Such a tax is vital to the objective of reducing inequity but it is unlikely to yield significantly higher revenues.
Activist, National Alliance of People’s Movements
“The maximum wealth in the country is confined to a handful of people. And yet, a super-rich tax from these people would yield many times more than what indirect taxes now yield”
This year we have completed two decades of economic reforms. Even though there is growing unemployment, declining agricultural and industrial production, rising inflation, economic crisis and inequality as never before, a minority remains untouched by these problems. For this minority of affluent Indians, the country is on its way to double-digit growth and nothing else matters. In the past 20 years, a tiny minority has seen an explosion of choices of luxury and consumer goods, but the vast majority of the population – nearly 80 per cent – lives on less than Rs 20 a day.
While the first step should be to make states plan from the community level, the other important step required is an amiri rekha (affluence line) to replace the garibi rekha or poverty line. There should be a cut-off point for wealth acquisition after which point the wealthy should be taxed heavily at the rate of 12 per cent through a super-rich tax. All wealth should be considered public money of which the wealthy are merely trustees. So, a super-rich tax would reduce some of the inequity in society.
The system of direct taxation on income makes the Indian middle classes believe that they have a larger claim to the services the state provides but the fact remains that indirect taxes, which are paid by everyone, contribute the maximum. According to pro-people economists, the maximum wealth in the country is confined to a handful of people numbering up to 100,000 in a population of 1.2 billion. And yet, a super-rich tax from these people would yield many times more than what indirect taxes now yield. Also, indirect taxes raise prices and all other things being otherwise unchanged, they lower the real value of the earnings of non-payers. By raising inflationary pressures, these taxes have resulted in demands for subsidies in fertilisers, exports and foodgrains.
Only the rich benefit since they have to pay much less direct taxes.
The incomes of the top five per cent in the urban sector and one per cent in the rural sector, who would also be above the amiri rekha, need to be tapped through direct taxes. There is a need to move away from the present structure of a high share of indirect taxes in the tax revenue to a high share of direct taxes. Today, the collection from wealth tax is meagre and, in fact, has been stagnant over the years. There is also a need to revive property tax so that income from work rather than inheritance becomes more attractive. Hence, the property of those above the amiri rekha should be taxed and the direct and indirect tax burden on everyone else should be removed.
The need for a super-rich tax is underlined by the fact that 77 per cent of our ministers (59 out of 77) and more than 300 MPs are millionaires. The average value of a minister’s assets in the current ministry is Rs 10.6 crore. In 2009, the average asset value of a minister was Rs 7.3 crore. This is not a healthy sign for democracy. It means that Parliament has ceased to be representative of the people.
With the reductions in indirect taxes on basic goods, the cost of inputs into agriculture will decline and the lot of farmers will improve. Increased expenditure in social sectors will help enhance the living conditions of the majority of the population. Reduced speculative activities in real estate and lower land prices in rural and semi-urban areas would lead to enhanced access to housing for the less-privileged 80 per cent of the population. They would not be forced to live in squalor and illegality.
The exact modality of taxing the super-rich would be clear when the National Alliance of People’s Movements comes out with its alternative budget soon. We would have not only the super-rich tax but other measures to bridge the income disparity in the country. The vast gulf between minimum wages and maximum earnings in the country should narrow. That is the way forward for the well-being of the majority of the population in India.
As told to Sreelatha Menon
Tax Partner, Ernst & Young
“Individual taxpayers in India constitute a mere three per cent of our population.How much revenue can the government expect to extract from this minuscule proportion?”
In today’s environment of economic distress, “tax the rich” has become the slogan for many political leaders and policy makers. The UK has done it to some extent, the US is debating the issue and I am sure many other countries are following suit.
Listed below are some of the reasons a higher tax rate for the rich may not be effective if the end goal is revenue mobilisation on a large scale to bridge the fiscal deficit:
These views are personal
The Budget tried to please politicians, rating agencies and reformists, and let them all down - slightly