Who Pays Taxes?

Jul 27, 2013

- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
One of the major problems facing the Indian economy is persistent deficits. We run a large budget deficit as well as a large current account deficit. Perhaps the biggest driver of our deficits comes down to the simple fact that very few Indians pay any tax. Tax evasion is rampant in India, and fixing our deficits means we must get better at collecting taxes.

According to government estimates, only 3% of India's population pays income tax. Most individuals who pay tax work as salaried employees where the company they work for deducts their tax before paying their salary. If only 3% of our population is paying tax, what is everyone else doing?

First, a large number of people are exempt from tax because they earn less than 2 lakh rupees a year. Second, all agricultural income is exempt from tax whatever the level of income. Third, there is a large informal sector of the economy that pays no tax. And finally, there is widespread tax evasion by some wealthy individuals. With regards to tax evasion, it is estimated that around 500 billion USD of Indian money is stashed away in Swiss bank accounts so that taxes can be avoided.

If we changed no tax laws but we were able to collect all the taxes that are owed, we would be able to raise enough money to close the budget deficit twice. This is an indication of the scale of problem of tax collection in India. It is unsustainable for 3% of the population's taxes to fund government spending for the whole population. As a comparison, 45% of the US population pays taxes.

When it comes to rejuvenating our economy, we must do a better job of collecting taxes. Furthermore, we must also broaden the tax base. The government is already making efforts to do this, but there is a long way to go. The responsibility to pay taxes must also fall on the individual. Many individuals take the view that it is okay to evade taxes because there is a good chance it will end up in a politicians pocket anyway. While there is certainly some truth to this view, in the long run we will all be worse off if we can't change this behavior.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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23 Responses to "Who Pays Taxes?"


Aug 5, 2013

Another point I want to make is on the very nature of Income Tax. It is basically a social tax. (Tax higher earners and give to poor in terms of benefit). As most of the funds that come from indirect taxes is going anyway for this, I feel that this is tax that can be abolished and expenses of collection saved.
Just saying!
With Regards



Aug 5, 2013

Point to note is that only Income Tax is talked of here, and all citizens pay heavy Indirect Tax. So the money available for the system is quite adequate. As to bridging the gap if more money is collected via Income tax too, it will not happen and we will have more "Food Security" bills and deficit will remain where it is.
While I agree with Dr Asad on many things, I cannot agree with him on this!


satish dabholkar

Jul 30, 2013

Politics is involved in levying the tax. The agriculture income is exempted from payment of tax.Start collecting the tax from rich farmers.It is a simple answer to broaden the tax base.


Vipul Jasani

Jul 30, 2013

The idea of Income tax itself is wrong. Since independence, all Govt. policies have encouraged corruption and inturn tax evasion. Over a period of time, such wrong policies have created parallel economy and has increased the value of money over human being.

As the word "Government" suggests, the Government should only Govern where as in India, Government has become corporate or Business man!!!! All the tax collection dept has been given target like corporates give target to their Sales and Marketing Dept!!!!

There is solution to this problem but is our Govt serious and do they have courage to take drastic and bold steps?????? I think NO as all beneficiaries of such policies are very very happy and they are in power!!!!




Jul 30, 2013



Ajay Gupta

Jul 29, 2013

The second thing in my mind which has not been mentioned is the leakages ( misuse etc. too numerous to mention) in our system even after collection of taxes, the worst part is every one is clearing his hand.



Jul 29, 2013

We as salaried/pensioners are ready to pay taxes even though income is limited/difficult to survive.Business class(lower/middle) in non- organised sector are not ready to part with hard earned money.They also know that their leaders/party operators are all corrupt and making black money.For example ,Shopkeepers having turnover 5/10 lakhs in metro cities including panwala(pan costing Rs20 and more) do not pay income tax whereas they are utilizing all facilities including BPL. Income tax base can be increased only with inclusion of shopkeepers/Panwala/Halwais.


Rajesh Doshi

Jul 29, 2013

Dear Asad, Have been regularly reading and appreciating issues raised in yourcolumn. Today I need to draw your attention that your article is incomplete as you missed using the words "Direct Taxes". All of us know that the heavy Indirect taxes burden every consumer of manufactured goods from Biscuits, toothpaste onwards -and therefore about 80% of earners pay tax in some form or other. Yes, tax evasion must be curbed, but what about the other ills in the Financial system of India ? The IT officers, the Advisors,......? All are working for personal benefit at the cost of the Nation and the trustees of our country are most un-trustworthy. Please find and name trustworthy leaders if you want change.

Like (2)

Roshan Shroff

Jul 29, 2013

The trouble is there is people have no faith in our government-a very poor perception of our politicians - our hard earned taxes end up in politicians pockets anyway.Also, look around you - poverty, slums, poor infrastructure - we are unable to SEE our taxes being used to improve our quality of life. If the population is convinced that the government actually cares about our well-being, them perhaps people would be inclined to pay taxes.

Like (2)

Ashish Agarwal

Jul 28, 2013

Totally agree with the viewpoints expressed and just to add, we the taxpayers wil not be required to pay any tax for generations if we re able to get th money back to our country. Our nation will once again be called "sone ki chidiya" (golden bird), the way it was to Britishers.

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