One of the little-remarked features of this year’s budget is that for the first time the share of individual taxpayers’ contributions to the government treasury exceeded those of the corporates. According to the data released by the Central Board of Direct Taxes, net direct tax collections amounted to Rs5,74,357 crore (as of July 11, 2024), of which personal income tax was Rs3,46,036 crore, while corporate income tax amounted to only Rs2,10,274 crore. Ordinary Indians, especially from the middle class, are actually giving the government more tax money than corporations.
During the UPA years, personal income tax was 21 per cent of total tax collections, while corporate tax was 35 per cent. Today, the share of corporate taxes out of total tax collections has dropped sharply to its lowest level at just 26 per cent, while the share of personal income tax has increased to 28 per cent.
Corporate tax rates were reduced from 2019, with the expectation that it would lead to a surge in private investment. Logical, provided you create the conditions that encourage companies to invest their money. Instead, private investment has nosedived in the Modi era, from a peak of 35 per cent of GDP under Manmohan Singh to below 29 per cent during 2014–24.
The corporate tax rate cuts have meant a considerable revenue loss for the government. Over the last five years, the aggregate revenue foregone is an astronomical Rs8.7 lakh crore. But what jobs have been created in return? Where is the additional capital investment?
The corporate tax cut has put this money in the pockets of billionaires, who have chosen to sit on their piles of cash, failing to spend it to generate productive employment—while the middle class continues to bear the weight of heavy taxation. In contrast, if money were to be put in the hands of ordinary people, they would pump it back into the economy.
It is a cruel joke that individuals subsidise direct tax cuts for corporates. In the US, income tax revenue does exceed corporate tax revenue. But they have a broader tax base: 43 per cent of the population pays taxes, compared to just two per cent in India. The burden of taxation in India rests on a tiny segment of the population—and they’re not the wealthiest Indians.
Taxes are an important source of revenue for governments. If direct taxes worked fairly, the rich—whether corporates or individuals—would pay more. That’s not how it works, though: corporates are paying less, and the rich have found multiple loopholes to minimise their tax obligations. Our billionaires have found myriad ways of filing their tax returns to ensure that they pay next to nothing on personal income. I contested against one in the last elections, whose last three years of declared taxable income, according to his affidavit, were Rs5 lakh, Rs17 lakh and Rs684! He would have paid far less income-tax than the average taxi driver in that time, while owning a fleet of 24 luxury cars, a private jet and a much-admired collection of high-end motorbikes, and living in a 49,000 square foot mansion in the toniest part of Bengaluru. The salaried, on the other hand, have a rougher time, often paying taxes and deductions at source, and without the kind of creative deductions available to them that the affluent enjoy.
And then there’s GST. This is paid by both individuals and companies, but once again the bulk of the burden is borne by ordinary people buying ordinary things: five per cent on tea, 12 per cent on ghee, 18 per cent on toothpaste, 28 per cent on soft-drinks. GST is regressive, since it is applied uniformly irrespective of the income level of individuals. As a result, consumers with higher incomes pay a smaller share of GST, relative to their incomes, than low-income consumers.
A final irony: the government puts people who earn Rs15 lakh in the highest tax slab, but SEBI bans them from options trading on the grounds that they are too poor to invest. Rich enough to tax heavily, poor enough to be barred from trading! It is time to reverse this injustice and tax the rich—until they invest more and create jobs.
editor@theweek.in