People have tendency to think that the lower middle class people don’t pay tax at all. Even they (lower middle class people) themselves think the same way. If you ask anyone from that category whether they are paying taxes, they will be reluctant to reply, as most of them feel guilty that they are free riders. However, some may know that they are paying taxes while buying some products but they don’t know what exactly they are paying and how they are contributing to the revenue generation of the state.
People generally perceive that only corporate professionals or wealthy businessmen pay taxes. However, everybody is paying taxes, including a beggar who buys a biscuit packet a day. Its true that those with low incomes don’t pay some types of taxes. For example professional tax is exempted for people whose monthly income is Rs.5000 or below. Income tax is exempted for taxable income below Rs.1.6 lakh per annum. Although they are not paying these kinds of taxes, they are definitely paying other taxes to the government.
Indirect tax
Further, indirectly they contribute to taxes as most of the goods they consume are classified as FMCG. Since FMCG companies are one of the most honest taxpayers in the country, they indirectly contribute to high tax collections. Remember, corporate taxes are the largest source of taxes to government.
Significant part of the total taxes collected by the government comes through indirect tax. Indirect taxes such as VAT, excise duty, customs duty, service tax etc. are levied on goods or services rather than on people’s income directly. Let us look at the Commercial Tax Department (CTD), the largest revenue generator of the state, contributing over 60% of the state’s revenue.
Lower middle class family
Let us consider a common middle or lower middle class family, where the man earns about Rs.5,000 per month and his spouse makes around Rs.2,500 per month. Here we will calculate the approximate amount of tax paid by this lower middle class family in Hyderabad.
Tax on general commodities
Commodities such as rice, wheat, tea, pulses, flour, oils, pulses, LPG gas, incense sticks, etc. are basic needs for every family. So if he spends around Rs.2,700 on monthly groceries, he will be paying around Rs.130 to the government, as some of these items such as rice, pulses, vegetable oils, LPG gas etc. attract 4% while others like soaps, detergents, toothpaste, face creams, shampoos etc. attract 14.5% Value Added Tax (VAT). Even the mosquito repellents attract a VAT of 14.5%.
If he spends Rs.100 per month to buy stationery or chocolates to his kids, he would be paying around Rs.9 as tax. Even the cheapest snack available today, packaged Rs.2 biscuits (almost the price of a small Samosa), generally consumed with tea in the morning, common breakfast for many people from this segment attracts a tax rate of 14.5%.
Goods subjected to special tax rates
Let us assume that our ‘common man’ owns a mobile phone and let’s assume that he consumes liquor thrice a week or regularly chews gutka or zarda. So if his own expenditures are around Rs.850 per month, he will be paying around Rs.410 to the government.
Even a beggar purchasing liquor or cigarette is paying tax. In fact, alcoholics or zarda addicts are far ‘better’ citizens in terms of paying taxes than others, as VAT on liquor is 70% and 25% on gutka. So even a third class alcoholic having a ‘quarter’ of ordinary alcohol brand (costing Rs.50) everyday will be paying Rs.35 tax per day to the government.
Entertainment tax
Let him go to movie once in a month along with family and spend Rs.150 for tickets. By purchasing tickets, he will be paying Rs.30 to the government as entertainment tax (Rate of tax on tickets in AC or Air Cooled theatres is 20%). At home, he will be paying Rs.5 per month to government from his cable bill towards entertainment tax.
Additional tax on items that are purchased periodically rather than monthly
Let his additional ‘quarterly expenditure’ be around Rs.2,700 including medicines, home accessories, hosiery, any local made goods etc. Then, he will be paying additional Rs.156 for every three months. If we take average of these expenditures, he will be paying Rs.52 tax per month only on ‘additional expenditures’.
Municipal Tax
Slums in the interior of Hyderabad city even pay taxes such as municipal tax as they have a municipal registration number. As long as they are not living in temporary constructions like the ones in Madhapur for example, next to Cyber Towers and opposite Cyber Pearl.
Lower middle class families paying tax of Rs.600 per month
Here we assume that this family is middle or lower middle class and is spending only on common necessities, not on fancy things. Still they would be paying around Rs.600 (monthly groceries-130, special rate goods-410, entertainment tax-35, additional quarterly tax-52) as tax to the government per month and about Rs.7200 on a yearly basis.
Total tax paid by lower middle class
Greater Hyderabad has population more than 80 lakhs. We assume that there are 5 persons in a family (conservative, since many migrant labour are there). So, there will be around 16 lakh families in our city. If we assume that 60% of the families belong to lower middle class, there will be around 10 lakh lower middle class families in Hyderabad. If they spend Rs.600 per month, the total tax paid by them will be around Rs.60 crores per month or about Rs.720 crores per year to the government.
If these lower income families disappear today, the tax burden on the middle and high-income families will increase manifold. So next time you see poor people in the city, please be a little compassionate. They too are paying taxes like you and reducing the personal tax burden on you.