The Tax System in India and Its Impact on Muslims

Introduction

The tax structure in India is vast and complex, impacting various segments of society differently. This article delves into the current tax system, focusing on the income tax paid by Muslims in India. Despite the controversial nature of addressing this topic, it is essential to shed light on the realities of tax distribution and the socio-economic context of the Indian Muslim community.

The Extent of Tax Collection in India

India’s tax collection is significant, with both the Central and State Governments benefiting greatly. The Central Government collects around Rs 350,000 Crores annually from taxes on petrol and diesel alone, while the State Governments collect approximately Rs 175,000 Crore. This translates to around Rs 4,000 per person annually. Additionally, most goods in India are subject to an average of 20% tax, meaning every individual contributes to the tax base.

Income Tax: A Small Segment of Tax Payers

While taxes are collected from virtually everyone, the majority of these payments come from companies rather than individual income earners. In fact, only about 1% of the population pays income tax, with the salaried class being the primary contributors. Given the size of India, which has a total population of over 1.3 billion, this translates to a relatively small group of taxpayers.

A Speculative Look at the Tax Contributions of Muslims in India

Given the socio-economic challenges faced by the Muslim community, which includes poverty and various other issues, it is important to critically evaluate their contribution to the income tax. The current IT return filing rate, according to DoDT reports, indicates that between 1.9 and 3.2 million Indians filed returns annually from 2014 to 2016. Of these, only about 40% ultimately paid taxes.

Considering the lower economic status of the Muslim community, it is reasonable to expect that a smaller percentage of Muslim taxpayers are in the tax-paying bracket. If we hypothesize that around 2 million Muslims file returns, we can expect that approximately 500,000 actually pay taxes. This number is likely to be even lower, given the broader context of tax evasion and non-compliance.

Addressing the Issues in the Current Tax System

There is a growing call for reforming the current tax system. Proponents argue that a flat rate income tax of 0.2-0.3% could be introduced, and the Goods and Services Tax (GST) could be simplified to a uniform rate of 9%. These changes would reduce unnecessary expenditure on tax collection and ensure that state revenues are accessed more efficiently.

Adopting such a system would not only streamline the tax process but also make it more equitable and relevant to the diverse socio-economic landscape of India. This reform could significantly impact the tax contribution from all communities, especially those in the lower economic strata.

Conclusion

While the income tax system is a critical component of India’s economic framework, its impact on different communities is complex and multifaceted. Given the socio-economic context of Muslims in India, their contributions to the income tax are likely to be lower compared to the general population. However, reforms that improve transparency and simplify the tax process will benefit all communities, including Muslims, by making the system more just and efficient.