Emerging Markets

Guess how many people pay taxes in India

Most of the Indian population not paying taxes

Only about 1 percent of India's population paid tax on their earnings in the year 2013, according to the country's income tax data, published for the first time in 16 years.

The report further states that a total of 28.7 million individuals filed income tax returns, of which 16.2 million did not pay any tax, leaving only about 12.5 million tax-paying individuals, which is just about 1 percent of the 1.23 billion population of India in the year 2013.

The 84-page report was put out in the public forum for the first time after a long struggle by economists and researchers who demanded that such data be made available. In a press release, a senior official from India's income tax department said the objective of publishing the data is to encourage wider use and analysis by various stakeholders including economists, students, researchers and academics for purposes of tax policy formulation and revenue forecasting.

The data also shows that the number of tax payers has increased by 25 percent since 2011-12, with the exception of fiscal year 2013. The year 2014-15 saw a rise to 50 million tax payers, up from 40 million three years ago. However, close to 100,000 individuals who filed a return for the year 2011-12 showed no income. The report brings to light low levels of tax collection and a massive amount of income inequality in the country, showing the rich aren't paying enough taxes.

Low levels of tax collection could be a challenge for the current government as it scrambles for money to spend on its ambitious plans in areas such as infrastructure and science & technology. Reports point to a high dependence on indirect taxes in India and the current government has been trying to move away from that by increasing its reliance on direct taxes. Official data show that the dependence has come down from 5.93 percent in 2008-09 to 5.47 percent in 2015-16.

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Economists around the world have warned India of the growing income inequality. In a recent report, the International Monetary Fund (IMF) also pointed to the social risk of growing inequality in countries like India and China. The report highlighted the gap between the rich and the poor and stressed the need for effective fiscal policy that broadens the coverage of social spending. It also pointed to the need for a progressive taxation system that taxes the rich more.

Among others, French economist Thomas Piketty has been a critic of the hidden income inequalities in India and the country's reluctance to part with income data. Earlier this year, Piketty criticized the Indian income tax department in a public forum for their extreme lack of transparency. He stressed the need for pressure from the media and universities on the government to make such data public.

In an interview with the Indian newswire Press Trust of India (PTI) this week, Piketty said the detailed data by income range has only been released for one year.

"For the entire period 2000-2015, the only data that was released is at the aggregate level, total numbers of taxpayers, total tax revenue, etc. In order to study the evolution of income distribution we would need to have the detailed data by income range for all years."

While the economist waits for more data to come through, the Indian government is happy with its first step towards a transparent process. Prime Minister Narendra Modi earlier tweeted that publishing the data was a "big step towards transparency and informed policy-making."

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