Fact Check

Does Increase in Direct Tax Collection Reflect a Widening Gap Between the Rich and the Poor? – A Fact Check

direct tax collection

At a time when the nation’s Income Tax compliance is showing a remarkable progressive sign, essentially reflecting a healthier Indian economy and the growing trust of people in the current government, The Tribune in its editorial on October 24, 2018, tried to interpret this trend in a negative way. While acknowledging that the “direct tax statistics appear healthy”, the editorial further opines that the widening of the tax base has affected only certain section of taxpayers. It further extends to argue that the direct tax collection statistics indicate that the gap between the rich and the poor is increasing. Does this argument hold any significance? We fact-checked it here:

Direct Tax Collection Statistics - The Contention

The Tribune writes, “Moreover, the claim of the tax department appears pompous — 1,40,139 taxpayers disclosed income above Rs 1 crore in the assessment year 2017-18, that is about a 60 percent growth compared to 88,649 taxpayers in 2014-15. Is it something that the country of 125 crore people, where the majority of them are extremely poor, should be proud of? In fact, it reflects that the gulf between the rich and the poor is only widening.”

It further commented, “The divide is widening not only in terms of income, but also in getting access to modern education, quality health care, better living conditions, and rewarding employment opportunities.

False Narrative

There is a glaring difference between a greater number of people merely getting richer and the same set of people honestly declaring their earnings and paying tax for the same. Before anyone waxes eloquent about wealth distribution, the first thing that they need to know is that wealth creation is also critical. As more and more people are adding to the high income earning group and paying taxes, the government then becomes able to spend this money (collected from the rich people) to invest in the welfare schemes meant to benefit the poor people. That is what seems to be happening under the Modi government.

Contrary to the editorial’s argument, all the recent evidence suggests that the gap between the rich and the poor is shrinking under the Modi government. Brookings Institute’s study published in June 2018 explained how India is shedding its poverty tag at a fast pace. The study noted that in a span of just two years (from February 2016) almost half of the population who were in extreme poverty have come out of it.

A section of media and opinion makers often peddle the ‘inequality rising’ theory, though the recent studies have categorically shown that the gap between the rich and the poor is actually shrinking. While analyzing similar false claims, we had offered a relevant data in our article Mr Venu Insists Income Inequality Has Risen; Mr Dey Claims Govt Is Anti-Poor: A Fact Check. Those figures are still relevant in this context. The Credit Suisse report 2016 and 2017, answers the question whether income inequality rose under the current government or not. In 2016, the top 1% had 58% and top 10% had 80% of wealth share. This fell to the top 1% having 45% and the top 10% having 73% of wealth share in 2017.

As we have explained in our earlier article, controlling inflation is also one of the best instruments to safeguard against poverty. Under Modi government, the basic food items have become cheaper and are now very much in the reach of common man. Food inflation which was at 16.65% in November 2013 has come down to 1.73% as on June 2018.

The rather rhetorical comments by the editorial about the gaps in providing health care, better living conditions and rewarding employment opportunities, have ignored many recent steps taken by the government, like Ayushman Bharat, MUDRA, Stand-up India, Start-up India, along with various policy measures to uplift the status of poor and vulnerable sections of the society.

Pradhan Mantri Jan Arogya Yojana (PMJAY) covers more than 50 crore poor and vulnerable people across the country. On its first month anniversary, PMJAY has crossed the first major milestone of benefitting more than 1 lakh patients, demonstrating that the Scheme is working towards reaffirming the government’s commitment of providing access to quality health care to all the Indian citizens.

As far as the employment eco-system is concerned, the government’s efforts in various sectors are certainly making an impact and are contributing to the improvement in the quality of life of people. As per a NASSCOM report, between 2014 and 2017, a total of 1.4 crore new jobs have been created in four sectors: automotive, IT-BPM, retail and textiles.

Government is supporting entrepreneurship more than ever before, through various schemes like MUDRA Yojana, Start-up India etc. Various other social welfare schemes like UJJWALA has already made over 5 crore households pollution free, flagship programme like Swachh Bharat Mission has ensured the dignity of women by building over 8 crore household toilets, get a boost by the increased tax revenue.


Widening direct tax collection cannot be interpreted as an increasing gap between the rich and the poor, rather it is a sign that more people are paying taxes. The government, on the other hand, is utilizing these growing funds for a number of social welfare schemes, as outlined above. On October 24, 2018, as Prime Minister Narendra Modi said in the Self4Society Programme, where he unveiled a web platform for volunteering for social causes, “Direct tax collection figures saw an increase because people are convinced that the government will spend their every paise of tax money judiciously”. Apparently, The Tribune and the likes of it, who are trying to present the direct tax collection data as a ‘rich versus poor’ narrative has failed to acknowledge the above correlation.