Tax, corruption and the poverty line in India

Chatting to an Indian businessman, I heard a new explanation for the amount of tax that goes unpaid in this country of 1.2bn, where an estimated 26.1 per cent of the population live below the US$1.25 international poverty threshold.

The reason why so few people pay taxes is because the government is corrupt, he informed me.  Apparently, once you start paying tax in India, the government keeps asking for more money. Which in turn causes problems for business people, who just want to trade without the involvement of the state. Interacting with the government and its agents, means paying bribes as the civil servants see tax payers, especially the wealthy, as income streams and will happily bend the rules on tax paying in exchange for a small donation. The businessman in question had two tax problems in the last month and he looked aggreived.

Coincidentally, the World Bank this week published its More and Better Jobs for South Asia report, corruption is cited as the biggest obstacle to job creation in India.

A quick aside on the poverty line

In 2005, the World Bank estimated the poverty line to be at around INR21.6 per day in urban areas, and INR14.3 in rural areas.  In late 2011, the Indian government was challenged to survive on the INR32 per day it had declared sufficient for a person to live in an urban area. At a party in Delhi, again with a rather well-heeled crowd, I tested this theory and asked a reveller if he would survive on the equivalent of US$o.63 or GBP0.41 per day. With mathematic wizardry rarely seen outside the counting rooms of a Ministry of Finance, my counterpart twisted and turned the 32rupees (“which was based on out of date research anyway”) around policy bends and economic growth figures until it was worth INR100 and, he claimed, he could live on that much per day.


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