Meera Kulkarni is 38, a senior analyst at a Pune software firm, and for 14 years she has been a model citizen of the Indian economy. She has paid income tax on every salary slip, GST on every laptop, phone plan and takeaway dinner, and 12% of her basic pay into the provident fund, matched by her employer. She has never missed a filing date.

On Friday at ten past four, a 9-minute video call ends all of it. Her role has been “consolidated”. The severance is 2 months of pay. She closes the laptop and does what every Indian worker does in a crisis: she checks her PF balance.

This time the portal behaves. The UAN login works on the 2^nd attempt. Her KYC is clean. She files a partial claim, and the money lands in three working days through the auto-settlement route the EPFO has been widening. She is quietly impressed. Then she reads the rules. Under the EPF Scheme, 2026, at least a quarter of the balance must stay locked, and the full balance opens only after 12 months of unemployment.

So, she does something the system has never trained her to do…she looks for the other door. Where is the unemployment allowance that 14 years of taxes should have bought? She searches government portals, a labour ministry page, a helpline menu. The answer, beyond a few narrow schemes for some insured workers, is that there is none. India has no general unemployment benefit.

Meera sits very still. The portal has not failed her. For once, it worked. What surprises her is the design: a state that is brisk when collecting, and brisk again when it tells her to live off her own savings.

The ledger she has paid into

India’s tax machine is not small. In FY 2025-26, gross GST collections reached Rs 22.27 lakh crore, up 8.3 percent, and net direct taxes reached Rs 23.40 lakh crore, up 5.12 percent, though below the government’s own revised estimate of Rs 24.21 lakh crore. Net of refunds, GST and direct taxes together came to more than Rs 42 lakh crore. GST is shared between the Centre and the states, so this is the national tax pool, not the Union Government’s alone.

But only a narrow band feels income tax directly. About 8.80 crore returns were filed for assessment year 2025-26, and government data for the previous year showed that roughly two thirds of filers, 55.8 million of 84 million, owed no tax. In FY 2023-24, only 6.68 percent of the population filed a return at all. Meera belongs to a small club: people who pay tax visibly, on a salary slip. Everyone else pays invisibly, inside the price of soap and fuel.

That small club also has the least bargaining power. It is too small to swing elections and too visible to escape. And when it files, it waits: the Finance Ministry told Parliament that 24.64 lakh returns for that same year were still pending beyond 90 days as of February 2026.

Is India over-taxed? Mostly no

The honest first answer is uncomfortable for both sides of the debate. By the usual measure, India does not over-tax its economy. The Centre’s gross tax revenue is budgeted at 11.2 percent of GDP for 2026-27, and Centre and states together come to roughly 18 percent. The OECD’s latest regional averages put Africa at 16.1 percent, Asia and the Pacific at 19.6, Latin America and the Caribbean at 21.3, and the OECD itself at 33.9. India sits in the middle of the Global South pack and far below the rich world.

So, the Indian taxpayer’s complaint is not that the state takes too large a share of the economy. It is about three other things: who carries the load, what the load buys, and which tier of government gets to spend it.

A state capacity economist would add that low revenue is itself the problem, because unemployment insurance, clean cities and public health cannot be built on 18 percent. A libertarian would reply that a state which cannot keep a road intact on a Rs 70,000 crore city budget has not earned more revenue and should show returns first. Both are partly right. The gap between them is where policy should live.

What the Global South did with the same problem?

India’s dilemma, how to protect old age without trapping a worker in a crisis, is not unique. Three large Global South economies have answered it differently, and each answer is more interesting than India’s.

Brazil’s FGTS is paid by the employer on top of salary, not deducted from it, and a dismissal without cause triggers both access to the balance and a penalty payment by the employer. A separate unemployment insurance exists, but it is no paradise: a World Bank note found that in 2019 only 17.7 percent of Brazil’s 12.6 million unemployed received it, against an OECD average of 37 percent. Even so, the principle is clear. Losing a job triggers money.

South Africa chose a hybrid. Since 1 September 2024, one third of new retirement contributions flow into a savings pot that can be tapped once per tax year, with the other two thirds preserved for retirement. The pot was seeded with 10 percent of existing savings, up to R30,000. The early evidence is a warning: one actuary cautioned that members who empty the savings pot every year effectively cut their retirement savings by a third.

Malaysia went furthest. Since May 2024, 10 percent of contributions land in a flexible account withdrawable at any time for any purpose. The Prime Minister later reported that 4.63 million members had withdrawn RM14.79 billion from it. That is either proof that workers badly needed liquidity or proof that they will spend their future. Honest analysts say it is both.

Notice what India’s 2026 scheme is and is not. A 25 percent lock-in fits the Global South’s instinct to protect old age. What India lacks is the other half of the bargain: a flexible tier by design, and insurance against job loss. Savings are not insurance. Insurance pools risk across millions so that one person’s bad year is paid by many. A jobless worker drawing down her own provident fund is not being covered by anyone. She is being allowed to spend herself.

The third tier: where the tax meets the road

The most revealing comparison is not about pensions at all. According to the RBI’s report on municipal finances, municipal revenue and spending in India have stayed near 1 percent of GDP for over a decade, against about 7.4 percent in Brazil and 6 percent in South Africa. Property tax, the main local source, yields less than 0.5 percent of GDP. The RBI described Indian urban local bodies as among the weakest in the world in fiscal autonomy, with state governments controlling rates, exemptions and borrowing. Economists Vijay Kelkar and Ajay Shah have suggested that the Centre and states share one sixth of GST revenue with cities.

Meera lives that arithmetic. The GST she pays on a laptop goes to the Centre and the state. The city where she lives, with its broken footpaths and its water tanker economy, gets a sliver by permission, not by right.

The human cost is measurable. In 2023, potholes caused 5,840 road crashes and 2,161 deaths across India, 16 percent more deaths than in 2022, and 311 of them occurred in million-plus cities, according to the road transport ministry’s annual report. Total road deaths that year were 1,72,890. Mumbai is the telling exception: its civic body has a budget above Rs 70,000 crore, bigger than several states, and still logged 8,032 pothole complaints in ten weeks of the 2026 monsoon, even as it credits concretisation for lower repair spending. If India’s richest civic body struggles, the median municipality is not hard to picture.

This produces a quiet Global South phenomenon: the private substitute tax. Citizens pay the state, then pay again for what the state was meant to supply: the tanker, the inverter, the private school, the private hospital, the gated colony’s security guard. Economists call it exit. It is one reason the middle class feels taxed twice while the poor, who cannot exit, simply go without.

Five ways to read the same ledger

1. The state capacity view. Justice Holmes said taxes are what we pay for civilized society. On this reading, India’s problem is a revenue gap and a delivery gap: raise the ratio, build the institutions, and stop treating every tax as theft.

2. The classical liberal view. Adam Smith’s canons asked that a tax be certain, convenient to pay and cheap to collect. A claim form that takes eleven days and a portal that rejects a cheque image fail all three. Rule one is to make the state earn its revenue.

3. The federalist view. The Centre collects, the states spend, and the cities suffer. A country where the tier closest to the pothole has one percent of GDP, and Brazil’s has seven, has a plumbing problem, not a character problem.

4. The behavioural view. People under pressure spend the future. South Africa’s early data and the EPFO’s own finding that nearly half of members hold under Rs 20,000 at settlement support locks. The better design is to nudge, not to forbid: defaults, delays and caps, not a wall.

5. The political economy view. GST sits inside prices, so most payers do not feel it, and the visible income taxpayers are a small minority. Oxfam India has claimed that the poorest half bears about 64 percent of GST, a figure critic have disputed as mathematically implausible. Whatever the true split, the lesson stands: a tax that is invisible to the payer generates no political demand for service.

Credit where due

A fair account must record what has improved. The EPFO settled a record 8.31 crore claims in FY 2025-26, up from 6.01 crore a year earlier, and reported that 98.7 percent of claims in April 2026 were settled within 20 days. It has held the interest rate at 8.25 percent for a second year, across a membership of more than seven crore, and its corpus exceeded Rs 28.34 lakh crore in March 2025. Complaints fell sharply as auto-settlement widened.

India’s social protection coverage, in the ILO’s World Social Protection Report 2024-26, rose from 24.4 percent in 2021 to 48.8 percent in 2024, covering about 920 million people, helped by schemes such as the food grain programme and Ayushman Bharat. The labour ministry argues that this still undercounts, since the report counted only central schemes. But the same data has shadows: coverage is reported at 26 percent for women against 39 percent for men, and one summary of the ILO figures puts India’s social protection spending, excluding health, near 5 percent of GDP against a global average of 13 percent.

The conclusion is awkward for everyone. The administration has become faster. The architecture has not become fuller.

A Global South design for India

Complaint without a proposal is noise, so here are six, each borrowed from somewhere that has tried it.

1. A job-loss bridge. Create a contributory unemployment insurance layer, funded by a small, shared payroll contribution, that pays a fraction of wages for a fixed period. Brazil shows the principle and its leakage; South Africa and Malaysia show it can sit beside a retirement fund.

2. A flexible tier, with guardrails. Copy Malaysia’s idea of a small flexible account but add South Africa’s discipline of an annual cap. Workers get a door that opens when they need it, and the retirement pot stays mostly protected.

3. Fiscal autonomy for cities. Give municipalities a defined share of GST, as Kelkar and Shah suggested, tied to published service benchmarks. Let local bodies set property tax rates within a corridor, and publish a ward budget that residents can read.

4. Participatory budgeting. Porto Alegre in Brazil pioneered letting residents vote on a portion of the municipal budget. A pilot in a few Indian cities, with a pothole and water line item, would turn tax choice from a slogan into a ballot.

5. A taxpayer receipt and service guarantee. Attach a one page receipt to every return showing where each hundred rupees went. Pair it with a standard: PF claims in 72 hours, refunds with interest paid by the department at the rate a taxpayer pays on delay.

6. A return-on-tax index. Publish every year a national scorecard: claim settlement times, return processing times, pothole deaths, municipal revenue per citizen. What is measured and published tends to improve.

The case against

Critics would object, and not frivolously. Flexible access can drain retirement savings, as South Africa’s early data warn. A job-loss scheme costs money that must come from somewhere, in a country whose combined tax ratio is below the Global South’s upper half. Giving cities more power means more variation, and some will govern badly. And tax choice, taken too far, could starve unglamorous but essential spending. These are real trade-offs, not excuses. They argue for pilots, caps and measurement, not for the status quo.

Meera’s 4th month

Meera found a job in the fourth month. Her new employer will deduct twelve percent for the provident fund, and the GST will fall on her laptop again. She does not resent paying. What she resents is the silence on the other side of the ledger.

A system that asks you to carry it when you are strong, and tells you to carry yourself when you fall, is not a social contract. It is a subscription. And in a country that collects Rs 42 lakh crore a year, a citizen is entitled to ask what the policy covers?

Views of the author are personal and do not necessarily represent the website’s views.

Dr. Jaimine Vaishnav is a faculty of geopolitics and world economy and other liberal arts subjects, a researcher with publications in SCI and ABDC journals, and an author of 6 books specializing in informal economies, mass media, and street entrepreneurship. With over a decade of experience as an academic and options trader, he is keen on bridging the grassroots business practices with global economic thought. His work emphasizes resilience, innovation, and human action in everyday human life. He can be contacted on jaiminism@hotmail.co.in for further communication.

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