London School of Economics (LSE) Professor Mukulika Banerjee has sparked a considerable debate in India by asserting that the nation's poor pay a greater proportion of their income in taxes compared to the rich. Speaking in a podcast interview, Professor Banerjee specifically highlighted the Goods and Services Tax (GST) as a key mechanism contributing to this economic inequality.
The Argument: GST's Disproportionate Burden
Professor Banerjee challenged the common perception that only the approximately 3% of Indians who pay income tax bear the country's tax burden. She argued that while income tax primarily affects a small, wealthier segment, GST applies universally to consumption, making it an indirect tax paid by everyone.
To illustrate her point, Banerjee used a simple example: if both a high-income individual and a rickshaw puller purchase the same packet of biscuits, they pay the identical amount of GST. However, when viewed as a proportion of their vastly different incomes, the rickshaw puller's tax contribution is significantly higher. She emphasized that the bottom 50% of India's population disproportionately shoulders the tax load relative to their earnings, citing that 50% of Indians live on less than Rs 6,000 a month, while even a daily-wage earner making Rs 30,000 a month falls into the top 10% of earners.
Criticism and Counterarguments
Professor Banerjee's statements quickly drew criticism from various quarters, including social media users, chartered accountants, and economists, many of whom contended that her understanding of India's taxation system was flawed. Critics pointed out that the GST framework is designed with multiple rates, including a 0% rate on many essential goods and services, specifically to protect the poorest segments of society.
A chartered accountant refuted Banerjee's 'biscuit' example, stating that most essential items like unpackaged rice, lentils, milk, vegetables, basic transportation, rent, and healthcare services are subject to 0% GST. Investment banker Somnath Mukherjee further elaborated that the consumption basket of the rich typically includes items with far higher GST rates than those consumed by the poor. Dhiraj Nayyar, Director of Economics and Policy at Vedanta Group, suggested that significant proportional tax burdens on the poor might only arise from consumption of heavily taxed items like alcohol (via VAT) or tobacco.
Another user highlighted that India's income tax threshold begins at Rs 12 lakh per annum, further reducing the direct tax burden on lower and middle-income groups, while the 0% GST on unpackaged food items forms the majority of the poor's consumption.
Ongoing Debate on India's Tax Equity
The controversy underscores an ongoing national discussion regarding the equity and impact of India's tax system on different socioeconomic strata. While indirect taxes like GST ensure broad participation in revenue generation, their progressive or regressive nature remains a subject of intense scrutiny and debate among policymakers and the public.