India’s poor pay more in tax in proportion to the rich, says LSE anthropology prof; faces flak

India’s poor pay way more tax in proportion to what the rich in the country pay – by way of the Goods and Services Tax (GST), said Mukulika Banerjee, Professor of Social Anthropology at the London School of Economics in a podcast interview with former BBC journalist, Pervaiz Alam. 

She said with 3 per cent of the population being taxpayers, it might appear that a certain bracket is shouldering the burden of taxes in the country, but this is incorrect. Banerjee said that the poor pay far more in terms of the proportion of their income in taxation. Banerjee’s statements were refuted by social media users, with many saying that’s not really how GST or the taxation system works in India. 

‘POOR FAR OUTPAY THEIR SHARE’

Speaking on the podcast ‘London Vārta: New World Order’, Banerjee said in India, people immediately associate the word ‘tax’ with ‘income tax’. “People like us tend to think that we are the taxpayers because only a very small percentage – around 3% – pay income tax in India. So people assume that 3 per cent of Indians pay taxes while the remaining 97 per cent simply benefit from them," she said. 

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"But the truth is that GST applies to everyone. Everyone pays indirect taxes, and poorer people in India are actually paying more tax in proportion to their income than the rich," said Banerjee.

She elaborated with the help of an example. “You and a rickshaw puller buy the same packet of biscuits, so both of you pay the same GST. However, the rickshaw puller earns far less than you. When you keep his income in mind, you will realise he is paying a far larger share as tax,” she said. 

Banerjee said that the bottom 50 per cent of India’s population is paying more tax proportionately relative to their income. 

She said, let’s assume a daily-wage earner, be it a construction worker or fruit vendor or a cab driver or a pavement tailor, is earning Rs 30,000 a month. That certainly is not enough in a major city but it falls in the top 10 per cent of earners in the country. “Can you even imagine? The top 10 per cent of the citizens are daily-wage earners? Imagine the condition of the rest of the 90 per cent,” she said, adding that 50 per cent of Indians live on less than Rs 6,000 a month. 

Banerjee said that the social inequality in India is quite high. The top 10 per cent has 40 per cent of the country’s wealth, she said.

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‘POOREST NOT SUBJECTED TO GST BURDEN’

Banerjee’s comments initiated a discussion, with many saying her understanding of the taxation system is flawed. Many also mentioned that it is the standard way of applying GST, which is not imposed according to income brackets.

“The baseline for GST Rate itself was to ensure that the poorest of poor shouldn't be subjected to additional cost by way of GST. Any ordinary CA will tell you that most of the essential goods and services are subjected to "ZERO GST". Rice (unbranded/ loose/ unpackaged), lentils/dals, pulses, milk, vegetables, meat, school fee, school transportation, regular bus transportation, non-AC train transportation, home rent, health care services etc.  And I am not even highlighting the significant portion of goods/services provided by the government under various schemes free of cost to the masses,” said a chartered accountant, calling her example of the biscuits a decoy.

"Tautologically, the consumption basket of the rich has far higher GST than that of the poor (0% for most, 5% on Parle-G biscuit). India's sub-middle classes pay very little tax," said investment banker Somnath Mukherjee. 

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Dhiraj Nayyar, Director of economics and policy at Vedanta Group said, "The only scenario in which the poor would pay more taxes as a proportion of their income than the rich is if there is an alcohol dependency in the family. No GST on that. But VAT payment may be significant. Maybe if there are chain smokers too."  

“In India, tax burden on poor is among the lowest as income tax starts at 12LPA & we have multiple GST rates, including 0% GST on items like unpackaged food, which form the majority of the consumption basket of the poor,” said another user.