Wealth inequality: India’s poorest 50% pay almost two-third of the GST

Devinder Sharma

Devinder Sharma

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Policy makers aren’t enthused enough to make a determined effort to reduce wealth inequalities.

Every year, at the time of the World Economic Forum, the Oxfam report on Inequality causes a stir. In the midst of all the debate and discussions this year, Robert Reich, a former US Labour Secretary, tweets:

“Since 2020, for every dollar the bottom 90 per cent have gained, billionaires have gained $1.7 trillion. This level of inequality is not only unsustainable, it’s downright cruel.”

With mountains of wealth accumulating at the top, we still find the super rich making all-out efforts to dodge the tax regime, brazenly jacking up consumer prices to cause an unmanageable inflation.

Using public money to generate more profits, manipulating the stock markets, and leveraging the tax-havens to their advantage, it is part of a strategy donning the new playbook of the stinking rich.

And therefore, among numerous measures being spelled out to narrow the widening inequality, Oxfam suggests taxing the top 5 per cent of the world’s multi-millionaires and billionaires that could raise $1.7 trillion a year, enough to lift 2 billion out of poverty.

While the world struggles to find a mechanism to tame the shrew, perhaps a series of comics, which kept us glued from the days of the Phantom to more recently the fantasy world of the Spiderman, can now move to the real world of the super-rich thereby reaching out to the unreached.

The poor too needs to know where their money goes. 

Not only carrying the thrill of amassing wealth in a mad race to reach the top of the heap, any comic series on the theme will not only address the curiosity but also unravel the mysterious pathway.

Create an imaginary character like Rajni (from the yesteryear’s Indian TV series) who can take on the might of the super-rich only to ensure the riches are distributed for the benefit of an egalitarian and a cohesive society.

The poor too needs to know where their money goes. A comic series is an easy way to reach out to masses. It has to become a people’s campaign calling for equality and justice. Unless the poor know how they have been systematically robbed, building up an international campaign calling for an end to rising inequality may not be possible.

Nevertheless, at the time of release of the report, Gabriela Bucher, executive director of Oxfam International was quoted as saying. “While ordinary people are making daily sacrifices on essentials like food, the super-rich have outdone even their wildest dreams.”

To illustrate, Oxfam compared the 3 per cent tax that Elon Musk, CEO of Tesla, Twitter and SpaceX paid between 2014 and 2018 while a small rice trader in Uganda ended up paying 40 per cent tax. Such similarities can be drawn from every developing country, including India.

In an eye-opening observation, Oxfam says that the poorest 50 per cent in India end up paying almost two-third of the GST whereas the richest 10 per cent pays only 3-4 per cent. Given that the total GST collection for 2022-23 is anticipated at Rs 18-lakh crore, the indirect tax extracted from the bottom poor is enormous.

While many have questioned the methodology, the argument that the poor pay a high level of indirect taxes remains true. This should dispel the popular impression that by not paying any taxes, the poor remain a burden.

Even for the rich developed countries Warren Buffet had stated some years back that he was paying less tax than his secretary.

While top economists, and that includes the Nobel laureate Joseph Stiglitz, wants the income of super-rich to be taxed at 70 per cent and in addition 3 to 4 per cent wealth tax to tackle widening inequality, even Oxfam calls for a 3 per cent wealth tax on India’s billionaires, and it estimates the revenue generated can fund the largest healthcare system, the National Health Mission.

But as the demand for re-introducing wealth tax grows, I find some economists saying that it will not be cost-effective. The collections from wealth tax would be too little while the cost of collection would be high.

But strangely, an equally loud demand for taxing the agricultural sector continues to be raised. Before every budget, the demand becomes louder.

Given that 85 per cent of the farm landholdings are less than 5 acres, and the average farm household income has been worked out at Rs 10,268 per month by the Situation Assessment Survey for Agricultural Households, 2019 I don’t know how collecting a pittance of tax from agriculture sector is being justified.

For the wealth tax collections, economists stand up saying it is not cost-effective to collect a pittance but for agriculture sector the same group of economists have no problem with the huge costs involved. Different strokes for different people.

Not only that Elon Musk and Jeff Bezos pay less tax, even India billionaires pay low taxes. In a 2022 study, “Do the Wealthy Underreport their Income? Analysing Relationship between Wealth and Reported Income in India” the director of the Delhi School of Public Policy and Governance, Ram Singh, comes to an interesting conclusion when he says ‘the wealthier an individual is, the smaller their reported income is relative to their wealth’.

Illustration courtesy Amit Bandre/Express

Explaining that wealthy avoid realising capital gains by investing dividends in equity and commercial properties to reduce their tax liability, he demolishes the argument that affluent Indians are ‘overtaxed’. Business tycoons pay themselves too little, which sounds charitable, but in reality are into tax-saving strategies.

Policy makers aren’t enthused enough to make a determined effort to reduce wealth inequalities. Even by reducing Corporate tax, as India has done, Nobel laureate Paul Krugman had earlier shown that in the US it did not help in creating additional employment and nor did it help in bringing in additional investments.

Where did that money go, it went into their pockets. The Corporate tax exemptions that Donald Trump had provided for actually enabled the companies to buy back large number of shares, he had clearly explained. That has been a very clever way to add on to the wealth of the super–rich.


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Devinder Sharma

Devinder Sharma

The author is a well known agriculture policy analyst and columnist. He writes on food, agriculture and hunger.

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