A Virtuous Cycle: Less Tax > More Spend > More Manufacture

 

Budget 2026 – 

Towards a Virtuous Cycle of Growth through Personal Income Tax Abolition

Respected Smt. Nirmala Sitharaman ji,

The contrast between sluggish global manufacturing and India’s GST-driven revival

 powerfully reaffirms a principle I have long advocated:

“Less Tax → More Consumer Spend → More Manufacture → More Revenue”

Recent headlines illustrate this vividly:

• Bloomberg (03 Nov 2025) — U.S. factory activity shrinks for the 8th consecutive

 month amid weak demand.

• Economic Times (03 Nov 2025) — Indian manufacturing picks up sharply in

 October 2025, credited to GST relief and tech investments.

While my earlier proposals urged abolition / drastic reduction of Personal Income

 Tax to place higher disposable surplus in citizens’ hands, the recent GST cuts have

 empirically proven that a tax reduction stimulates demand. Different paths —

 same destination!

1. Recent Revenue Data (FY 2023-24 → 2024-25)

Tax Stream	FY 2023-24 (₹ lakh crore)	FY 2024-25 (₹ lakh crore)	Source
Personal Income Tax	11.4	12.9	CBDT / ClearTax 2025 report
Corporate Tax	11.1	12.4	CBDT / Budget documents
GST (total)	19.7	22.1	PIB press note 2025
GDP Growth (Real)	7.2 %	6.5 %	PIB Estimate 2025

Personal Income Tax thus contributes roughly ₹13 lakh crore (~2.8% of GDP),

 while combined GST and Corporate Tax yield ≈ ₹34 lakh crore (~7% of GDP).

2. Modelling the “Virtuous Cycle” Impact

If PIT were abolished, the immediate static revenue shortfall is ₹13 lakh crore. 

 But behavioural and macro-economic responses can offset this through higher

 consumption, manufacturing output, and corporate profits, yielding higher GST

 and CIT inflows.

Tax Stream	Baseline FY 2024-25	Scenario A (+25%)	Scenario B (+50%)	Additional Revenue
GST	₹22.08 L Cr	₹27.6 L Cr	₹33.1 L Cr	+₹5.5 → +₹11.0 L Cr
Corporate Tax	₹12.40 L Cr	₹14.9 L Cr	₹17.4 L Cr	+₹2.5 → +₹4.9 L Cr
Combined Increment	—	—	—	+₹8.0 → +₹15.9 L Cr

Interpretation:

Under a high-growth scenario (+40% average), the incremental GST + CIT

 revenue within 3 years can fully offset — and possibly exceed — the PIT abolition

 loss, creating a dynamic fiscal gain instead of a sacrifice.

3. Policy Advantages

• Demand Surge: 80 million taxpayers instantly receive disposable income boost → retail, housing & services boom.

• Corporate Profit Lift: Stronger sales volumes → higher CIT receipts without rate changes.

• Formalisation & Compliance: Digital spending increases GST transparency.

• Ease of Governance: Simplifies tax administration; saves collection costs ≈ ₹0.4 L Cr per year.

• Global Signal: India becomes the first major economy to replace coercive taxation with cooperative growth.

4. Recommendation for Budget 2026

In your forthcoming Budget Speech (Feb 26 2026), Madam, a single historic

 sentence could ignite India’s next growth cycle:

“This Government abolishes Personal Income Tax — to empower every Indian to

 spend, save, and stimulate growth.”

5. My Earlier Submissions

1. Biggest Problem with Zero Tax? (02 Oct 2017):

https://myblogepage.blogspot.com/2017/10/biggest-problem-with-zero-tax.html

2. How to Break the Vicious Circle? (03 Jul 2016):

https://myblogepage.blogspot.com/2016/07/how-to-break-vicious-circle.html

3. What Would Happen? (29 Sep 2017):

https://myblogepage.blogspot.com/2017/09/what-would-happen.html

4. How About Abolishing? (28 Dec 2024):

https://myblogepage.blogspot.com/2024/12/how-about-abolishing.html

Each reiterates the same economic truth: when citizens are trusted to spend, the

 nation prospers.

With respectful regards,

Hemen Parekh

www.HemenParekh.ai  |  www.IndiaAGI.ai

Mumbai | November 2025