The Fault in Oxfam Stats: Who pays how much GST in India

 The Fault in Oxfam Stats: Who pays how much GST in India

 

Prof. Vidhu Shekhar

 Summary: Following Oxfam’s claim that the bulk of GST taxes are paid by the poorest of the country, which was presented at WEF Davos and had a wide coverage, including in mainstream media, we dig deeper to find out the actual share of who pays how much of GST.

 "Of the total taxes collected from these food and non-food items, 64.3 percent of the total tax is coming from the bottom 50 percent," - screamed the well-highlighted text in the report titled “Survival of the Richest: The India Story” by Oxfam. The report was presented at the World Economic Forum in Davos last year, making headlines with its alarming assertion that India’s indirect tax system disproportionately burdens the country’s poorest citizens. The report painted a grim picture, suggesting that the bottom half of India’s population bears the lion’s share of GST payments while the wealthiest contribute only a fraction.

The report had wide publicity in mainstream media as well as social media. The alarm was large enough that a question was even asked in the Indian parliament. It ought to - after all, if the poorest are lifting the heaviest burden of the tax, one must take notice. But, is that if valid? That is a very important question and the topic we explore here.

 

Deficiencies in Oxfam Report

Before going deeper into the actual distribution of GST in India, it is crucial to examine the data Oxfam presented in its report. To begin with, the report's data fails to meet even basic scrutiny. As an indirect tax, GST is fundamentally linked to consumption expenditure, implying that those who spend more—primarily higher-income groups—would logically pay more in GST. This stands in stark contrast to the conclusions drawn by Oxfam.

However, the issues of the report are beyond just the logical economic sense. Many inconsistencies and methodological flaws cast significant doubt on the claims presented. Despite being showcased on a globally recognized platform like WEF Davos, the report lacks transparency and rigor in its data presentation. It cites the National Sample Survey (NSSO) on household consumption in India but provides no further data beyond this reference. It fails to present sample calculations or detail the actual GST paid by various income groups. The data tables are limited to just two pages in the appendix, containing only the final percentage distributions without any transparent methodology or supporting calculations.

Moreover, the report admits to selectively using a subset of food and non-food items but fails to clarify the criteria for their selection, a clear case of data cherry-picking. It also refers to taxes in terms of averages but does not explain how these averages were computed. The absence of clear and detailed methodologies invites skepticism and undermines the credibility of the report's findings.

Overall, the report reads like a series of sweeping statements accompanied by arbitrary figures thrown in - the authenticity of which must be taken at face value or by a deep belief in the motivations and abilities of Oxfam.

However, despite these evident shortcomings, the report gained significant traction in the media and was even cited by Members of Parliament in the house. A basic reading of the report would have revealed these major flaws, yet it appears that such was not done.

 

So, who pays How Much GST in India?

While the Oxfam report contains significant false data and discrepancies, it is insufficient to debunk the grossly misstated facts. Time and again, the figures generated by the report pop up in the media, stating that the poorest pay the most taxes. To debunk this figure conclusively, we will calculate the actual GST contribution by various income groups in India.

In attempting to do the same, the adage by Jonathan Swift comes to mind. Falsehood flies, and the Truth comes limping after it. Not having the luxury of making arbitrary assumptions, sweeping statements on the back of these assumptions without telling how it has been calculated, and not having WEF at Davos at our side to release the report - we have no option but to take a methodical step-wise approach to arrive at actual figures. Let's see where that takes us.

Data, Methodology & Results:

To calculate the population income group-wise GST contributed, we primarily need two data. First, the average consumption of each income class is detailed item-wise so that GST rates can be applied accordingly. Second, the GST rates themselves for this item.

The NSSO Survey, which has also been referenced by the Oxfam report, is a comprehensive survey of the monthly consumption of people per income group. The survey enumerates the list of 400+ items consumed by households in India to arrive at what is known as Monthly Per Capita Expenditure or MPCE. This is also enumerated income group-wise, giving us the primary data required for our calculations. The list of items is exhaustive, containing expenses across all kinds of food, durables, and consumable items by households in India. The survey is used extensively by government and researchers for policy formulation and planning and to understand the economic and social conditions of the country. The data provided includes both quantities and values consumed, with segregation from the source level as well (e.g., rice-free, rice-pds, rice from other sources, etc.). This data is adequate for our calculation, and we will use the latest NSSO survey conducted in 2021-22. We then collect the applicable GST rates on these 400-odd items using various government/CBIC sites and sources.

These values combined provide us with the GST spent by various income classes on a per capita basis. We extrapolate it to the population using population metrics projected at the current population (NSSO uses 2011 census numbers). This gives us the final numbers.

The data on GST contributions across different population segments reveals a nuanced picture of the tax burden distribution in India, offering insights into how consumption patterns and tax rates intersect across income groups. This analysis underscores the GST's role as a moderately progressive tax system, with wealthier segments contributing a significant portion of the overall tax revenue.

The top 10% of the population, representing the highest income earners, shoulders a substantial 26.66% of the total GST collected. This segment faces an average GST rate of 8.81%, the highest among all groups, reflecting their higher consumption of goods and services, particularly those taxed at elevated rates, such as luxury items. This contribution underscores the progressive nature of GST, where higher earners, by virtue of their spending patterns, bear a heavier tax load. It illustrates a crucial aspect of the GST system: the more one consumes, especially higher-taxed goods, the greater their tax contribution.

In stark contrast, the bottom 10% of the population, representing the lowest income earners, contributes only 3.27% to the total GST collection. They face an average GST rate of 6.57%, significantly lower than what the top earners experience. This lower rate reflects the consumption of essentials and basic goods, which are either exempted or attract minimal GST rates.

When examining the broader segments, the bottom 50% of the population pays 28% of the total GST. Despite constituting half of the country's population, their tax contribution remains relatively modest due to lower average consumption. The average GST rate faced by this group is 7.2%, aligning with their consumption patterns, which predominantly include essential goods and services with lower tax rates.

The following 30% of the population, representing middle-income earners, contributes 30.5% of the total GST. Their average GST rate of 7.8% suggests that while their tax burden increases with higher consumption, it remains balanced relative to their income levels. This group often spans essential and discretionary spending, positioning them as pivotal contributors to the GST revenue yet still protected from the highest rates reserved for luxury goods.

The top 20% of earners account for an overwhelming 41.5% of the total GST collection, facing an average rate of 8.5%. This segment, which includes the top 10%, drives much of the tax revenue due to their substantial consumption patterns. The higher average rate they encounter reflects their spending on goods and services that attract higher taxes, reinforcing the principle that GST is, in effect, more burdensome on those with greater economic means.

The GST system in India exhibits a tiered impact that aligns well with consumption capabilities across different income groups. While the tax is uniformly applied, its actual burden varies significantly, revealing a structure that indirectly serves progressive goals. Wealthier groups pay more, not just in absolute terms but also as a percentage of their consumption, highlighting the GST's capacity to generate substantial revenue from those most able to afford it. Meanwhile, lower-income groups are relatively insulated from the harshest effects, maintaining a balance that ensures the tax's equity and sustainability.

 

Conclusion

The analysis of the correct figures reveals a stark contrast with the claims made by Oxfam’s report, which significantly misrepresented the distribution of the GST burden across different population segments in India. Oxfam's assertion that the bottom 50% of the population shoulders 64.3% of the total GST burden is grossly inaccurate. The actual figure is far lower, with the bottom 50% contributing only 28% of the GST paid by households (as shown in the attached table). The next 30% of the population bears 30.5% of the tax burden, while the top 20% pays the largest share at 41.5%.

Even more strikingly, Oxfam's claim that the top 10% contributes a mere 3 to 4% of the GST burden is entirely erroneous. In reality, this segment is the highest GST-paying group, accounting for 26.66% of the total GST—nearly as much as the entire bottom 50%. This group’s substantial contribution underscores the progressive nature of the GST, where higher earners contribute significantly more due to their elevated consumption levels. Meanwhile, the lowest 10% pays only about 3.3% of the total GST, reflecting their lower spending on taxable goods.

The data shows that the GST share progressively increases as we move up the population hierarchy, aligning with expected economic behavior where higher income translates into higher consumption and, consequently, higher tax contributions. Contrary to Oxfam's narrative, the GST system in India does not disproportionately burden the poor. Instead, it reflects a reasonably balanced approach where the wealthiest segments pay the most, both in absolute terms and relative to their consumption. This evidence reinforces the understanding of GST as a moderately progressive tax system that aligns the tax burden with economic capacity, ensuring that those who can afford to pay more do so.