The Tax Divide: Salaried Workers, Small Vendors, and the Global Quest for Fairness

The Tax Divide: Salaried Workers, Small Vendors, and the Global Quest for Fairness

A Tale of Two Taxpayers

Priya, a software engineer in Bengaluru, wakes up to a paycheck already sliced by 30%, income tax, provident fund, and more. She works 9 to 5, her earnings tracked to the paisa, her taxes deducted before she even sees the money. Across town, Shankar, a vegetable vendor, sets up his stall at dawn. His income fluctuates with the seasons, and his UPI transactions, adopted for convenience, have landed him a ₹29 lakh tax notice despite selling GST-exempt produce. Priya grumbles on social media, “I’m taxed to the hilt, why not him?” Shankar, meanwhile, wonders why his honest trade is now a bureaucratic nightmare. Their stories, though different, are two sides of a global debate: who should pay taxes, why, and is the system fair?

“Why Only Us?”

Priya’s frustration echoes a sentiment shared by millions of salaried workers globally. In India, salaried employees face tax rates up to 30% (or 42% with surcharge for high earners), with deductions like TDS (Tax Deducted at Source) ensuring compliance is automatic. In 2023-24, India’s income tax revenue was ₹10.44 lakh crore ($125 billion USD), with salaried workers contributing a significant chunk, about 40% of direct taxes. In the US, the top marginal rate is 37%, plus state taxes, while in Sweden, it’s 57.1% for incomes above $70,000. Salaried workers feel trapped because their income is transparent, leaving no room for evasion. Salaried employees in developed countries perceive taxes as a burden when they see little direct benefit, like poor public services or infrastructure.

The cry of “Why not vendors?” stems from a perception of inequity. Small vendors, especially in informal economies like India’s (where 90% of employment is informal), often operate below tax thresholds or deal in cash, making their income less visible. “Salaried class pays more than its due share and gets almost nothing in return.”

In India, only 1.4 crore businesses are GST-registered out of 6 crore micro-enterprises, meaning many vendors slip through the tax net. Salaried workers see this as unfair, especially when they read about vendors like Shankar handling ₹1.63 crore in UPI transactions yet facing no tax until a notice hits.

The Small Vendor’s Struggle: Caught in the Digital Net

Shankar’s story flips the script. Small vendors, from street hawkers in India to market traders in Nigeria, often deal in low-margin goods, vegetables, snacks, or handicrafts. In India, fresh produce is GST-exempt, and businesses with turnovers below ₹40 lakh are not required to register. Yet, the shift to digital payments like UPI (which processed ₹20.64 lakh crore in India in 2024-25) has made their transactions traceable. Shankar’s ₹1.63 crore in UPI sales over four years triggered a ₹29 lakh tax notice, despite his profits being a fraction of that, likely ₹16-20 lakh at 10-12% margins. The Karnataka GST department’s crackdown on 14,000 traders shows how data analytics, while efficient, often misinterpret revenue as profit, burdening those least equipped to respond.

Why the Frustration? The Roots of Tax Resentment

Tax frustration isn’t just about rates, it’s about fairness, trust, and outcomes.

• Lack of Visible Benefits: In developing countries like India, where infrastructure or healthcare is below satisfactory, taxpayers feel their money vanishes into a black hole. Only 38% of Indians surveyed in 2024 felt taxes were used effectively, compared to 72% in Sweden.

• Perceived Inequity: Salaried workers see vendors as “getting away,” while vendors see tax notices as punishment for adopting technology. Both feel the system is stacked against them.

• Complexity and Compliance: Tax codes are daunting. In the US, taxpayers spend 6.5 billion hours annually on tax preparation. In India, small vendors face similar hurdles, with GST filings requiring digital literacy most lack.

• Psychological Contract: Feld and Frey’s theory suggests taxpayers expect a fair exchange, taxes for services. When governments fail to deliver, trust erodes, fueling resentment.

A Bengaluru vendor’s words sum it up: “We trusted UPI to make life easier, but now it’s like a spy in our pocket.” Salaried workers, “The government squeezes the salaried class because we’re easy targets.”

The Loophole Game: Who Wins, Who Pays?

Tax loopholes exacerbate this divide. Globally, multinational corporations are the biggest culprits. The OECD estimates that tax havens cost governments $100-240 billion annually in lost revenue, 4-10% of global corporate income tax. Apple, for instance, funneled profits through Irish subsidiaries, paying as little as 0.005% tax in some years. In the US, “pass-through” entities like S-corporations face rates as low as 8.8%, costing $100 billion.

Who pays for this? Salaried workers and small businesses. In India, large corporations exploit deductions under Section 80C or special economic zones, while salaried workers have fewer options. Small vendors, meanwhile, face scrutiny for transactions that corporations would write off. The 2021 OECD Two Pillars Solution aims to curb this with a 15% global minimum tax, but implementation is slow, and loopholes persist. The result? Ordinary taxpayers feel they’re footing the bill for the wealthy, as a US study noted: “Rich multinationals avoiding taxes means domestic firms and workers pay more.”

Tax Utilization: The Best and the Worst

The Best: Sweden, Singapore, Denmark

• Sweden: With a 57.1% top income tax rate, Sweden invests heavily in universal healthcare, education, and infrastructure. 72% of Swedes trust their tax system due to visible benefits like free healthcare and robust public transport.

• Singapore: Low personal tax rates (22% max) and a corporate rate of 17% fund efficient governance and world-class infrastructure. Singapore’s transparency, detailed budgets showing spending on housing, education, and ports, builds trust.

• Denmark: A 55.9% tax rate supports free education, healthcare, and unemployment benefits. Danes accept high taxes because they see returns, with 68% rating public services as “excellent”.

The Strugglers: India, Nigeria, Brazil

• India: Despite collecting ₹22.07 lakh crore in taxes in 2024-25, only 40% of citizens see tangible benefits. Poor infrastructure, underfunded healthcare (1.3% of GDP), and corruption (India ranks 93rd on the Corruption Perceptions Index) fueling distrust.

• Nigeria: Taxes fund just 6% of the budget, with oil revenues dominating. Poor service delivery, only 48% have access to electricity, makes taxpayers feel cheated.

• Brazil: High taxes (33% of GDP) are undermined by bureaucracy and inequality. A 2023 protest by street vendors highlighted harassment over small tax debts while corporations exploit loopholes.

Why the difference? Best performers invest in transparent, equitable systems with low corruption. Struggling nations face mismanagement, weak institutions, and elite capture of resources. In developing countries, “negative tax perceptions are rooted in the lack of apparent returns.”

Weighing Both Sides: Should Everyone Pay?

Why All Should Pay

• Equity: A fair system taxes all income sources proportionally. Salaried workers argue that vendors, especially those with high turnovers, should contribute to public goods like roads or schools. In India, the top 10% of earners pay 60% of income taxes, while informal sectors contribute less than 5%.

• Revenue Needs: Governments need funds to function. Tax revenues (33% of GDP on average) are critical for social programs. Excluding vendors creates gaps that burden salaried workers.

• Digital Accountability: Digital payments make evasion harder, leveling the playing field. Vendors making ₹50 lakh+ in UPI transactions should pay their share.

Why Some Shouldn’t

• Economic Reality: Small vendors often earn below taxable thresholds. Shankar’s ₹16-20 lakh profit over four years is modest, and taxing low-margin businesses risks driving them out. In India, 80% of micro-enterprises earn less than ₹10 lakh annually.

• Compliance Burden: Tax systems are complex. The Tax Complexity Index shows that small businesses spend 120-200 hours annually on compliance, costing 2-5% of revenue. For vendors, this is unsustainable.

• Social Impact: Informal sectors employ millions, 90% of India’s workforce. Over-taxing them could increase poverty or push them back to cash, stalling digital progress.

Viewpoints

• The Digital Trap: Digital payments, meant to empower, expose vendors to scrutiny without education. In India, UPI adoption grew 80% in 2024, but less than 20% of small vendors understand GST rules.

• Class Divide: Salaried workers’ frustration masks a class bias, viewing vendors as “lesser” contributors.

• Corporate Evasion: The real inequity lies with multinationals, not vendors. The Panama Papers revealed $1.3 trillion in offshore wealth, dwarfing small vendors’ contributions.

• Psychological Tax Contract: People tolerate taxes when they see value. In India, only 15% of tax revenue goes to healthcare, compared to 40% in Sweden, explaining the trust gap.

  
  

Question: What’s the biggest driver of tax frustration?

A) High tax rates

B) Lack of visible benefits from taxes

C) Complex tax codes

D) Corporate tax loopholes

Join TheBrink Premium for as low as $5/month.

Priya and Shankar aren’t enemies, they’re both caught in a system struggling to balance fairness and revenue. By understanding their stories, we can push for a world where taxes unite us, not divide us. Let’s make that future real.

-Chetan Desai for TheBrink2028