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Sunday, February 26, 2006 

Taxpayer Staistics: What they Hide

Statistics are like miniskirts; what they reveal is interesting, but what they hide is significant.

~ An old Siddhuism

In the run up to the Indian Budget, one statistic that is being thrown around by the FM to support a plethora of new taxes is: In our country with a population of over a 100 crore, there exist only about 4.86 crore tax payers. Hence we need to widen the tax base, introduce more taxes, improve GDP to tax ratio.

An amazing figure, isn’t it? Less than 5% of the population actually pays taxes? Isn’t it outrageous for the taxpayer himself? Each taxpayer is supporting more than 19 other people who don’t pay taxes? So many people who don’t reveal their incomes? A parallel economy 20 times the size of the accounted one?

Well, if one scratches the surface, one will realise that there isn’t a need for such an outrage on the above statistic.

Consider this: India is a country in which 70% of its population is involved in agriculture. Taxing a farmer has been a political taboo, no matter how well off the farmer may be. Thus 70% of our population, or (let us consider for sake of argument) 70 crore people are kept out of the tax net.

What remains is around 34 crore of Indian population. On a closer look, one finds an average of one breadwinner every four people, which reduces the number of people eligible to pay taxes to (34/4 =) 8.5 crores.

People with an income of less than Rs. 1 lakh are exempt from taxes. Let us assume a very conservative figure of people with non-agricultural income of less than one lakh to be 1.5 crores. That leaves us with seven crore people eligible to pay taxes, out of which 4.86 already do, which comes to approximately 70%.

So the statistic drops from 5 % tax-payers, to 70%, a meteoric rise, just considering a few additional facts.

Doling out statistics is one thing, analyzing them is another. Politicians use such partial statistics to fool people. All that is required is a small amount of scratching, to see through our politicians’ plans.

nice points in the budject!!! keep it up..are you an economist?

Another interesting fact is 85% of Indian population do not have bank accounts.
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