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Why high income tax rates are so unjust in India

July 11, 2019 06:08 AM

COURTESY TOI JULY 11

Why high income tax rates are so unjust in India
Govt Pointed To Other High-Tax Nations To Justify Levy On Super Rich, But It Hardly Matches Up To Them On Social Welfare Coverage
Atul.Thakur@timesgroup.com

It’s true, there are countries where the super rich pay even higher taxes than they do in India. The government used this to justify the higher taxes that those earning above Rs 2 crore will now have to pay. But there was something it did not mention: most high-tax countries invest heavily to finance free education and healthcare along with various social security schemes. That doesn’t quite hold true for India.

Global experience suggests that among the most effective affirmative actions that alleviate poverty and bring equality are universal access to affordable health and education. India fails miserably on both counts.


According to a 2018 UK government report, of the total 87.4 lakh primary and secondary students enrolled in the country, 91.3% were studying in government schools. For the same year, US government estimated that 89.6% of the total 5.7 crore school students in the country were enrolled in public schools. World Bank data shows that in 2016, enrolment in private schools at the primary level was 15% in France and 9% in Canada. This was 33% in India. At the secondary level, 25% of French students were enrolled in private schools while this was 8% in Canada. In India, this was 51%. And the only reason this is so is because there aren’t enough good government schools in India. As a result, the taxpayer is not only paying taxes, but also paying large sums for her child’s education.

Now consider health. In 2016, 64.6% of all our health expenditure was borne by Indian citizens — in other words, this was an out-ofpocket expenditure. This was less than 15% for Canada, US and France. A 2011 WHO estimate shows that more than 5 crore Indians were pushed below the $1.90-PPP a day (international poverty line) because of health expenditure.

“Education and health are state subjects and many of the tax hikes are imposed through cess and surcharge, which are not shared with the states. Given the weak notion of social contract between the state and citizens in India, it is necessary that it is visible to citizens that revenue mobilised is going to the right causes,” said Malini Chakravarty of CGBA. “There is a huge centralisation of tax revenue and, unlike many other countries, our states don’t have similar freedom to increase their tax revenue, especially after GST came in,” she added. “By making outcome of outlays more accountable, public sector delivery can be vastly improved,” said NR Bhanumurthy of NIPFP. “With today’s digital tech, we can have a far better assessment by tracking the flow of information, like in the case of direct benefit transfer,” he added.

World Bank data shows that the Indian government’s spend on education as a proportion of GDP is much lower than many high-tax countries. “The low spend on healthcare and education can partly be attributed to India’s low tax-GDP ratio,” says Anurag Behar, CEO, Azim Premji Foundation. “To up welfare spending, India has to widen its tax base, but there are many structural problems — bulk of workforce is in unorganised sector, which remains excluded from tax base, and justly so,” he said.

World Bank data shows that India’s central government tax-GDP ratio of 11.2% is far lower than countries like France and UK, where it is above 20%. “The lack of money for government to finance education led to rapid for-profit privatisation of the sector, which is not desirable and has led to inequity and poor quality,” Behar added.

“Developed countries experimented with market oriented neo-liberal policies when they were already at a much higher level of development. That wasn’t the case with India when neoliberal policies were introduced,” said Chakravarty. Since neoliberal policies inevitably require keeping fiscal deficit in check, spending on social sectors becomes the first casualty when adequate revenue is not generated, she added

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