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The Tax Trap: How Governments Exploit Middle and Lower Classes in India
India’s taxation system has evolved into a web that suffocates the middle and lower classes, while providing ample loopholes for the wealthy and corporates to evade their fair share. From direct taxes on income to indirect taxes on essentials, the burden falls disproportionately on those who can least afford it. Governments, whether Congress or BJP, have consistently failed to address this disparity. Instead, they have implemented policies that deepen economic inequality, leaving the common citizen to carry the nation’s financial burden.
Why Do We Need Taxes in Everything?
Taxes are essential for a nation to function, funding infrastructure, healthcare, education, defense, and welfare schemes. But in India, the problem isn’t just the collection of taxes—it’s the sheer extent and inequity of taxation.
1. Direct vs. Indirect Taxes
Direct taxes like income tax are levied on earnings, primarily affecting the middle class.
Indirect taxes, such as GST, are applied to goods and services, disproportionately affecting the poor because they pay the same tax rate as the wealthy on essentials.
As of 2024, 53% of the government’s tax revenue comes from indirect taxes, meaning the poor and middle classes contribute more relative to their income.
2. Tax on Essentials
Basic necessities like food, cooking gas, electricity, and even medicines are taxed. For example:
GST on packaged food and dairy products is 5%-12%.
Cooking gas, a lifeline for most households, carries a tax burden of around 18%.
Fuel taxes make up nearly 50% of petrol and diesel prices, inflating costs across all sectors.
3. Cascading Taxes on Daily Life
From the moment you wake up to the time you go to bed, taxes invade every aspect of life.
Your morning cup of tea? 5%-18% GST on tea leaves, sugar, and milk.
Transportation to work? Taxes on fuel and vehicle maintenance increase commuting costs.
A visit to the doctor? Medicines and medical equipment are taxed at 5%-12%, making healthcare expensive.
These taxes accumulate, ensuring that even the lowest-income households contribute significantly to government revenue.
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How the Government Takes Tax in Everything
The Indian government has created an ecosystem where taxes are embedded in every stage of production, distribution, and consumption.
1. GST: A Complex Burden
When the BJP government introduced GST in 2017, it was supposed to simplify taxation. Instead, it became a multi-slab monstrosity with rates ranging from 5% to 28%. Essential items like rice and wheat are taxed when packaged, while luxury goods like high-end electronics often see lower tax rates due to lobbying.
2. Fuel Taxes: The Hidden Monster
India imposes some of the highest taxes on fuel in the world. As of 2024:
Petrol costs ₹110/liter, with ₹50-₹55 of that being taxes.
Diesel costs ₹95/liter, with taxes accounting for almost 50% of the price.
High fuel taxes inflate transportation costs, leading to increased prices for vegetables, grains, and other essentials.
3. Cess and Surcharges
Beyond direct and indirect taxes, the government imposes cesses (education cess, Swachh Bharat cess, health cess) and surcharges that go directly to central coffers. These add to the tax burden without being transparently accounted for in the budget.
4. Property and Utility Taxes
Buying a home? Stamp duty, GST on construction, and registration fees inflate costs by 7%-10%.
Using electricity? Most states impose 5%-15% tax on power consumption.
Impact on the Middle and Lower Classes
The combined effect of these taxes is devastating for the middle and lower classes.
1. Income Erosion
A salaried middle-class family earning ₹8 lakh annually pays ₹54,000 in income tax. Add GST, fuel taxes, and cess, and their disposable income shrinks by 30%-40%.
2. Inflation and Cost of Living
Rising indirect taxes directly contribute to inflation. For example:
Cooking gas cylinders, subsidized at ₹400 in 2014, now cost over ₹1,200 without subsidies.
Daily essentials like vegetables, pulses, and cooking oil have seen price hikes of 50%-100% due to cascading taxes.
3. Healthcare and Education
Healthcare costs push 6 crore Indians into poverty every year, largely due to out-of-pocket expenses driven by taxed medicines and services.
Private school fees include GST on books, stationery, and uniforms, making education unaffordable for many.
The BJP vs. Congress Tax Policies
Both Congress and BJP have failed to prioritize the middle and lower classes.
1. Congress Era
Congress introduced schemes like MGNREGA and food subsidies but failed to reform the tax system meaningfully. Income tax brackets remained outdated, and indirect taxes continued to rise.
2. BJP Era
Under BJP, the introduction of GST and increased fuel taxes worsened the situation. Sitharaman’s decision to slash corporate tax rates in 2019 cost ₹1.45 lakh crore, money that could have been used to reduce the burden on common citizens.
The BJP government often justifies high indirect taxes by pointing to infrastructure spending. Yet, public services like healthcare, education, and public transport remain underfunded and inaccessible.
Why Nirmala Sitharaman’s Policies Fail the People
Under Nirmala Sitharaman, India’s economy has become more corporate-friendly at the expense of the common man. Her policies reflect a lack of empathy and understanding of ground realities.
1. Lack of Relief During Crises
During the COVID-19 pandemic, instead of offering relief, Sitharaman increased excise duties on fuel, worsening inflation. Stimulus packages were skewed towards corporates, leaving small businesses and daily wagers struggling.
2. Tone-Deaf Statements
Her infamous comments, like blaming millennials for the automobile slowdown, showcase a disconnect from reality. Such remarks trivialize genuine economic challenges.
Why Manmohan Singh Was a Better Leader
Manmohan Singh’s tenure as Finance Minister and Prime Minister provides a stark contrast. His policies emphasized growth, equity, and poverty alleviation.
1. Reforms That Empowered All
Singh’s liberalization policies in 1991 laid the foundation for a modern economy, creating millions of jobs. He prioritized poverty reduction, cutting poverty levels from 45% in 1993 to 21% in 2011.
2. Fiscal Discipline
Unlike Sitharaman, Singh maintained fiscal discipline. His government avoided populist measures and focused on sustainable growth.
3. Balanced Taxation
Singh’s tenure saw rationalized tax brackets and increased foreign investment without burdening the common man. His leadership inspired trust and confidence, something sorely lacking today.
A Call to Action
The Indian tax system needs an urgent overhaul to ensure fairness and equity. Governments must:
Implement Progressive Taxation: Tax the ultra-rich and corporates more aggressively.
Reduce GST on Essentials: Make daily necessities tax-free.
Increase Transparency: Show citizens exactly where their tax money is going.
Fund Public Services: Invest in healthcare, education, and infrastructure to reduce out-of-pocket expenses.
Until then, the middle and lower classes will continue to bear the brunt of an unjust system designed to exploit rather than empower.
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