Budget 2025: Top economist criticises India’s tax rates, says, 'We’re overtaxing people'

In an interview with NDTV, Bhalla cited economic data from world organisations like International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD) and World Bank. He said, “Our taxation— we are overtaxing our people to an extent not known in any other country.” 

India's overall tax-to-GDP ratio, encompassing state, local, and central taxes, has surpassed 19%, significantly higher than the 14.5% ratio observed in East Asian countries such as China and Vietnam. “China has been growing faster than us, and East Asia has performed enormously well. So my question is, let’s just look at what kind of taxation policies they follow and have followed because we’ve got the data now. And the tax-to-GDP ratio in East Asia is around 14.5%. We are 19%,” Bhalla said. 

“Why are we at the level of Korea and the US? They are about 10 times richer than us. As everybody knows, as your income goes up, your tax goes up as a share. Why we are that high is something that I think the government needs to explain,” Bhalla further said.  

The economist also showed worry regarding foreign direct investment (FDI) trends. “In 2014, when the new government came into being, the FDI as a percent of GDP in India was something like 2.5%, which was one of the highest in the world. Today or last year, it went down to 0.8%. The last time India had such a low FDI-to-GDP ratio was in the mid-1990s,” he observed. 

The economist’s observations and concerns come as the Indian middle-class echo demands for tax relief. Echoing the same, Sanjiv Puri, Confederation of Indian Industry (CII) President, suggested early in January that consumption would boost if tax rate for incomes up to Rs 20 lakh were reduced. “This would increase disposable income and lead to buoyancy in revenues,” Puri said.   

Industry leaders are calling for a revamped tax system. PHD Chamber of Commerce and Industry CEO Ranjeet Mehta proposes a 30% tax rate for incomes above Rs 50 lakh and 20-25% for Rs 15-50 lakh. Meanwhile, former Infosys CFO Mohandas Pai suggests simplifying tax slabs for the middle class, with no tax on incomes up to Rs 5 lakh, 10% on Rs 5-10 lakh, and 20% on Rs 10-20 lakh.