The goods and services tax (GST) accounts for over 25 per cent of the combined tax collected by India’s central and state governments. In its January 2023 report titled Survival of the Richest: The India Story on wealth inequalities in India, Oxfam India said that the poorest 50 per cent with 13.1 per cent of the national income pay 64.3 per cent of the total GST; the middle 40 per cent, with 29.7 per cent of the national income, pay 31.8 per cent; and the top 10 per cent, with 57.1 per cent of the national income, pay 3.9 per cent.
Oxfam offered no explanation of how it computed these numbers. Since they seem to be simply figments of its imagination, I wrote to the NGO, requesting that it publish a correction and promising that, if it did not, I would make my concerns public. Despite a reminder, Oxfam never responded.
Here, then, is why the Oxfam findings are troubling. India’s GDP in 2022-23 stood at Rs 272.04 trillion (one pound sterling equal to Rs 102 at the time), and its personal income was about Rs 200 trillion. The income of the bottom 50 per cent — 13.1 per cent of the Rs 200 trillion — was Rs 26.2 trillion.
In 2022-23, the total GST collection was Rs 18.19 trillion. If the bottom 50 per cent paid 64.3 per cent of it, as Oxfam claims, then they would have to have paid Rs 11.5 trillion in GST. With this group’s income being Rs 26.2 trillion, Oxfam is suggesting that this group paid nearly 44 per cent of its income and greater than 44 per cent of its consumption in GST, assuming nonzero savings. How could that be the case when the highest GST rate is only 28 per cent, many items have much lower rates and many more are GST-exempt?
The income of the top 10 per cent, meanwhile, as 57.1 per cent of the Rs 200 trillion, was Rs 114.2 trillion. Since the savings of all Indians were about Rs 43.9 trillion, this group’s savings were less than that, and thus its consumption was over Rs 70.3 trillion. If the top 10 per cent paid 3.9 per cent of the total GST, as Oxfam claims, then this group would have paid Rs 0.7 trillion in GST. Since its consumption is over Rs 70.3 trillion, Oxfam is suggesting that it paid less than one per cent of its consumption in GST.
The GST rates that Oxfam suggests, over 44 per cent tax for the bottom 50 per cent and less than one per cent for the top 10 per cent are absurd. They are too far from the truth. And that may explain why Oxfam never revealed how it computed its underlying 64.3 and 3.9 per cent figures.
Since GST accounts for over 25 per cent of the combined tax collected by the central and state governments, if the bottom 50 per cent contribute 64.3 per cent of it, they must be contributing over 16 per cent of the combined tax collections with their GST alone, although they have only 13 per cent of the national income. This figure of 16 per cent, likewise, suggested by the Oxfam finding, is also absurd.
Also read: Philanthropic collaborations can achieve big change. Domestic investors still hold back
Why GST is important
GST is important for two reasons. It taxes the consumption of black money, and, in India, its rates were established by a political consensus. GST is administered by the GST Council, which is headed by India’s finance minister and includes the finance ministers of every state. Almost all major political parties have had their finance ministers in one or more states since the council was formed. The council has worked hard to make the GST as progressive as it could, despite its regressive theoretical base. For example, it has exempted many goods and services from GST because they are consumed in considerable quantities by the bottom 50 per cent.
I therefore call upon India’s finance minister and the chairperson of the GST Council, Nirmala Sitharaman, to use the National Sample Survey Office (NSSO) data on household consumption of various goods and services in India to set the record straight, making public the GST paid by each of the three income groups. An enterprising scholar could also do so.
The Oxfam report also recommended a wealth tax to support education and health. However, some media segments have conveniently ignored such valuable parts of the report, either because they believe that the poor paying 64.3 per cent of the GST is fair or that this income group is too well off to need any help, while the rich are too poor to pay more taxes.
Dozens of economists in the country as well as India-born experts in America, who have degrees from top-ranked universities in Britain and the United States, often comment on the Indian economy and keep a watchful eye on Oxfam’s reports. Yet they have offered no comment on Oxfam’s findings this time. If they are aware of the findings, does this mean that they believe that the poorest 50 per cent pay 64.3 per cent of the total GST and aren’t troubled by that?
Author’s note: Since the figures of Rs 200 trillion for aggregate personal income and Rs 43.9 trillion for aggregate personal savings are my estimates, the readers are free to take any other numbers that are compatible with India’s GDP, and the resulting conclusion would be the same as mine.
Kalyan Singhal is McCurdy Professor of Business at University of Baltimore, a management and scientist, and an economist. Views are personal.
(Edited by Humra Laeeq)
Wealth inequality is an irrelevant ethical measure of a society. So long as everyone grows more prosperous (which is happening in India barring the inevitable bumps along the way) it doesn’t matter whether some grow richer faster than others, In fact, it is inevitable that people will gain money at different rates.
What a fool to write this article without having read the report. Even a single reading will tell that The Oxfam Report with respect to indirect taxes is based on estimated expenditure on certain food items and non-food items. According to the report, of the total GST collected from these food and non-food items, 64.3% is collected from the bottom 50% income group and 3-4% from the top 10% income group. Thus, the percentage is not with respect to the total GST revenue but GST from only some selected items.
And The Print is even bigger fool to put this article on their website.