NDA Vs UPA, Tax System, Kolkata's Fall, GDP Growth & More ft. Former CEA: Ashok Lahiri | Neon Show

India's Tax rate was once 97%.

So, how did India’s tax system transform into what it is now?

Long before the British or the Income Tax Act, taxes were part of Indian society.

Ancient texts like the Manusmriti and Arthashastra mention traders and artisans contributing 20% of their income, while farmers contributed a portion of their produce. Taxes back then were used to fund the kingdom.

Cut to 1860, the first Income Tax Act was introduced by Sir James Wilson to recover financial losses from the 1857 revolt.

Over the next century, the system evolved, with major updates in 1918, 1922, and finally, the Income Tax Act of 1961, which still forms the backbone of our tax structure today.

Things started to change after 1947 when India embraced socialism.

The government wanted to reduce income inequality and fund development.

Their solution? Tax the rich heavily.

By the 1970s, India had a staggering 97.75% tax rate for the wealthiest and 11 different tax slabs.

What did this lead to? People started hiding income to avoid taxes.

The black money economy exploded, which the NIPFP estimated to be about 25% of GDP in the 1980s.

In 1974, Finance Minister Yashwantrao Chavan reduced the top rate to 75%, but it was still high. By 1997, with India moving away from strict socialism, Finance Minister P. Chidambaram lowered the top rate to 30% and simplified the slabs to just three—10%, 20%, and 30%.

These changes made taxes easier to understand and encouraged people to pay them.

As the 2000s tech era rolled in, the Permanent Account Number (PAN) was introduced by the government.

e-filing of tax returns meant No more long lines at tax offices.

Then there was the implementation of the GST in 2017.

Today, India’s tax system is almost unrecognizable compared to the chaos of the 1970s.
The highest income tax rate is just 30%, with three straightforward slabs.

The tax-to-GDP ratio stands at 10-11%, and digital initiatives are steadily bringing more people into the formal tax net.

In this episode of the NEON Show, Ashok K. Lahiri, a leading economist and former Chief Economic Advisor, talks about India’s economic journey and the changes in its tax system. Lahiri shares why India has fallen behind some countries, pointing to missed opportunities in education, healthcare, and infrastructure. He also highlights the importance of India’s democracy and federal system in shaping its progress. This discussion gives a clear picture of India’s challenges and what needs to be done for a brighter future.

Check out Ashok K. Lahiri’s book, India in search of glory, https://www.amazon.in/India-Search-Gl...

Time Stamp
00:00 - Trailer
01:27 - Introduction of Ashok K. Lahiri
03:07 - Ashok’s upbringing and early education in economics
05:27 - Why Ashok went abroad and how UPSC got him back
08:33 - Are you satisfied with GDP growth
12:42 - Education and health lead to long-term economic growth
15:27 - The right to information is important but debatable
18:27 - The govt went overboard in the 70s
20:37 - What happened to West Bengal
24:32 - Improvement will come with liberal society
25:57 - Troubles of taxations
29:42 - Taxing in the Indira Gandhi era
33:27 - People once informed take the right decision
37:32 - Chicken and egg in politics
39:27 - Why India is on the right track
43:27 - Challenges faced by Bangladesh and lessons for India
47:32 - India: union of states
52:07 - Struggle of India to get where it is right now
58:32 - Why we can't blame our ancestors
01:01:52 - Importance of transportation and Connectivity
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This video is for informational purposes only. The views expressed are those of the individuals quoted and do not constitute professional advice.