Do we pay fewer taxes? - An Analysis
I was pondering on this question for a long time as to why is it the case that we as a country do not have enough facilities? Why do we have just 1 doctor per 1445 people (1 govt. doctor per 11000 people), why do we have just 20 judges per MILLION people? Why is it that arranging everything is difficult for 1.4 Billion people when the government is getting that much revenue too (maybe, a big maybe)? Let’s begin with a question.
Have you filed your ITR yet? Do you pay your income tax? Because as we speak, around 25% of the total revenue of the Government of India is from personal income tax.
The weightage of personal income tax in the government revenue has been on a rise. We have come from 15% when Shri Atal Bihari Vajpayee assumed the position of Prime Minister to this day. And this growth is a good thing. Because as bad as we feel while paying taxes, it is very important for access to education, health, infrastructure, etc.
Just to give you a perspective, the share of income taxes in revenue of the U.S. Government is around 41%. In the UK it’s near 25%.
So, in many ways we are paying fewer taxes - the government usually never meets the tax collection target for every year, but hey! who meets their targets anyway. Although we have a problem. In a country of about 135 Crore individuals, only around 5.5 Crore file ITR and only about 1.4 Crore individuals end up paying some amount of tax. That is 1% of the population contributing 25% of government revenue.
To give you another perspective, about 13.4 Crore individuals in the USA paid income taxes. That is about 10 times more than India, with about 4 times less population. In another estimate, about 53% of US citizens pay taxes. Compare that to about 1% of Indians. In a small country like the UK, about 3 Crore Individuals paid Income Tax, still greater than what we do here. Isn’t that a shame?
About 33% of Indians live in an Urban Setting. Hard to believe that only 1.4 Crore people out of a good 45 Crore population pays income tax or earn more than INR 2.5 lakh. Here I am heavily subsidizing the rural population.
Is that why we don’t get facilities at par with what people in western countries get?
Well, in many ways. But the government has other sources of income. The government takes GST on every purchase we make. This tax is split into CGST and SGST in equal proportions and goes to respective governments. Central Government makes about 29% of its revenue from GST, and this is increasing every year. They also tax industries, companies on the net income they make (Corporate Tax). This corporate tax constitutes about 25% of total revenue. Some share comes from Excise and Customs (~17%).
In all, the government gets about 468 Billion USD in revenue every year. If you rank it in the world, United States, China, Germany, Japan, France, United Kingdom, Italy, Canada, and Spain get more revenue in absolute terms. But I thought, here’s the catch. Even if we come 10th on the list here, so do we in the Nominal GDP list. We stand at 5/6 there. (Subject to change very soon as the UK will overtake).
While we have to understand that less revenue creates few problems for the government when they go about purchasing stuff for the country in Dollars, i.e. the International Market. It shouldn’t in the domestic markets in India, right?
There are two catches here: A few things in India are super expensive. The simplest example - land. And we have deeply rooted corruption.
This gave me another perspective: Why not weigh in the revenue of various governments and adjust it according to Purchasing Power Parity (PPP). I did a simple exercise, divided GDP PPP by Nominal GDP to get a factor, let’s call it Beta (β). I am sorry to all the economists reading this and if they know this parameter already exists by another name. The β then will be multiplied to revenue of various countries. This will give us a sense of what every government is earning. Also, do note that all the international purchases, won’t follow this. Because they don’t care what Purchasing Power your currency offers in your country. All transactions happen in USD.
PPP Coefficients for Various countries
- β for India: 3.3323
- β for the USA: 1
- β for China: 1.64
- β for the UK: 1.17
So, as it is apparent, if we adjust government revenues according to this, the revenue of the Government of India (PPP Adjusted) will be 1.562 Trillion USD. While for China (Similar Population), it will be about 5.8 Trillion USD. For the USA, it will be 5.9 Trillion USD.
Government has a deficit of about 13% every year. Which means, it spends more than what it earns. And quite literally, if we compare ourselves to China, the Chinese government has about 3.7 times more revenue than the Indian Government. Alright, we are poor. But a big question remains, are our facilities at most 3.7 times worse than China? Because I will tolerate up to 4-5X. But not more than that. We will investigate.
Will more taxpayers mean more revenue?
Definitely, but the problem is much bigger than that. The collective revenue has to rise. Revenue from GST is hitting all-time highs and will continue to do that. But we need to increase revenue from corporate taxes as well.
The problem is about leakages in the system.
How do we compare to other countries?
Let’s compare three metrics:
India: 0.8 doctors on 1000 people, 1 judge per 50 thousand people, 0.5 beds per 1000 people.
China: 2 doctors per 1000 people, No data on judges, 4.7 beds per 1000 people.
USA: 2.6 doctors per 1000 people, 5 judges per 50 thousand people, 2.9 beds per 1000 people.
Certainly, the difference isn’t 3 times or 4 times. If we compare beds, it’s staggering 6 times with the USA and around 9 times with China. Why is this?
Breakdown of percentage expenditure on health
We spend fairly enough on education. It is not great, but it’s more or less what other countries spend too. But health?
See this chart:
We spend about 1.4% of our GDP on health. At the same time, the US spends 8.2%, China spends 3.1%. While we are already earning less. We are also spending very little on health.
It’s just about the time of Atal Bihari Vajpayee when we started to have good highways. The current Road and Transport Minister is following the trend. I understand money being spent there and its importance. So do I understand the importance of Defence when we are in such a tough spot? We did not have good rifles for our army men. They just started getting bulletproof vests. BUT WHERE IS THE REST OF THE MONEY GOING?
I am sure in all the other places too, we are getting sub-par services.
The answer is, I DON’T KNOW. Most likely it’s corruption, leakages. People like you and me, parents of people like you and me. But I am not quite sure.
I will investigate more and post the results in a separate blog sometime. But these numbers are worth thinking about. Both as a citizen who’s doing less, and a citizen who’s not keeping government employees, ministers, accountable.
I appreciate you reading this. If you would like to have a conversation about this, float some ideas, educate me about these spends, tell your experience, drop me an email (firstname.lastname@example.org). I will be very happy to talk about it.
If you feel that whatever is going around is too much and you need to talk to someone, please feel free to schedule a call with me or hit me up on WhatsApp/Instagram. I will be happy to just listen, vent out everything and I think you will feel a little better.