Why Tax in India is so high | Tax Burden | GST |

India’s high GST and tax rates stem from a combination of structural inefficiencies, a narrow tax base, and heavy reliance on indirect taxes to fund government expenditure. The Goods and Services Tax (GST), introduced in 2017, ranges up to 28% on many goods and services, supplemented by cess, making it one of the highest among emerging economies. Unlike corporates, which benefit from input tax credits, salaried individuals bear the full brunt of GST on consumption, with no refunds. Direct taxes also pinch, with the top 30% income tax slab kicking in at relatively low income levels compared to countries like the US or China. Only about 2% of India’s population pays income tax, overburdening this small group—mostly the middle class—while the wealthy exploit loopholes and tax evasion. Corporate tax cuts in 2019, reducing rates from 30% to 22%, further shifted the load onto individuals, despite soaring corporate profits. Meanwhile, fuel taxes and inflation amplify the cost of living, eroding purchasing power. This tax regime disproportionately hits the middle class, who also lack social security or pension support, unlike in developed nations. The shrinking middle class is a direct fallout of these pressures. Stagnant real wages, rising inflation (e.g., food inflation at 10.87% in 2024), and high taxes leave little room for savings or discretionary spending. Economic disruptions like demonetization and a chaotic GST rollout battered small businesses, key employers of the middle-income group, while job creation lags—unemployment hovers at 8.8%. Data shows the middle-income segment fell from 49.8 million to 41.1 million between 2018-19 and 2020-21, per Mint, as inequality widens. The top 1% control over 40% of wealth, per Oxfam, while the bottom 50% bear 64% of GST. Without tax relief or wage growth, the middle class continues to contract, stunting India’s consumption-driven economy.
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