Taxes are always political. This year, they’re also economic. As India’s GDP grows, the revenue structure reveals an imbalance in who pays what and that has consequences for both consumption and business confidence.
1. A Small Percentage Pays Most of the Tax
Only a small percentage of Indians pay income tax, estimated between 3%–8% of the population.
This means:
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Formal sector employees are bearing a disproportionate tax burden
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Many micro and small business owners don’t pay income tax because income is under reported or informal
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Consumption taxes (GST, excise) hit everyone, whether or not they pay income tax
2. GST’s Heavy Role
GST now contributes about 45% of total tax revenue — higher than many other countries’ indirect tax contributions.
For businesses:
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GST compliance is a cost and a burden
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Many small enterprises are pushed into informal activity to avoid tax complexity
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Consumers bear the cost as businesses pass on GST
3. Personal Income Tax Growth
Direct tax revenues grew significantly in recent years, indicating more income reporting and formalization in the economy — but it still remains concentrated among the top income percentile.
4. Corporate Tax vs Individual Tax
Individuals pay more in direct tax collections than corporations — even though very few file tax returns. This reflects:
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A shift of the burden to salaried professionals
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Limited contribution from broader corporate sectors due to exemptions and incentives
5. What This Means for Tier-2 Businesses
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Higher indirect taxes compress margins for SMEs
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Complexity in compliance discourages formalisation
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Consumer spending behavior is affected because visible prices include tax components
6. How to Think About Taxes Strategically
Business owners must:
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Understand effective tax rates, not just headline laws
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Use digital accounting and compliance tools
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Strategise pricing with tax impact
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Advocate through industry associations for rational tax structures
Taxes are inevitable — but understanding who pays what and why makes businesses more resilient.
