The adjacent chart shows individual tax rates in India are substantially lower compared to tax rates in the US and western Europe. But they are slightly higher than tax rates in most emerging market countries, with China’s being higher.
The quality of public services (such as education, healthcare, infrastructure such as electricity, roads and water & sewage), however, is far superior in developed countries. On the other hand, “Indian citizens have to rely on private service providers for their needs if they can afford them or make do with poor-quality services provided by government agencies and utilities,” points out Kotak Institutional Equities in a report on 17 January.
The general disgruntlement among Indian taxpayers (the ones with salaries in the organized sector) despite the relatively low individual tax rates in India versus other countries can be ascribed to two reasons, said the Kotak report. One, poor quality of public services provided by governments (Central, state and local). Two, large evasion of taxes by huge sections of the population in the informal economy, which puts the entire burden of public services on the narrow base of law-abiding taxpayers.
As the chart shows, there’s scope for reducing individual tax rates to bring them at par with countries such as Indonesia and Malaysia. But the government must also, post-demonetisation, step up its efforts to bring tax evaders to book.