Tax Inequality in India: The Urgent Need for Reform, GST, TAX Base and impact of GST on industries and common people.

Taxation serves as the lifeblood of any nation, funding essential public services and redistributing wealth. However, the current tax landscape in India is marred by significant inequalities, disproportionately burdening individuals like Person A who invest in education, upskill themselves, and contribute to economic growth. This article delves into the intricacies of tax inequality in India, advocating for comprehensive tax reform to rectify these disparities and foster a more equitable society.

The Scenario:

Person A epitomizes the epitome of dedication and perseverance, dedicating 20-25 years of his life to acquiring education and valuable skills. Despite enduring periods of joblessness, during which the government provided minimal assistance, Person A remained resolute and eventually secured a decent job through sheer determination and hard work. However, his triumph is short-lived as he finds himself subjected to onerous income taxes and levies on every rupee earned and spent, effectively penalizing his efforts to better himself and contribute to society.

In stark contrast, Person B, lacking the drive and ambition of Person A, chooses to forego higher education and settles for a lower-paying job. Yet, Person B may still benefit from government subsidies funded by taxpayer money and receive additional allowances during election campaigns. Despite making minimal contributions to economic growth or societal advancement, Person B escapes the tax burden shouldered by Person A.

Let's compare Person A and Person B in contrast, highlighting their differences and the implications for tax policy:

Education and Skill Investment:

Person A: Dedicates significant time and effort to acquiring education and valuable skills, demonstrating a commitment to self-improvement and societal contribution.

Person B: Lacks the motivation to pursue higher education or develop valuable skills, opting for a lower-paying job without investing in personal growth.

Implication: Person A's investment in education and skill development contributes to economic productivity and innovation, while Person B's lack of initiative perpetuates a cycle of underemployment and stagnation.

Employment and Economic Contribution:

Person A: Despite facing challenges such as joblessness, Person A perseveres and secures meaningful employment through determination and hard work. He actively contributes to economic growth through productivity and innovation.

Person B: Relies on lower-paying jobs and may benefit from government subsidies without making significant contributions to economic progress or societal advancement.

Implication: Person A's contributions to the economy are substantial, fueling growth and prosperity, while Person B's minimal involvement perpetuates dependency and hinders overall development.

Tax Burden and Fairness:

Person A: Bears a disproportionate tax burden, facing high income taxes and levies on every rupee earned and spent. Despite his efforts to improve his circumstances, Person A is penalized by the current tax system.

Person B: Benefits from taxpayer-funded subsidies and may not contribute proportionately to public finances through income taxes or consumption taxes.

Implication: The current tax system unfairly penalizes Person A for his hard work and dedication, while Person B may exploit loopholes to evade taxes, exacerbating inequality and hindering economic progress.

Government Support and Social Responsibility:

Person A: Despite limited government assistance during periods of joblessness, Person A perseveres and contributes positively to society through productivity, innovation, and tax compliance.

Person B: Relies on taxpayer-funded subsidies and may not actively seek opportunities for self-improvement or contribute meaningfully to societal progress.

Implication: Person A demonstrates resilience and social responsibility, while Person B may perpetuate dependency on government support without taking proactive steps towards self-sufficiency.

Person A represents the epitome of hard work, determination, and self-improvement, contributing positively to economic growth and societal advancement.

Person B, in contrast, may perpetuate dependency and underutilization of human capital, potentially burdening the economy and hindering progress.

Analysis:

This scenario illuminates the inherent injustices entrenched within the current tax system. Person A, the epitome of hard work and self-improvement, is unfairly burdened with exorbitant taxes on his hard-earned income and expenditures. Meanwhile, Person B, who contributes little to societal progress, enjoys the benefits of taxpayer-funded subsidies without bearing a proportionate tax burden.

The Urgent Need for Tax Reform: 

The glaring disparities in the current tax system underscore the urgent need for comprehensive reform. A paradigm shift towards a fairer, more equitable tax regime is imperative to rectify these injustices and catalyze sustainable economic growth. Key aspects of tax reform should include:

Abolition of Income Tax: Eliminating income tax would alleviate the burden on individuals like Person A, who invest in education and strive to improve their circumstances. This would incentivize productivity, innovation, and entrepreneurship, fostering economic dynamism and prosperity.

Introduction of Indirect Taxes: Implementing a small tax on all transactions, including consumption, would broaden the tax base and ensure that all segments of society contribute to public finances. Luxury items could be subjected to higher tax rates to ensure progressive taxation and redistribute wealth more equitably.

Encouragement of Economic Growth: By reducing the tax burden on income earners and promoting consumer spending, tax reform would stimulate economic activity, driving investment, job creation, and innovation.

Fairness and Equity: A reformed tax system would uphold principles of fairness and equity, ensuring that individuals contribute to public finances based on their ability to pay and consumption patterns, rather than penalizing hard work and dedication.

Comparative Analysis:

Countries such as Singapore and the United Arab Emirates serve as compelling examples of the transformative impact of tax reform. By prioritizing indirect taxation over income tax, these nations have achieved remarkable economic growth, attracting investment, fostering entrepreneurship, and lifting millions out of poverty.

        Revising the tax slabs and increasing GST rates as proposed can have several significant benefits, particularly in broadening the tax base and creating opportunities within the ecosystem:

Expanded Tax Base: By revising the tax slabs to include a larger proportion of the population and increasing GST rates, the government can significantly expand the tax base. This broader tax base ensures that more individuals and businesses contribute to public finances, reducing the burden on a small percentage of taxpayers.

Increased Revenue: The proposed revisions to tax slabs and GST rates are expected to generate higher government revenue. This additional revenue can be allocated towards essential services such as healthcare, education, infrastructure development, and social welfare programs, benefiting society as a whole.

Progressive Taxation: The revised tax slabs introduce a more progressive taxation system, where individuals with higher incomes contribute a greater percentage of their earnings in taxes. This ensures that the tax burden is distributed more fairly across different income levels, promoting social equity and inclusivity.

Encouragement of Compliance: With a simplified and more transparent tax structure, compliance is likely to improve. Individuals and businesses are more inclined to fulfill their tax obligations when the system is perceived as fair and equitable. This, in turn, reduces tax evasion and fosters trust in the taxation system.

Incentive for Savings and Investment: The proposed tax slabs offer lower tax rates for individuals with lower incomes, providing an incentive for savings and investment. This encourages financial prudence and capital accumulation, which can stimulate economic growth and entrepreneurship.

Inflation Control: Increasing GST rates on goods and services, particularly luxury items, can help control inflation by curbing excessive consumption and demand for non-essential goods. This contributes to macroeconomic stability and ensures the affordability of essential goods for all segments of society.

Promotion of Sustainable Consumption: Higher GST rates on luxury items incentivize sustainable consumption patterns, encouraging individuals to prioritize essential needs over excessive consumption. This aligns with broader sustainability goals and reduces environmental degradation associated with overconsumption.

Boost to Manufacturing and Domestic Production: A higher GST rate on imported luxury goods incentivizes domestic production and manufacturing, supporting local industries and creating employment opportunities. This contributes to economic self-reliance and resilience against external shocks.

These are my personal view and can be biased based on my employment type and personal finance education.