“But sir, most of GST is paid by the poor in India.” This innocuous comment by a student during a discussion on the state of the Indian economy made me realise the extent to which some data lingers in people’s mind.
The source of this claim was a report, ‘Survival of the Richest: The India Story’, published by the think-tank Oxfam and released at the World Economic Forum. The report claimed 64.3 percent of India’s goods and services tax came from the poorest 50 percent of the population, while the wealthiest 10 per cent contributed a mere 3-4 percent.
This stark portrayal of an unfair tax system made global headlines, influencing media and policy discussions in India—including as a question raised in parliament. Released in January 2023, the figures are still cited at various places and linger on in people’s mind, creating an impression of an unfair taxation system in place.
The realisation led me on a research path to find if GST is really mostly paid by the poorest of India. Turns out, it isn’t so.
Fault in Oxfam’s stats
While the Oxfam report makes audacious claims, a critical examination reveals a methodology so flawed it borders on intellectual dishonesty. As an indirect tax, GST is tied to consumption, meaning those who spend more—typically, higher-income groups—pay more in taxes. The report’s conclusion contradicts this simple principle.
But the issues discussed in the report are quite beyond logical economic sense. Despite being showcased at a globally recognised platform like the WEF at Davos, the report lacks transparency and rigor in its data presentation. It cites the National Sample Survey Office (NSSO), but provides no further data beyond this reference.
The data is limited to just two tables in the appendix, containing only final percentage distributions without any transparent methodology or supporting calculations. The report also admits to selectively using a subset of food and non-food items, but fails to clarify the criterions for their selection—a clear case of cherry-picking data.
Such methodological flaws—in a report that quotes the French revolution and is said to have global ramifications—are not just academic critiques; they have real-world consequences. When flawed data shapes public opinion and influences policies, it risks misdirecting economic resources and undermining informed discourse.
A dive into GST data
To counter Oxfam’s claims, we conducted a detailed analysis using rigorous methods to unveil the true distribution of India’s GST burden. Leveraging the latest NSSO consumption data from 2022-23, we meticulously applied precise GST rates to over 400 consumed items across income groups.
Our findings present a picture very different from Oxfam’s assertions. Household contributions to GST collections amounted to `6.19 lakh crore in 2022-23, representing 34 percent of total GST revenues of `18.07 lakh crore. The remaining comes from business-to-business transactions and government consumption. This is in line with their respective GDP shares. Oxfam’s claim that the bottom 50 percent contributes 64 percent is not only inaccurate, but also mathematically impossible, as the figure is double the total contribution from all Indian households.
Even if we assume Oxfam calculated shares only on GST contributed by households, their claims still would not hold. The bottom 50 percent contributes just 28 percent of household GST and 9.6 percent of total GST—far less than the asserted 64 percent.
On the other hand, the top 10 percent contribute a substantial 26.63 percent of household GST, rather than the paltry 3-4 percent suggested in Oxfam’s report. The wealthiest 20 percent of Indians contribute 41.4 percent of household GST and 14.2 percent of the total GST, highlighting the progressive nature of the tax system.
Data also reveals that the poorest 50 percent face an average effective GST rate of 7.3 percent, while the top 20 percent face a higher average rate of 8.5 percent. The wealthiest pay more not just in rupee terms, but also as a percentage of their spending.
These figures, arrived at after rigorous calculations, completely debunk the Oxfam report’s claims. Rather, it presents an encouraging picture of GST as a taxation system. Not only has it simplified the web of tax structure as it used to be in India, it also exhibits a tiered impact that aligns well with consumption capabilities across different income groups.
A progressive tax system
The data shows that GST contributions rise with income, reflecting expected economic behaviour where higher consumption leads to higher taxes. Contrary to Oxfam’s claims, the GST does not disproportionately burden the poor but follows a balanced approach where wealthier segments contribute more, both in absolute terms and as a percentage of consumption. This confirms GST’s role as a moderately progressive system.
The stark contrast between our findings and Oxfam’s highlights the need for rigorous analysis and fact-checking before forming an opinion on such an issue. Misinformation can erode public trust and lead to resource misallocation. Think-tanks and international organisations must uphold the highest standards of transparency by ensuring evidence-based analysis. This is crucial to maintain fairness and public confidence.
