not taxpayers. The 3% net taxpayers of India pay Euro level taxes 30%+ (25% as PIT and 7% as GST). They also bear the burden of EMIs on property due to high land costs due to piss poor land taxation (0.02%) that encourages land hoarding and thereby increases real estate costs both for residential, commercial, industrial real estate required for production.