'We're over-taxing our people': Economist Surjit Bhalla slams India's tax rates, says it's higher than US, Korea

Former IMF Executive Director Surjit Bhalla has raised concerns about India’s tax policies, calling the burden on its citizens unprecedented. “Our taxation— we are overtaxing our people to an extent not known in any other country,” Bhalla said in an interview with NDTV, citing IMF, OECD, and World Bank data.

India's tax-to-GDP ratio, including all state, local, and central taxes, currently exceeds 19%, far above the 14.5% seen in East Asian economies like China and Vietnam. “China has been growing faster than us, and East Asia has performed enormously well. So my question is, let’s just look at what kind of taxation policies they follow and have followed because we’ve got the data now. And the tax-to-GDP ratio in East Asia as a whole is around 14.5%. We are 19%,” Bhalla said.

“Why are we at the level of Korea and the US? They are about 10 times richer than us. As everybody knows, as your income goes up, your tax goes up as a share. Why we are that high is something that I think the government needs to explain,” the economist said.

Bhalla also expressed concerns over foreign direct investment (FDI) trends. “In 2014, when the new government came into being, the FDI as a percent of GDP in India was something like 2.5%, which was one of the highest in the world. Today or last year, it went down to 0.8%. The last time India had such a low FDI-to-GDP ratio was in the mid-1990s,” he noted.

While acknowledging the success of infrastructure development, he added, “The infra story has been hugely successful over the last 5 years. So successful that the government thinks that keep doing it and everything will be okay. So infrastructure and across the board—whether it is roads, whether it is sanitation, whether it is electricity, whether it’s water supply—absolutely we are moving fast. But basically, we have lost sight that there are other determinants to growth.”

Bhalla's remarks come as demands for tax relief for the middle class grow louder. Confederation of Indian Industry (CII) President Sanjiv Puri earlier this month suggested reducing the tax rate for incomes up to Rs 20 lakh to boost consumption. “This would increase disposable income and lead to buoyancy in revenues,” Puri said.

Similarly, PHD Chamber of Commerce and Industry CEO Ranjeet Mehta called for a restructured tax slab, proposing a 30% rate for incomes above Rs 50 lakh and a 20-25% rate for Rs 15-50 lakh.

Former Infosys CFO Mohandas Pai urged the government to simplify tax slabs for middle-class taxpayers, recommending no tax for incomes up to Rs 5 lakh, 10% for Rs 5-10 lakh, and 20% for Rs 10-20 lakh.

Finance influencer Akshat Shrivastava said that India’s high taxation was creating massive dissatisfaction among taxpayers. "Cutting taxes and widening the base is the need of the hour,” Shrivastava said, adding that tax relief could encourage spending and reduce the burden on existing taxpayers.

Finance Minister Nirmala Sithraman will present the Union Budget on February 1.