Whenever we speak of budgets, the focus is always on taxes on the income side and various components of government expenditure. Add to this the level of government spending, and the debt issue comes to the forefront.
While all of us want to pay less tax and feel that the tax rates in the country are very high, we also tend to get critical of the government for a lot of expenditure where we like to pass value judgements. There are also the accompanying conclusions drawn of government expenditure being intrusive and drawing away resources from the private sector. Are there any such benchmarks as to what should be the ideal rates or levels of expenditure?
In this context, it is interesting to view how India stacks up in the global context in these fiscal aspects. The accompanying table provides data on tax rates, tax burden, government expenditure and public debt for a set of 15 countries covering both the developed economies as well as emerging markets. The results are quite revealing.
First, the tax burden appears to be one of the lowest for India which means that, as a nation, we actually pay far less tax than other nations. This may be attributed to the predominance of a very large unorganised sector which is not quite captured in the tax net due to issues of identification. Also, large volume of consumer transactions are not based on cash memos and hence do not get billed along the way. Add to this the quantum of black money which goes into various transactions especially in the real estate sector and the government actually loses out on a lot of revenue due to this identification problem.
Second, the customs tariff rate calculated on an average basis is one of the highest with only Brazil and South Korea having more aggressive rates. This is an issue which comes up regularly in the WTO summits where the arguments on protection through tariffs are often the crux of discussions. The Indian case is different as we also are pressurised on the CAD front where lower import duty can lead to an increase in imports and exacerbate the deficit. The recent episode of import of gold and the corrective action of raising tariffs is an example of why India has to be discreet when lowering these rates. And given that customs account for around 15% of total tax revenue, lower tariffs