Did You Know? India’s Income Tax Rate Is Higher Than That Of US, Canada, Switzerland

By Nadim Siraj

April 4, 2022: The United States, Canada, Switzerland, New Zealand, Norway, Singapore, Hong Kong – did you know that India’s income tax rate for its super-rich residents is way higher than that of these comparatively wealthier countries?

Incredible as it may seem, the income tax slab for the richest slice of the Indian population currently stands at something around 42% of their personal earnings, according to World Population Review. While the widely followed digital database puts India’s marginal tax rate (highest slab of the personal income tax rate) at 42%, some media organisations say it could be higher, at 42.7%.

Switzerland’s super-rich individuals pay 40% of their personal income as taxes to the government, while the wealthiest class of New Zealand is taxed at 39%. In Norway, that tax rate is 38%, while the elite population in the US is taxed at 37%.

The ultra-rich in Canada pay income taxes at 33%; Singapore’s wealthiest are taxed at 22%, and Hong Kong’s elite tax rate stands at 15%. The oil-rich Gulf countries, which are immensely wealthier than India, don’t collect any personal income taxes from their residents, but in recent years, a few of them have started levying corporate taxes.

The poverty-hit African nation of Ivory Coast ranks No. 1 in the world with a marginal income tax rate of 60%, followed by Finland (56%), Japan (55%), Austria (55%) and Denmark (55%).

NO IMPACT ON INEQUALITY?

It is important to make sense of this data in the context of inequality and wealth distribution around the world. If this revelation is seen only in isolation, it might appear to any naïve reader that the Indian finance ministry is doing a commendable job by cracking the whip on the country’s richest population. It might also seem that India’s steep marginal tax rate – higher than the likes of US, Canada and Switzerland – is cutting down on income equality.

But in reality, this tax rate data turns out to be a paradox. The condition of the national economy and the standard of living in each of the wealthy countries listed at the start of this article is hugely better as compared to that of India. Just because India taxes its richest more punitively doesn’t mean it has managed to wipe out inequality and improve the quality of living.

In fact, the latest data on inequality around the world shows that income inequality in India is in an alarming state. According to the World Inequality Report 2022, which was released by the Paris-based World Inequality Lab in December last year, India stood out as a “poor and very unequal country, with an affluent elite” population.

The report pointed out that in 2021, the richest 10% of India’s population owned 57.1% of the country’s combined national income, while the bottom 50% of the population held just 13.1% of the total national earnings – a clear case of high inequality at home.

The research report, jointly compiled by Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman, said that just 1% of India’s population held a massive 21.7% of the combined national income in 2021. The report also revealed that India’s richest 10% population was 22 times more well-off than the bottom 50%.

DWARFED BY INEQUALITY. WHY?

Coming back to the topic of India taxing its rich more firmly as compared to what US, Canada and Switzerland are doing, it’s clear that the Indian finance ministry’s corrective taxation measure – despite its good intentions – is completely dwarfed by the ballooning inequality crisis that has gripped the country.

If the top 1% of a country’s population goes on to own almost a quarter of the national income, it’s a forgone conclusion that merely making tax rates steeper won’t fix the fundamental problem of inequality.

The point to ponder is simple. It should be on everybody’s mind. If the richest slice of the population is so well taxed on paper, then in practice, how come the anti-inequality measure doesn’t reflect in the state of the country’s economy and well-being?

Is it because of a chronic and continuing culture of tax evasion by rich individuals, wealthy families and legacy corporate bodies? Many reports over the past decades have been saying so, sometimes pointing to the government’s own admissions. The subject of India’s growing inequality being fuelled by tax evasion keeps getting discussed and debated upon in various circles.

If indeed the Indian government managed to collect taxes for all these years at the designated rates for the country’s wealthiest individuals, families and companies, the nation and its economy wouldn’t have plunged to the devastated state that it is in today.

Indians wouldn’t have needed to desert ailing villages to look for low-wage jobs in congested cities. Commuters wouldn’t have needed expensive expressways; well-maintained national highways would have done the job. The general state of disrepair and disdain of public services and public utilities would have become a thing of the past. Deepening poverty and hunger wouldn’t have been perpetual subjects of discussion, as they consistently are.

Sitting back after having imposed a high tax rate on the elite is evidently not good enough. India’s wealth managers could perhaps take a leaf out of William Shakespeare’s Hamlet, in which the character Claudius says: “Diseases desperate grown, by desperate appliance are relieved, or not at all.”

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