Wednesday, October 1, 2008


Economics can tell you things which you never really imagined. If you talk to most middle class people in India (yes my and your families) then they will always crib about how the tax in India is very high, how at one point tax rates were as high as 90-95% and a lot of stuff. If you talk to an employed person today then he will say that Government is taxing him so much and others are getting away with black money quite easily (even I used to think that way). But the picture above shows a completely different scenario.

  1. The Direct Tax's contribution to GDP has almost been constant since independence (around 2.5%) and only since 2000 has it increased slightly (to around 5%)
  2. The Indirect Tax has been moving up and is a very major contribution to Government earnings. It contributed around 4% in 1950s and is now at around 12%.

What does this imply?  Simply put you and me are not paying much because of tax but each and every citizen of India is paying extra through indirect taxes, this includes the people below poverty line as even when they purchase some food it will a share of indirect tax.

It is expected that the taxation system will take more money from the rich and less from the poor, right? In India that is not really happening to a big extent. Everyone is paying a lot because people avoid direct tax by black money methods; the result is when Government needs extra money, it simply adds another indirect tax.

Just a thought which made me think a lot and deserves a spot on my blog.

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