We, the Consumers, Are Paying 80% of All Taxes Collected: How Did We Get Here?

GST is the key indirect tax today, yet we often have no clue how much of what we paid was actually GST!

The most important indirect tax right now is GST. And more often than not, our bill doesn’t tell us how much of what we paid was GST that will go to the government. 

(Photo: Aroop Mishra/The Quint)

What if I tell you that consumers like you and me now pay eighty percent of the total taxes collected by the Centre and all state governments put together? I repeat: add up all the taxes collected by the central government and all the taxes charged by states—80 percent is paid by you and me.

On the other side, producers—and here it is going to be almost overwhelmingly companies in the organised sector—they pay the remaining amount, just twenty percent. But you can ask, what do I mean when I say we, the consumers, are paying 80 percent of all taxes right now?

Understanding Direct and Indirect Taxes

Here is how I have calculated it. As most of you know, there are two kinds of taxes that we pay: direct and indirect taxes.

Direct taxes are the kind which are levied directly on our incomes or on our property. We pay it directly to the government. The direct tax we all know is, of course, income tax, and corporate tax on companies. But there’s also capital gains tax, property tax, and so on.

Indirect taxes, on the other hand, are baked into the price of things we buy.

And as the name suggests, they are indirectly levied on us. Someone else collects it and pays it on our behalf. And most often, we don’t even see how much we are paying.

The Hidden Cost of Indirect Taxes

The most important indirect tax right now is GST. And more often than not, our bill doesn’t tell us how much of what we paid was GST that will go to the government. Other indirect taxes include excise duty, now restricted mostly to petrol, diesel, and other fuel. And it is levied on alcohol.

Then there’s customs duty, or taxes imposed on imported goods.

In terms of direct taxes, we pay income tax and most of capital gains tax. Corporates pay corporate tax and a part of capital gains tax. When it comes to direct taxes, almost all of GST is passed on to us and becomes part of the final price we pay.

Similarly, excise duty is passed on to consumers as well. When it comes to customs duty, studies show that corporates absorb some of it when it is on machines or raw material that they have imported. But customs duties on things that we directly buy—foreign cars, for instance—is passed on entirely to us.

The 80-20 Split

So, here’s how it looks: We consumers pay income tax, almost all of GST, all of excise duty, and a part of customs duty. Corporates, on the other side, pay corporate tax, a small amount of GST which they absorb, and a big part of customs duty.

So, to simplify matters, I will assume that we pay income tax, all of GST and excise duty. While corporates pay corporate tax and all of customs duty. This might be an approximation, but it is good enough to make estimates.

So, add all these up—and as I said right at the beginning—we consumers pay eighty percent of this, and corporates or producers pay just twenty percent.

How the Burden Shifted Over 15 Years to the Middle Class

However, if I rewind just 15 years, this ratio was very different. 

Taxes on consumers was less than two-thirds, roughly sixty-five percent—again, of the total tax collections of the Centre and all states. And the rest was paid by corporates or producers—roughly thirty-five percent.

So, in 15 years, the burden on us has risen from 65 percent to a whopping 80 percent.

The reverse has happened to corporates. Their burden steadily went down in the past 15 years.

Households, ordinary consumers, have ended up bearing a much higher share of the total tax collections in the country?

And mind you, a large chunk of this is paid by us—the middle class.

We pay the largest chunk of income tax. And we pay the lion’s share of GST and other indirect taxes.

But Isn’t Lower Tax on Producers Good for the Economy?

Now, one can argue that if you tax producers less, it will increase their post-tax profits. And that will be good because they will have an incentive to invest more. That will mean more increased production, more jobs, and higher salaries for people.

Of course, we know the exact opposite has happened.

What if the Total Tax Had Gone Down?

I guess it would also have been okay—that the burden of taxes has shifted on to consumers like us—if the total taxes collected had dropped.

Here, let me explain this with a hypothetical example.

Imagine that Rs 100 crore had been collected as total taxes in 2010. As I said, back then, consumers paid 65 percent of that. So we paid Rs 65 crore. Now, imagine that the total taxes collected dropped to Rs 80 crore in 2025. Even though we are now paying 80 percent of that, the actual amount paid would be just Rs 64 crore.

So corporates would have definitely gained, but consumers wouldn’t really have been affected.

And, as I said, one can argue that this is good. Lesser taxes on producers gives them an incentive to invest more. And that means more economic growth, more jobs, and higher income for everyone.

But again, the opposite has happened.

Total Tax-to-GDP Ratio Has Gone Up

If we look at the total tax collected by the Centre and states, and compare it to the GDP in every year, here is how it looks. Total tax as a share of GDP has actually risen steadily, except for a dip during the COVID lockdown.

It used to be about sixteen percent of GDP 15 years ago. Now, it has risen to 19 percent.

So, we consumers are not only paying a higher share of the total taxes, but also a much higher share of GDP as tax.

A Troubling Rise in Income Tax Burden

What is more troubling for the middle class is how the share of income tax has gone up in the past 15 years. In 2010-11, income tax accounted for twenty-seven percent of the direct taxes collected by the Centre and states. Corporate tax was 59 percent.

Fifteen years later, the share of income tax has risen to forty-eight percent, and that of corporate tax has dropped to thirty-nine percent.

So, income tax, which used to be roughly one-fourth of direct taxes, has now risen to almost half. Corporate tax, which used to be almost sixty percent, is down to less than forty percent.

The first time corporate tax dropped below income tax was in the Covid-19 lockdown year. Understandable, because nothing was produced. But now, even after the economy has recovered from its Covid lows, the share of corporate tax has dropped even further.

The Inescapable Nature of These Taxes

Now, mind you, these are taxes that you and I cannot escape.

We might say that we won’t buy a car because GST is too high. But income tax is deducted at source. Your salary comes to your account after income tax has been taken out. You can’t do anything about it.

And let me remind you, this drop in the share of corporate tax and the rise in the share of income tax is happening at a time when salaries are absolutely stagnant but corporate profits are at record highs.

Data wonks who are watching this, you can look at it even from the perspective of tax to GDP ratios. Income tax used to be 1.8 percent of GDP 15 years ago. Today, its share has doubled to 3.6 percent.

On the other hand, corporate tax was 3.9 percent 15 years ago. Now, it is down to 3 percent. Similarly, the taxes that consumers pay was 10.7 percent of GDP in 2010-11. It has now risen to nearly 15 percent. Taxes on producers was 5.7 percent 15 years ago. That has now dropped to 3.7 percent.

Final Comparison and the Bigger Picture

To come back to my original number, our tax burden has risen from sixty-five percent to eighty percent in 15 years, while that on producers—which is mostly corporates—has dropped from thirty-five percent to just twenty percent.

So, corporates have more cash in their hands, which they are sitting on and not investing.

In fact, the Finance Minister herself has recently complained about that, while we consumers don’t have money to spend. Hopefully, the government is looking closely at these numbers, and things will change.

That is all we, the middle class, caught in the middle as we are, can hope for.

Watch the full video for more.

(The author was Senior Managing Editor, NDTV India & NDTV Profit. He tweets @Aunindyo2023.)