I saw this image on twitter, and understandably people are getting furious to see their states getting lesser share back on paying Rs. 100 in direct taxes.

direct taxes distribution

On surface level this looks shocking, and I think that was the intention behind it. But giving this even a minute of extra thought will show issues with the data as presented.

Firstly, the income at places like MH, KA is way higher than income at UP, Bihar, etc. So calculating how much taxes received for Rs 100 provided is going to give lower money, even with roughly equal distribution.

Second, MH, KA etc are places with formal economy, which is easier to tax, and is taxed correctly, unlike other states which run more on informal “cash” economy.

Third, it doesn’t take into account indirect taxes like GST (and I think corporate taxes too). When you account for them as well, the ratios get much better!

I found this PDF which shows how much were the net proceeds for states overall.

Here is the image:

taxes proceeds

You can see here that MH is getting 6.317% of all taxes collected, and UP is getting ~18%. Still egregious but not as drastic of a difference as the original image will make you believe.