Average Tax Paid By An Indian In An Year : Services He Gets In Return

Tax Paid By An Indian: Some needs of individuals are personal (Eg: To own a car). But in a society there are needs and demands which are common for many (Eg: a public road for all car owners). It is almost impossible for an individual to satisfy all the common needs by his own effort (like new bridges, roads, railways, telecommunication lines, schools, hospitals etc.) and hence collective action by society turns vital.

Concept of Tax and Authority to Collect Tax

It is at this junction, the concept of tax collection and government (the authority to collect tax) originates. Individuals give share of their income in the name of tax to a common pool which is managed by an elected representative body known as government. The government spends the public money to give the donors essential services.

This is a lucid explanation of the concept of tax and government to show that it is not a favour of government to provide services to the citizens, but it’s for that purpose they are elected. It’s is the right of the tax payers to get services in return.

Every citizen pay tax!

You might not be fully aware on this but it’s the reality. You might not be paying direct taxes, but in case if you have ever bought any thing from any shop in your life time, you have paid a share as sale tax to government! If you ever had joined any coaching classes or had food from an AC restaurant, you might have paid service tax too.

But have you ever wondered whether you got the services back in return for the taxes you paid – either from the side of central government or state government? Do you know how much is the average tax paid by an Indian in an year? Or in a better language, what is the tax share per person, if the total tax revenue of government is equal divided among all its citizens?

What Is The Average Tax Paid By An Indian In An Year?

Most of the modern governments are run by means of taxes. Both centre and state governments impose tax upon people and the taxes can be direct tax (like income tax) or indirect tax (like sales tax or service tax).

In a land of more than 120 crore people, how many pay Income tax – a major direct tax? The numbers are surprisingly low at 2.7% (3.4 crore individuals only!). This means our direct tax base is too small. Only the middle class and above are squeezed for income tax. But don’t assume that only these 3.4 crore individuals pay tax in India, others too pay tax – often in the indirect tax way, like that of sales tax.

All Indians pay one or the other kind of tax. The size of population who pays direct tax is small, as this tax is based on income limit, but every one irrespective of their income has to pay indirect tax. People pay indirect tax when they buy any stationary item – say a soap or shampoo.

Not only individuals, but companies pay tax!

The major share of tax revenue for the government is not paid by individuals, but by corporations. Companies pay around 4 Lakh crores an year to the government.

Total tax revenue of Indian Government as per Budget 2013

As per Indian Budget 2013, the total tax revenue of India is around 12 lakh crore rupees (Center gives a part of this amount to different states as state’s share of taxes). As this amount is not enough to meet the expenses of 120+ crore people (calculated as 16.5 lakh crores), government borrows around 5.5 lakh crore rupee more from market/banks.

Tax share per individual living in India

Hope it’s now clear that very few individuals pay direct income tax and much of the share of tax revenue to the centre is through indirect taxes and direct corporate taxes. In case of direct taxes, it is the middle class and corporates who take the burden of major share of taxes. That’s not the case with indirect taxes, the tax burden is equally distributed across all sections of the society – rich or poor. In that sense, if the total tax revenue collected is equally divided among the 120 crore population of India, what is the tax share contributed by a person?

Take 12 L Crore as the total tax revenue collected by centre. Population of India for ease of calculations can be written down as 120 crore. Dividing 12 L C by 120 crore, we get Rs.10,000 as the average tax paid by an Indian in an year to central government. This is not the end! He need to pay state-government too. An approximate estimation leads to the finding that the same amount is the tax share of the individual to his state government per year, ie Rs.10,000. So the total tax amount of a citizen in India is Rs.10,000 + 10,000 = Rs.20,000/-. This figure also points that a family of 4 pays Rs.80000/– per year to government. But does the central and state governments provide services equaling the amount paid by the citizens?

The per-capita income of an Indian in an year as per latest data is as Rs. 68,000 ( Rs.5729/month). Rs.20,000 as tax share out of Rs.68,000 in income translates to near 30% tax.

This is the tax share per individual of India – Every individual pay Rs. 30 to government (15 each to state and centre) for every Rs. 100 he earn. This effective tax rate is not so high, many foreign countries has tax rates ranging from 40 – 60%. The problem with India is the low per capita income. After paying Rs. 20000/- as tax to government and Indian is left only with Rs. 48000 (that is Rs.4000 per month) to live, which is really tough at the current level of prices.

Government can increase taxes only if the  per-capita income is increased to significant levels ensuring a dignified level of life for each individual. Besides, the tax collected should turn into visible assets accessible to every person.

Services An Indian Gets In Return For His Tax Share

In a democracy, people are supreme; and not ministers, judges or executives. People are paying part of their income as taxes so that an elected central authority will re-distribute that income and make good initiatives for the development of the country and people.

People pay taxes so that they get good roads, railways, hospitals, schools etc. Poor and weaker sections need to be uplifted. Often politicians announce policies and grants as their gift to people as if we are living at the mercy of them. In actual sense, we are paying them – including their salary – every individual contributes near Rs. 20,000 per year (a family – Rs.80,000/-) and common people are bound to get the corresponding benefits in return.

90% of Indians live and die in the same locality they are born, and if development does not come in that area in their life time, their tax money is wasted. So it is the duty of the government to distribute the tax money properly, produce good initiatives which provide for more jobs and services to people.

PS: The figures of tax are approximate estimates based on budget 2013. This post does not imply that every family of 4 pays Rs.80,000 as tax to the government, it is just an average figure based on loose approximations. The figure is reached by taking into consideration the corporate tax too into the tax pool, but it’s worth to ponder if the citizens are getting back services worth the amount they pay as tax.