Indian elite are being unfair in complaining about taxes

There is no doubt a case for some tax relief for elite urban Indians in the budget that Finance Minister Nirmala Sitharaman will present on 1 February.

For one, those earning more than a lakh rupees a month haven’t had enough income tax relief in the last decade to keep up with inflation. Just inflation alone is reason enough for the FM to leave more money in their hands.

For two, the dip in urban consumption, a first in a decade except for the Covid and demonisation shocks, should be a matter of grave concern.

Even if urban consumption is expected to pick up in the next few months, some tax relief to leave disposable incomes in the hands of the ‘upper middle class’ would help boost economic sentiment immediately.

A new pressure group

That said, it is alarming to see the scale of memes circulating on social media complaining about high taxes in India. It must be a worry for the ruling Bharatiya Janata Party that these memes and complaints are ideology-agnostic. Both their ideological supporters and opponents are sharing the sentiment, ever more loudly, that taxes are a bit too high.

We are seeing the emergence of a new interest group in Indian politics: those who are in the 30% income tax bracket. These individuals complain even more loudly about having to pay 18% GST on most things they buy, pointing out that they are effectively paying half their incomes in taxes if you add income tax and GST.

They further complain that they are not getting good quality governance in return, and their taxes are being ‘misused’ to give free cash to the poor to win votes.

The fault, dear Brutus …

These complaints are rather unfair for a couple of reasons. Firstly, the noise over GST pretends as if we did not have indirect taxes before the GST regime came into force in 2017.

In fact, the government is collecting less indirect taxes through GST than earlier.

Some things that only the elites can afford, such as cars, actually saw a decline in how much indirect tax the government levies on them.

You cannot compare taxes in India with those in oil rich countries or countries whose whole economic model depends on being tax-free to become global financial hubs. Whether you compare Indian tax rates to rich developed countries or developing countries like India itself, it’s not very high.

If you rank G20 countries by the top income tax rates India is bang in the middle at 11. At the top is Japan at almost 56%, at the bottom is oil rich Saudi’s Arabia with 0%. India’s top tax rate of 42.7% is less than China and South Africa (both at 45%).

Looking India in the mirror

Then there is the argument over what we are getting in return for our taxes. Just look at the potholes in our roads, the urban floods exacerbated by climate change, the polluted air …

There is nothing better than asking for accountability over tax money, whether we are super rich or super poor (even the poor pay some GST on the 2 rupee shampoo sachet they might buy).

Yet the elites complain about their tax money going into freebies helping politicians win elections. This narrative ignores the fact that Indian economic growth has not been creating mass jobs, and wage growth has been abysmally low.

We are also ignoring the hardships the poor faced with Covid lockdowns and the resulting economic slowdown, which everyone has conveniently forgotten. Indeed, if free bus rides for women or free food grains can win politicians elections we should remind ourselves what a poor country we are.

If you rank G20 countries by per capita income India is at the absolute bottom, even after adjusting for purchasing power parity (PPP). Countries ahead of us include Indonesia, South Africa and Turkey.

The Indian government could always use our tax money more efficiently but the truth is that India is just not rich enough to spend enough on public goods for 1.4 billion people. The deficit will show in governance.

Symptom of a larger grievance?

There is the old joke that India’s elites are the biggest ‘separatists’, seceding from the reality around them.

The reality is that our taxes are not going exclusively into subsidising the poor. They’re also going into our defence and foreign policy, in running the government, in paying for massive infrastructure upgrade India is getting, from world class highways to beautiful airports. And there could always be more if the government had more tax revenues.

The growing anti-tax sentiment makes you wonder why elite Indians are not happy their taxes are going into making India rise up the ladder of economic growth.

Perhaps the sentiment is an outlet for a larger impatience about economic growth and transformation not being as fast as we would have liked.

In that case that larger impatience should be articulated on its own terms, instead of denigrating the poor who vote for ‘freebies’. India owes better to not just those in the highest tax brackets but to all Indians.