Isn’t a consumption tax like GST regressive, since the poor spend more of what they earn?

GST is a tax on what people spend, not on what they earn or save. And here the poor and the rich differ sharply: a poor household spends almost every rupee it earns, while a richer one saves a good slice of its income. So a larger share of a poor family’s income passes through the tax—and measured against income, GST takes a bigger share from the poor than from the rich. A tax that falls more heavily, in proportion, on those with less is called regressive; and on a single year’s figures, GST looks exactly that.

But that measure confuses the tax with what people do with their money. A rich household’s GST looks small next to its income only because it saves a large part of that income rather than spending it—and GST is paid only when money is spent, not when it is saved. But the rich are not spared indefinitely because saving only delays the tax. The tax will have to be paid when the money is eventually spent, by the saver or by whoever inherits it.

Informality bends the picture further: much of what the poorest buy is sold off the books, by sellers too small to be in the tax net, so it carries no GST at all—and the headline rate overstates what the poor really pay (see “Does informality change who really pays GST?”).

So GST looks regressive on a single year’s snapshot, but that snapshot is the wrong test. What matters is whether the tax-and-spending system is fair taken as a whole—not whether every piece of it is. A consumption tax like GST can sit inside a thoroughly progressive settlement, so long as the income tax and public spending do the real work of redistribution (see “If reduced GST rates don’t help the poor, what should we do instead?”).