Explore the tax structure in India and globally. Insights on progressive tax systems, comparisons with the USA and Japan. Understand the impact on citizens and suggestions for potential reforms.

Tax is punitive in India i.e., it is a punishment. A viral statement made by Ashneer Grover in one of his interviews. Many taxpayers agree to this what he stated and can relate to it also.

You may end paying upto 43% of tax in the current tax structure (for old regime), however the surcharge rate has been reduced to 25% for the new regime via Budget 2023.

The direct tax structure in India is progressive tax system i.e. it has a direct relation with the income of the taxpayers.

Let’s understand the tax structure in other countries also.

In USA, they also follow the marginal tax structure which is same as prevailing in India. The same is illustrated below:

FEDERAL INCOME TAX BRACKET FOR 2023
  Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 – $10,275 $0 – $20,550 $0 – $10,275 $0 – $14,650
12% $10,276 – $41,775 $20,551 – $83,550 $10,276 – $41,775 $14,651 – $55,900
22% $41,776 – $89,075 $83,551 – $178,150 $41,776 – $89,075 $55,901 – $89,050
24% $89,076 – $170,050 $178,151 – $340,100 $89,076 – $170,050 $89,051 – $170,050
32% $170,051 – $215,950 $340,101 – $431,900 $170,051 – $215,950 $170,051 – $215,950
35% $215,951 – $539,900 $431,901 – $647,850 $215,951 – $323,925 $215,951 – $539,900
37% $539,901+ $647,851+ $323,926+ $539,901+

Source:  https://shorturl.at/bnSZ5.

Let’s put forward more countries data as well for better understanding:

As per times of India, Ivory Coast, a country located in Western Africa has one of the highest income tax rates with the top bracket taxed at 60%. Now let’s look at countries who are developing or are developed.

The following tax rate structure is of Japan:

Individual income tax rates:-

Brackets of taxable income Tax rates
Up to 1,950,000 yen 5%
Over 1,950,000 yen Up to 3,300,000 yen 10%
Over 3,300,000 yen Up to 6,950,000 yen 20%
Over 6,950,000 yen Up to 9,000,000 yen 23%
Over 9,000,000 yen Up to 18,000,000 yen 33%
Over 18,000,000 yen Up to 40,000,000 yen 40%
Over 40,000,000 yen 45%

The statement made by Ashneer Grover seems to be very lucrative i.e. reducing the tax structure in India and implementing regressive tax system in India but how badly it can affect the public in large. Isn’t? For a developing country like India, we need funds for infrastructure, defence, police, judiciary, public health etc. Without the tax contribution (especially from HNIs), it won’t be easy for the government to meet out the expenditures. India can’t solely be dependent upon tourism. For every rupee in the government coffer, 58 paise will come from direct and indirect taxes, 34 paise from borrowings and other liabilities, 6 paise from non-tax revenue like disinvestment and 2 paise from non-debt capital receipts, according to the Budget documents for 2023-24. A recent example of Sri Lanka can be seen where they are facing huge economic crisis because of their excess borrowing and low tax collections.

It is very much obvious that nobody would pay the tax as high as 40%, like almost half of their income is being paid to the government. But by implementing the flat tax rates, will the government be able to earn more? In my opinion, the answer is big No. Will a person earning 5,00,000 in a year pay 1,00,000 as tax to the government? The residual income would be 4,00,000. Then you will have to manage everything in that 4,00,000. The school fees, daily expenses, rent expenses, medical expenses, do you think by having 33,333 per month in hand be sufficient to meet out these expenses? That’s the reason India has progressive tax system i.e. to reduce the burden those earning less. However, there are people who evades taxes, for that government is already working and hopefully will tackle the same. They are able to track the details through various AI tools also collecting information with different reporting entities so as to curb out the tax evasions.

But what’s the way forward? Is tax avoidable? The answer is strictly NO. You have to pay the taxes as per your slab. However, the tax liability can be reduced by taking various benefits available under the Income Tax Act, 1961 up to the extent available.

I have few suggestions for the government which they may consider:

  • Rationalising the GST tax structure. The government is charging GST as high has 28%. This is the main reason why few businesses under invoice the goods to save taxes and finding multiple ways to save GST. For e.g. The buttons in your shirt are having 18% GST, is it that a luxury? It’s a necessity. The government should look into restructure the GST rates.
  • Providing benefits to old regime also as it is accruing to the new regime viz. Increase in rebate u/s 87 A, providing marginal relief, increasing 80C deduction and various key measures which could benefit the taxpayers in real terms.
  • There should be a transparent reporting of receipts by government too. For e.g., if they are collecting 1,00,000 as direct tax then they need to report on how that 1,00,000 got spent. They should provide the details on how our money being expended then the taxpayer would be more satisfied that it is being used in a correct manner.
  • Taxing agricultural income in hands of taxpayers. The Income Tax Act, 1961 has exempted agricultural income under section 10(1) of the act. Taxing the same would increase their revenue manifold.

The statement seems to be baseless as made by Ashneer Grover i.e. without proper analysis and research. We all need to do our own research before believing something which is being circulated on social media.

However, there is always a scope of improvement and government should think about taking the measures which I have mentioned above with some modifications as they deem fit.

I hope you all liked this article, kindly drop your valuable suggestions too so that I can implement in my further articles.

Author Bio

Qualification: Student- Others
Company: N/A
Location: Varanasi, Uttar Pradesh, India
Member Since: 14 May 2023 | Total Posts: 7
I am a CA Final student, having cleared the second group of CA Finals, with a keen interest in writing articles encompassing both direct and indirect taxation. My objective is to deliver clear and concise conceptual explanations through my articles. View Full Profile

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