Wednesday, October 23, 2019

Are Indians bribing the government?

"A small portion of India's salaried population pays the bulk of its individual income tax, which gets redistributed to others and doesn't benefit the taxpayers that much," wrote Vivek Kaul. The taxpayer in India feels cheated. "The roads continue to have potholes. The traffic never ends. The public transport system never seems to expand fast enough. The healthcare system is non-existent. The legal system takes years to give a judgement. The police are corrupt and so on." But, even among salaried employees there is a vast difference between government employees who get wages and perks that high-ranking officers in the private sector cannot even dream of. The basic salary of the lowest grade of government employee has been raised to Rs 18,000 under the Sixth Pay Commission and Dearness Allowance has been increased to 17%, taking the minimum pay to Rs 21,060 which puts every government employee over the minimum threshold for paying income tax. They get healthcare for life under the Central Government Health Scheme (CGHS), including dependent family members. Employees are paid pension for life and recently pensions for family members were increased. Taxpayers in the private sector get nothing for the millions they pay in income tax during their working lives. Indian politicians and civil servants are convinced that a large number of people are not declaring their true income and so the tax department has been charged with "widening the tax base". Seems that they have been spectacularly successful because the number of taxpayers has jumped by 13.8% to 84.5 million in the last financial year. We are not told if the rise is exclusively due to the humongous rise in salaries of government workers. So how many Indians should be paying income tax? S Jaiswal calculated that at least 21% of  the population, that is 270 million people, should be paying income tax in India. His calculation is based on the total number of voters in India at 830 million. The labour force participation rate (LFPR) fell to 49.8% in 2018, which means that around 410 million people are working or actively looking for work. For women LFPR fell to 23.3%, while the LFPR for men stood at around 56%. According to the Azim Premji University, 92% of women and 82% of men earn less that Rs 10,000 per month, which would be less than half the minimum threshold for paying income tax. According to these percentages it appears that too many, and not too few, Indians are paying income tax. Are they inflating their incomes because of fear of the taxman? A kind of bribe to the government to stay in peace. Tax terrorism works.

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