One billion per day

Hello,

Recently one of India’s much loved entrepreneur, business leader, current bureaucrat and a prospective politician Mr Nandan Nilekani said – Only 30 million Indians pay taxes, that’s 3%. And we(India) need to involve more people into the game to achieve what he calls growth through inclusion. I was surprised to read it. It’s unbelievable.

I still can not seem to get over it. It feels unfair. Why am I dutifully paying taxes when 97% of India isn’t? I have been thinking and talking about it. Does it mean 97% of India earns less than Rs 2,00,000/year?(Those who earn less than Rs 2,00,000/year are exempted from paying income tax) That can not be true. So who are these people who earn money but don’t pay taxes?

   0. Corporate salaried employees pay taxes. That is sure.
   1. My maid, earns less than Rs 10,000/month, exempted from tax.
   2. Auto Rikshaw driver, Rs 500-1000/day, pay taxes? I don’t know.
   3. Paani puri & Chai vendor, Rs 500-1000/day, pay taxes? I don’t know.
   4. Grocer, earns taxable income, pay taxes? I don’t know.
   5. Vegetable vendor, earns taxable income, pay taxes? I don’t know.
   6. Business men & Freelance worker, taxable income, pay taxes? I don’t know.
   7. Professionals(priests,doctors,lawyers,actors), taxable income, pay taxes? I don’t know.
   8. Farmers, Brokers, Property owners, taxable income, pay taxes? I don’t know.

I was thinking about this to increase the number of tax payers from current 30 million to say 100 million, ie. 10%. Some improvement. But the more I think, the more it seems impossible to increase the number of tax payers. Because there is no reliable way to know how much these people really earn. We just have to take their word for it. Unless we route every money transaction through a government monitored payment gateway; Which is not happening, at least for now. And even if it was there, I’m sure people will find ways to beat it. So then how do we increase the number of tax payers? How do we involve more people into the game?? If we did, we could abolish the current unfair Income Tax regime which only involves 3% of the India’s population.

In the same article wherein Mr Nilekani quoted the above figure, he also mentioned that India today has more than 700 million mobile subscribers and some 150 million internet users. Let’s say, of these 700 million mobile users, 500 million make 1 call a day(let’s be conservative). If we attach a tax of Rs 1 per call, we get Rs 500 million in one day. According to this study, we currently have around 150 million cable TV subscribers. We are a family oriented nation; We watch TV with our family, right? Roughly 4 people watch TV together? If we attach a tax of Rs 1/head/day we get Rs 600 million per day. Similarly, nearly 75 million people travel every day in India. That includes Indian Railways + State Road Transport buses + City Metropolitan Transport(buses + Metro trains) + Air travellers. If we attach a minimum tax say Rs 4/head/trip we stand to collect around Rs 300 million in one day.

   + 500,000,000 calls/day    x  Rs 1/call   = Rs 500,000,000/day
   + 150,000,000    TV/day   x  Rs 4/day   = Rs 600,000,000/day
   + 075,000,000 travel/day  x  Rs 4/head = Rs 300,000,000/day

That’s collection of Rs 1.4 Billion per day. And the tax per head is hardly Rs 6/day, Rs 180/month, Rs 2160/head/year. I’m sure our able bankers and elite economists can figure out a scheme to balance out such a tax structure so that our phone/cable/travel bills don’t shoot up through the sky and we don’t feel the pinch on our wallet. Couple of years ago there was a talk of implementing a revised Income Tax scheme called – Direct Tax Code – I wonder what happened to that.


[1] http://cis-india.org/telecom/resources/cable-tv
[2] http://boocci.com/the-story-of-an-auto-rickshaws-in-chennai/
[3] https://en.wikipedia.org/wiki/List_of_countries_by_number_of_mobile_phones_in_use

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19 thoughts on “One billion per day

  1. Hello Sir,
    What is the relation between this article and fedoraproject ?

    Tax system is that much complex that Albert Einstein was unable to decode it. Ok, you know a lot about a certain field, yet to reach where Einstein was. Only having IQ greater than Einstein means nothing!! (If you never thought it, start thinking now.)

    Government has several ways to fetch money from its citizens.

    Please before commenting on something, do a good research. I think you are very much aware that presently India is being ruled by 3 notable ex/now Fin. Ministers (President, Prime minister, Finance minister), and watch any news site on Indian economy, you know what you get.

    The class of people you mentioned, you know nothing about how money is being collected from these, watch some bollywood or movie from whatever region you prefere, you will get some idea.

    Tax does not include only INCOME TAX, probably the only thing you know, due to your profession.

    You are in a serious time consuming job, you are better at that. Don’t comment on other field which is beyond your reach, although aparently it seems too easy, it’s actually not.

    That said, if you are working (getting salary) under Mr. Nilekani, or Congress Govt. then, obviously what you have writen, that is justified. But, don’t spread wrong info on an international platform. A request from a poor Indian citizen.

    1. I understand that income tax is not the only tax and there are other indirect taxes via which government collects humongous amounts of money. I’m NOT in favour of introducing new taxes. Idea is to *abolish* the current unfair income tax regime and maybe replace it with something different which involves larger number of people so that its burden per head is much-much less compared to the current one. That too if and only if we could not live without a tax regime. Otherwise just abolish the current income tax regime and stop there. Anyway only 3% are paying it, that too unwillingly.

      1. Ok, you are thinking about socio-economic revolution.

        There are 2 ways: 1) by force, 2) knowing the society, its components i.e., human, this world properly and then planning with super intelligence which will cover future changes, as change is the rule of NATURE.

        For the 1st method, you know what to do. Every elite is doing that.

        Now for the 2nd method:
        First you need to study 1) History of human civilisation (just for a rough idea, don’t trust it that much), 2) Sociology, 3) Philosophy, 4) Psychology, 5) Anthropology, 6) Education (the subject), 7) Management (the subject), 8) Politics (the subject), 9) Administrative systems arround the world, 10) Literatures (it reflects the society at a certain time), 11) Economics, 12) Commerce & International trade.

        Next you need to have good intelligence to predict future changes (ok, I trust you).

        Now after planning, you need to find some sincere persons (very much unlikely to get nowadays) who will actually implement that plan. Have you ever thought why so many plannings in the 65yrs of INDEPENDENT India failed that much? All were done by so much able top quality intelligent persons.

        Last thing, you also need to keep in mind, you are only a human being, in the zeal of being a God, you may become a Devil. Remember Adolf Hitler.

        I don’t know what is your age. I personaly don’t believe in age matters. But if you are born/brought up or lived so many yrs as an elite, the above strategy is just useless to you.

        You don’t need to comment right now, it’s not necessary that you understand everything in this world, about this world, however educated you are, also possessing lots of University degrees means you are a good clerk. If you realy want to do some good for the people, know the people first.

        If you come forward, I am always with you.

  2. Do you know how much “Indirect Tax” All indians pay to the Govt.? Not even a beggar is left out of taxes. Sales tax, VAT, Entertainment tax, Road tax, House tax, Surcharges, and price of petrol is high due to central and state govt. taxes.

    As Indian I hate paying taxes, but indirect taxes takes away more and more. And we indians clearly know what the Govt does with the tax money. Nothing! just buying and selling of politicians for elections.

    You are only looking at the INCOME tax but you are simply not concerned with what happens with the tax money. And every indian individual is taxed indirectly always. So, it is absolutely not fair to ask “heavily indirectly taxed” indians to pay more to the greedy politicians.

    So, most indians including me feel that not paying tax is absolutely right… poor salaried guys they get their salaries taxed at source (Tax Deduction at Source). Else they would also love to avoid paying taxes to corrupt governments.

    1. Exactly! I’m NOT in favour of introducing new taxes. Idea is to *abolish* the current unfair income tax regime and maybe replace it with something different which involves larger number of people so that its burden per head is much-much less compared to the current one. That too if and only if we could not live without a tax regime. Otherwise just abolish the current income tax regime and stop there. Anyway only 3% are paying it, that too unwillingly.

      I understand that income tax is not the only tax and there are other indirect taxes via which government collects humongous amounts of money. What it does with that money is a very different form of a problem, fixing that would require major changes in how we think and participate in the governance process.

  3. ” If we attach a tax of Rs 1 per call, we get Rs 500 million in one day.”

    What if each Indian contributes one rupee a day to the treasury? This is an old argument. The government cannot collect taxes without instituting an infrastructure which will cost money. The infrastructure will involve personnel, machines, land (offices), and other expenses. The government will also have to spend money on to make sure everything is in order. You will have to factor in these expensive to your imaginary millions.

    Anyway, I agree with the premises of your essay. A lot of Indian earning more than two lacs each year are not paying taxes.

  4. I usually never comment but this post piqued my interest. I will ask a few questions and hope in finding their answers you will understand the injustice of the scheme you propose.

    1. What is the purpose of taxes? (I am talking about theory not practice)
    2. Why are there tax brackets? (answering the first question correctly, will make this redundant)
    3. What are direct and indirect taxes, pros and cons of both.

    I most sincerely hope you will answer, even if it be a request for an answer.

    1. If I understand correctly(IIUC):

      1. Tax is one of the sources of income for a Government. Government could use this revenue to provide public services like building of infrastructure, healthcare & medical facilities, law & order, social security, disaster management, national defence etc. It is like monthly maintenance charges in housing societies.

      2. Tax brackets for Income Tax, are to ensure that some percentage of one’s income is collected as tax, so that the person does not feel undue pinch on his wallet and still has means to meet his/her needs after paying taxes.

      3. Direct taxes are the ones that are mandated by a government ex. Income tax, Property tax etc. Whereas, indirect taxes are what we pay for using services or consuming goods ex: Value Added Tax(VAT), Service tax etc.

      To clarify little further, Income Tax does not make much sense to me. In a way government is penalising people for earning income; Overlooking a fact that one can not really live without earning means to survive. It’s like taxing because you drink water or eat food. How does one survive without them? Secondly, income tax also does not make much sense to me because as I said in my post, in most cases there is no reliable way to know how much a person earns. As a result, very few(3%) earning people are penalised. Which is bound to make them feel that they are being unjustly penalised and thus be unwilling & unhappy to pay taxes. And the loss in revenue that government suffers from tax-evasion is different.

      However, in the scheme I proposed, tax is based on usage of certain services and irrespective of how much one earns. If one is able to use mobile phone, have cable TV and travel by public transport, I think it is reasonable to assume that he/she could contribute some(Rs 5-6/day, mostly even less) towards common good, no?

      I’d like to know & understand the injustice of such a scheme. Thank you.

      1. > Only 30 million Indians pay taxes, that’s 3%.

        I couldn’t find a citation for this online. where does he mention this? Also, does he mean 30 million pay taxes or 30 million file returns or 30 million have PAN cards?

        > Does it mean 97% of India earns less than Rs 2,00,000/year?

        India’s per capita income is just about 70,000 a year, so it’s definitely not surprising that the rate of tax collections (if that is what he meant) is so low. The 200000/year taxable income is not gross income either. It is income after various deductions, so you may have a salary of close to 500000/year and still not pay a rupee in taxes due to all the deductions that you’re allowed to make on your income. Now try to guess how many people have salaries of 500000 a year outside of IT.

        > It’s like taxing because you drink water or eat food.

        There is such a thing called water tax 🙂

        > However, in the scheme I proposed, tax is based on usage of certain services and
        > irrespective of how much one earns. If one is able to use mobile phone, have cable TV
        > and travel by public transport, I think it is reasonable to assume that he/she could
        > contribute some(Rs 5-6/day, mostly even less) towards common good, no?

        Cable TV connections have a service tax associated with them, so do phone connections, prepaid or otherwise.


  5. Nandan Nilekani: I think, India’s strategic assets have not changed and there is huge upside in the future on productivity – from increased education, from increased urbanisation, from jobs moving into higher income categories from agriculture to other things. I think that, if we really focus on improving productivity, then you’ll get a lot of upside. India has something like 9 million enterprises, only 1 million of them are corporations, only maybe less than 10,000 are listed and maybe less than a thousand are traded. It is a very shallow kind of market. Similarly, only 50 million Indians have passport, which is 5%; Only 30 million Indians pay taxes, which is 3%. So I think if we can just stretch this down and get everybody into the game, whether individuals or corporates, then productivity upside and formalisation of the economy is going to be huge. To me that is where the future is and a lot of what I’m trying to do is really fix those things. Rather than calling it inclusive growth, I would say growth through inclusion. – ET Awards 2013 Jury Round-table, ET Pune 23 Sep 2013.

    > …
    > Now try to guess how many people have salaries of 500000 a year outside of IT.

    I agree. But even after accounting for the allowed tax-savings, only 3% people earn taxable income seems unrealistic.

    > …
    > Cable TV connections have a service tax associated with them, so do phone connections, prepaid or otherwise.

    We still have Income Tax too. My argument is not to introduce additional taxes, but to replace the current unfair Income Tax based regime with a consumption based scheme. So that it involves larger number of people and tax per head drops to the bare minimum sum.

    1. > I agree. But even after accounting for the allowed tax-savings, only 3% people earn
      > taxable income seems unrealistic.

      Actually, even your 3% estimate also seems wrong to me. Here’s why:

      Total population: 1.2 billion
      Women: Approx 45%
      Children: 29.3%
      Senior citizens: 5.6%

      With a conservative assumption that none of the senior citizens and children work and only 10% of women work, only about 35-40% of the population counts as earning workforce. So 30 million out of 500 million people pay tax. That is about 6% instead of 3%, which is actually quite understandable. Now if you factor in the fact that 20% the population is under the poverty line, this figure rises to 7.5%.

      Now comes another fact that agricultural income is exempt from tax. Even if you consider that half of employment is agriculture based, your figure rises to 15%.

      So now consider that 15% of the earning population that is not below the poverty line, pays taxes. While this is an indication of how a large chunk of people don’t pay taxes despite having significant earnings (traders, shopkeepers and other cash business owners and workers), it is a bigger indication of the disparity in incomes. In fact, I suspect Nandan Nilekani mentioned the figures in the latter context than the former.

      > We still have Income Tax too. My argument is not to introduce additional taxes, but to
      > replace the current unfair Income Tax based regime with a consumption based scheme.
      > So that it involves larger number of people and tax per head drops to the bare minimum
      > sum.

      They’re different things, so you cannot replace one with the other. Income taxes are higher for richer people merely because they can afford it. If you put heavy duties on services, the effect of that will be worse:

      – Inequality in consumption, with the rich hogging even essential consumption items
      – Income disparity becoming even worse
      – The gray market becomes much more popular for such services and goods.

      A simpler idea (if netting higher taxes is your goal) is to crack down on traders and cash businesses. However, they’re one of the highest contributors to Indian politics (especially a certain saffron party everyone seems to be rooting for on social media nowadays), so don’t hold your breath on that happening anytime soon.

      1. >
        > Actually, even your 3% estimate also seems wrong to me. Here’s why:
        > So now consider that 15% of the earning population that is not below the poverty line, pays taxes. While this is an indication of how a large chunk of people don’t pay taxes despite having significant earnings (traders, shopkeepers and other cash business owners and workers), it is a bigger indication of the disparity in incomes. In fact, I suspect Nandan Nilekani mentioned the figures in the latter context than the former.

        Well first, it is not my 3% estimate. Second, it hardly makes a difference to represent 30 million/1.2 billion as 3% and 30 million/200 million as 15%. Point is there is huge population which does not pay taxes. Obviously, reason for not paying taxes is either they don’t have taxable income or they are evading it. The consumption based scheme includes major portion of our population. Even considering 200 million earning people, Rs 5/day gives us Rs 1 billion/day.

        >
        > Now comes another fact that agricultural income is exempt from tax. Even if you consider that half of employment is agriculture based, your figure rises to 15% … They’re different things, so you cannot replace one with the other. Income taxes are higher for richer people merely because they can afford it.

        That is what I find unfair. There are farmers who earn enough to drive around in BMWs yet are exempted from tax. Whereas other richer people pay higher taxes merely because they can afford it. Besides It is not replacing one tax with another, but abolishing current way of collecting income tax and piggybacking it with the consumption. Nevertheless I agree, it looks like additional consumption tax.

        >
        > If you put heavy duties on services, the effect of that will be worse:
        >
        >- Inequality in consumption, with the rich hogging even essential consumption items
        >- Income disparity becoming even worse
        >- The gray market becomes much more popular for such services and goods.

        I don’t see this happening with minimal(Rs 5/day) consumption based tax scheme.

        >A simpler idea (if netting higher taxes is your goal) is to crack down on traders and cash businesses.

        Heh, that is naive. If it was easy to crack down on the tax evaders, we wouldn’t have such low percentage of tax payers. 🙂

      2. > That is what I find unfair. There are farmers who earn enough to drive around in BMWs
        > yet are exempted from tax.

        Yes, it is unfair.

        > I don’t see this happening with minimal(Rs 5/day) consumption based tax scheme.

        Imagine the cost overhead of collection of such taxes from everyone.

        > Heh, that is naive. If it was easy to crack down on the tax evaders, we wouldn’t have such
        > low percentage of tax payers.

        Crackdowns happen, but unfortunately our population is so high that it still ‘lets go’ of a very large number of people.

  6. >Imagine the cost overhead of collection of such taxes from everyone.

    Well, we already pay monthly bills for phone/cable/travel etc. I think we could use the same set-up.

  7. I agree your post but nobody can’t take changes In politics if any trust person will take India to lead we will feel the independents which is got from the British when we got it that exchange rate of Indian rupees is 1indian rupees = 1 American dolar now I think you know what happen why is the difference I think all should me made by politics I hate politics

  8. Sir
    It is hard to believe that only 3% of indian pay taxes but I bring u to notice that politician make huge loss to action our resource and collect revenue and I think u better have a knowledge regarding what iam talking about plzz change the way and system so that our contry grow

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