GST to Increase Tax Burden for the Poor in India: Surajit Mazumdar

Surajit Mazumdar says that India’s tax structure is regressive in character, because it is heavily biased towards indirect taxes, the burden of which falls disproportionately on poorer sections. The large majority of people in India, despite their incomes being very low, actually pay taxes. This is because whenever you buy something, somewhere or the other there is an element of taxation that enters into it through indirect taxes.

At the same time, India’s India's tax-to-GDP ratio is exceptionally low - just 18%, centre and states combined. Progress would entail an increase in the tax-to-GDP ratio, and this increase should be in a manner where the proportion of direct taxes should increase relative to the proportion of indirect taxes. The state needs to generate more revenue from those who have the ability to pay and step up public spending in areas which will benefit the poor.

Two-thirds of our taxes come from indirect taxes. The norm is the other way around – two-thirds should come from direct taxes.

But that is not what the GST is attempting to do, as the government is relying on indirect rather than direct taxes to attempt to generate more revenue.

It is a myth that is being propagated that this is a win-win situation where the people will have to pay less tax and yet the state will have more revenues.

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