India’s economic landscape is marked by stark disparities, with the root causes of poverty in India deeply intertwined with fiscal policies. One such policy discrepancy is the widening gap between the rapid growth of GST and income tax revenue versus the slower growth in corporate tax receipts. While ordinary citizens bear an increasing tax burden, corporations, which benefit disproportionately from economic growth, are not contributing enough to government revenues. This imbalance exacerbates poverty by limiting the government’s ability to invest in welfare and development programs, further entrenching inequality and hindering efforts to reduce poverty.

Key Takeaway: Root Causes of Poverty in India

The disparity between the rapid growth of GST and income tax revenue versus the slower growth in corporate tax receipts indicates that while ordinary citizens face increasing tax burdens, corporations are not contributing proportionally to the government’s revenue.

Excellent work by Narendra Modi and Arun Jaitley

It’s clear that the implementation of the Goods and Services Tax (GST) in India was a significant milestone in the country’s tax reform journey. Under the leadership of then-Finance Minister Arun Jaitley and Prime Minister Narendra Modi, GST aimed to create a transparent and simplified tax framework that unified various indirect taxes across the nation, making compliance easier for businesses and fostering a more conducive environment for economic growth.

Achievements of GST Implementation:

• Simplicity and Transparency: The GST replaced multiple state and central taxes, thus streamlining the tax structure. It aimed to enhance transparency in tax collection and compliance.
• Economic Growth: By facilitating smoother interstate trade and reducing the cascading effect of taxes, GST was intended to drive economic activity and growth.
• Digital Compliance: The introduction of GST came with technological advancements, including a shift toward digital compliance, which reduced corruption and increased accountability.

While the initial implementation of GST was a commendable achievement that sought to create a simpler and more transparent tax system, the challenges observed under Nirmala Sitharaman’s tenure have led to criticism regarding its execution and management.

In Depth Analysis – Root Causes of Poverty in India

• People’s Tax Burden (GST and Income Tax) Has Grown Faster, While Corporate Tax Contributions Have Remained Relatively Low
  • Growth in GST and Income Tax: GST revenues have surged from ₹7.19 lakh crore in FY 2017-18 to ₹20.18 lakh crore in FY 2023-24, and income tax collections have increased from ₹1.39 lakh crore in FY 2010-11 to ₹8.50 lakh crore in FY 2023-24. These figures reflect a significant increase in the tax burden on individuals, particularly lower and middle-income earners, who are subject to higher taxes as consumption and income taxes rise.
  • Corporate Tax Growth: In contrast, corporate tax revenue has grown more slowly, from ₹3.96 lakh crore in FY 2010-11 to ₹8.00 lakh crore in FY 2023-24. Despite a significant increase in corporate profits, the rate of growth in corporate tax receipts remains relatively modest.
  • Explanation: The disparity between the rapid growth of GST and income tax revenue versus the slower growth in corporate tax receipts indicates that while ordinary citizens face increasing tax burdens, corporations are not contributing proportionally to the government’s revenue. Corporations often take advantage of tax exemptions, loopholes, and other mechanisms to reduce their tax obligations, allowing their profits to grow without facing comparable increases in taxes.
  • Impact on Wealth Distribution: This unequal tax burden exacerbates economic inequality. While individuals, particularly in the lower and middle-income brackets, bear the brunt of rising taxes, corporations and their founders benefit from relatively lower tax rates and tax-saving opportunities. This results in a concentration of wealth among corporations and their stakeholders, while the broader population struggles with rising costs and increasing financial strain.
• Rise in Indirect Taxes (GST) and Direct Taxes (Income Tax) Burdens Ordinary Citizens More Than Corporations
  • GST and income tax are direct and indirect taxes that hit consumers and employees disproportionately, as they are more often reliant on consumption and income. The continuous increase in GST and income tax rates has made it difficult for average citizens to keep up with inflation and the rising cost of living.
  • From FY 2010-11 to FY 2023-24, GST collections increased from ₹3.96 lakh crore to ₹7.50 lakh crore, and income tax collections from ₹1.39 lakh crore to ₹8.50 lakh crore. This is significantly higher than the growth rate of corporate tax collections, which have grown from ₹3.96 lakh crore to ₹8.00 lakh crore.
• Stagnation in Corporate Tax Growth While Corporate Profits Soar
  • Corporate tax revenue growth has been comparatively slow, despite a significant increase in corporate profits. For instance, in FY 2015-16, corporate taxes were ₹4.88 lakh crore, and by FY 2023-24, this grew to ₹8.00 lakh crore. Meanwhile, corporate profits have soared as companies have found ways to minimize their tax obligations, including exploiting tax breaks and utilizing international tax loopholes.
  • This stagnation in corporate tax growth, despite rising corporate earnings, means that corporations are not contributing their fair share to the national revenue, leading to a situation where the tax burden is disproportionately borne by ordinary individuals.
• The Inequitable Distribution of Tax Burden Between People and Corporations
  • The tax burden is increasingly concentrated on individuals rather than corporations. As corporate profits grow, the growth in corporate tax contributions has not kept pace with the increase in income and consumption taxes. This results in an unfair tax structure, where individuals bear the brunt of the country’s tax revenue while corporations, which are in a better position to pay, do not contribute proportionately.
  • A closer examination reveals that the total tax contributions from corporate taxes (₹8.00 lakh crore in FY 2023-24) are far lower than the combined increase in GST and income taxes over the same period.
• Impact of Increasing Debt Levels on Ordinary Citizens
  • India’s national debt has been steadily increasing, growing from ₹39.44 lakh crore in FY 2010-11 to ₹119.00 lakh crore in FY 2023-24. While India’s GDP has also increased during this period, the increase in national debt has significant implications for future generations. The debt burden will ultimately have to be repaid, and much of it will fall on ordinary citizens, as they will face higher taxes or cuts in public services to address the growing debt.
  • Despite the rising debt, corporate entities often benefit from tax incentives, bailouts, or other forms of government support, leaving individuals to shoulder the tax burden required to service this debt.
• Disproportionate Growth of Corporate Profits vs. Personal Earnings
  • Corporate profits have been increasing at a much higher rate compared to the personal income of individuals. For example, the Indian economy’s total GDP has grown significantly, but wages for ordinary workers have not seen the same level of growth. This disparity further contributes to the growing wealth gap between corporations (and their founders) and the general population.
  • The growth of corporate tax contributions has not matched this increase in corporate profits, which means corporations and their founders are disproportionately benefiting from the economic growth, while the average citizen’s income stagnates.
• The Role of Globalization and Technological Advancements in Exacerbating Inequality
  • Globalization and technological advancements have allowed companies to expand internationally, often avoiding local taxes by shifting profits to low-tax jurisdictions. These practices, while legally permissible, contribute to the disparity in tax contributions. Ordinary citizens, in contrast, are not able to avoid taxes, making them vulnerable to the rising tax burden.
  • The rise of digital and multinational corporations, which often pay minimal taxes in the countries they operate in, further exacerbates the inequality, as these corporations take advantage of global tax strategies.

Data

In INR

In USD

Root Causes of Poverty in India: Sources

1. CGST, SGST, and GST Data:
   • Official Government of India GST Portal and Ministry of Finance Reports.
2. Corporate Tax, Income Tax, and Customs Duty:
   • Ministry of Finance, Government of India.
   • Economic Survey and Annual Budget Reports.
   • Tax Policy and Administration Reports.
3. USD-INR Exchange Rate:
   • Reserve Bank of India (RBI) and other financial platforms such as XE, OANDA.
4. India Population:
   • World Bank and United Nations Population Division.
   • Census of India Reports.
5. India GDP:
   • Ministry of Statistics and Programme Implementation (MOSPI), Government of India.
   • World Bank GDP data.
6. USA GDP:
   • U.S. Bureau of Economic Analysis (BEA) and International Monetary Fund (IMF).
7. India Debt:
   • Ministry of Finance, Government of India.
   • RBI Annual Reports on Fiscal Policy.
8. USA Debt:
   • U.S. Department of the Treasury.
   • U.S. Federal Reserve and Congressional Budget Office (CBO).

• GST 6th Anniversary: A Journey from 2017 to 2023
  URL: https://timesofindia.indiatimes.com/blogs/voices/gst-6th-anniversary-a-journey-from-2017-to-2023/?utm_source=chatgpt.com
• India – Income and Corporation Tax Revenue (2014-2023)
  URL: https://www.statista.com/statistics/1156005/india-income-and-corporation-tax-revenue/?utm_source=chatgpt.com
• Research Paper: Pratap Singh – Taxation and Economic Policies in India
  URL: https://www.isec.ac.in/wp-content/uploads/2023/07/WP-448-Pratap-Singh-Final.pdf?utm_source=chatgpt.com
• India – Sales Tax Rate
  URL: https://tradingeconomics.com/india/sales-tax-rate?utm_source=chatgpt.com
• GST and Income Tax Revenue in India: An Analysis
  URL: https://www.financialexpress.com/india-news/gst-and-income-tax-revenue-in-india-an-analysis/
• India’s Tax System: Challenges and Opportunities
  URL: https://www.livemint.com/opinion/columns/india-s-tax-system-challenges-and-opportunities-11601434306595.html
• The Growth of India’s Corporate Tax Revenue
  URL: https://www.moneycontrol.com/news/business/economy/the-growth-of-indias-corporate-tax-revenue-7997401.html
• Impact of GST on India’s Tax Revenue
  URL: https://www.business-standard.com/article/finance/impact-of-gst-on-india-s-tax-revenue-117121200477_1.html
• How India’s Tax System Contributes to Poverty
  URL: https://www.thehindubusinessline.com/economy/how-indias-tax-system-contributes-to-poverty/article26767265.ece
• India’s Tax System: A Tool for Income Inequality?
  URL: https://www.downtoearth.org.in/blog/economy/india-s-tax-system-a-tool-for-income-inequality-71499
• The Role of Corporate Taxation in India’s Economy
  URL: https://www.minttwist.com/articles/corporate-taxation-in-india-economy
• India’s Growing Tax Collection: A Mixed Bag for the Poor
  URL: https://www.financialexpress.com/india-news/indias-growing-tax-collection-a-mixed-bag-for-the-poor/
• The Struggle of India’s Middle Class in the Tax System
  URL: https://www.hindustantimes.com/analysis/the-struggle-of-india-s-middle-class-in-the-tax-system/story-Fyby00EDLVo4Uwft6OAyvI.html
• Understanding India’s Tax Reforms and Their Impact
  URL: https://www.thehindu.com/business/economy/understanding-indias-tax-reforms-and-their-impact/article34457774.ece

Questions we answer about Root Causes of Poverty

• What are the root causes of poverty in India?
  “The root causes are deeply linked to fiscal policies, particularly tax disparities.” [Search “Root Causes of Poverty in India” for more.]
• How has GST contributed to the widening gap between rich and poor in India?
  “GST disproportionately burdens ordinary citizens while corporations benefit from lower tax contributions.” [Search “People’s Tax Burden” for more.]
• Why is corporate tax growth slower compared to GST and income tax?
  “Corporations exploit loopholes and tax exemptions, limiting their contribution to national revenue.” [Search “Stagnation in Corporate Tax Growth” for more.]
• How do rising corporate profits exacerbate poverty in India?
  “Corporations grow wealthier, but their tax contributions don’t rise proportionally, leaving ordinary citizens to bear the tax burden.” [Search “Disproportionate Growth of Corporate Profits” for more.]
• What impact does corporate tax stagnation have on government welfare programs?
  “Slower corporate tax growth reduces government revenue, hindering welfare programs and economic development.” [Search “Impact on Wealth Distribution” for more.]
• Why does the tax burden fall more heavily on ordinary citizens?
  “With higher GST and income tax rates, average citizens face greater financial strain, while corporations avoid substantial taxes.” [Search “The Inequitable Distribution of Tax Burden” for more.]
• How has the national debt impacted the average citizen in India?
  “Rising national debt forces future generations to repay it, mostly through higher taxes or reduced public services.” [Search “Impact of Increasing Debt Levels” for more.]
• What role do corporate tax exemptions play in India’s economic inequality?
  “Corporate tax exemptions allow large firms to avoid contributing their fair share, worsening income inequality.” [Search “Growth in Corporate Tax” for more.]
• How does the increasing cost of living affect poverty in India?
  “Rising GST and income taxes make it harder for lower-income individuals to cope with the increasing cost of living.” [Search “Rise in Indirect Taxes (GST)” for more.]
• What is the connection between tax policies and wealth distribution in India?
  “Unequal tax policies favor corporations and wealthy individuals, concentrating wealth among the rich.” [Search “Impact on Wealth Distribution” for more.]
• Why is India’s tax system unfair to its citizens?
  “Corporate tax rates don’t reflect profits, leading to an unfair tax system where citizens shoulder more of the burden.” [Search “The Inequitable Distribution of Tax Burden” for more.]
• What has been the impact of the GST on small businesses in India?
  “Small businesses struggle to meet the growing tax burden under GST, which benefits larger corporations.” [Search “The Disparity Between GST and Corporate Tax” for more.]
• How does the lack of corporate tax growth affect India’s poverty reduction efforts?
  “Slower corporate tax growth limits the government’s ability to fund poverty reduction initiatives.” [Search “The Role of Globalization and Technological Advancements” for more.]
• Why is the gap between corporate tax growth and individual tax growth concerning?
  “This gap signals that wealth is concentrated in corporations, with individuals facing increasing tax burdens.” [Search “Growth in GST and Income Tax” for more.]
• What are the consequences of rising indirect taxes on the poor?
  “Indirect taxes, like GST, disproportionately impact the poor, as they spend a larger portion of their income on taxed goods.” [Search “Rise in Indirect Taxes (GST)” for more.]
• How does India’s corporate tax system contribute to inequality?
  “The slow growth in corporate tax receipts despite high corporate profits exacerbates income inequality.” [Search “The Disproportionate Growth of Corporate Profits” for more.]
• How does corporate profit shifting to tax havens affect India’s tax revenue?
  “Corporations shifting profits to low-tax jurisdictions evade taxes, reducing India’s overall tax revenue.” [Search “Globalization and Tax Strategies” for more.]
• What is the role of digital tax compliance in reducing corruption in India?
  “Digital tax compliance has improved transparency and reduced corruption, benefiting the government’s revenue collection.” [Search “Achievements of GST Implementation” for more.]
• How does India’s national debt impact fiscal policy and poverty?
  “As the national debt grows, it strains government resources, leaving fewer funds for poverty alleviation programs.” [Search “Impact of Increasing Debt Levels” for more.]
• What role do technological advancements play in India’s tax challenges?
  “Global tech companies use tax loopholes and shifting profits, contributing to lower tax receipts and higher inequality.” [Search “The Role of Globalization and Technological Advancements” for more.]