Rangarajan for higher taxes for super rich

Pitching for higher rates of taxes for super rich, Prime Minister's economic advisor C Rangarajan on Saturday said the forthcoming Budget could look at imposing surcharge on income above a threshold.

"One need not disturb the structure of income tax system as it is now. But add a surcharge for income above a particular level. I believe as we go along, we need to raise more revenues and the people with larger incomes must be willing to contribute more," he told reporters on the sidelines of Financial Inclusion Day seminar. His suggestion comes ahead of the Budget for 2013-14 for which Finance Minister P Chidambaram has started consultations with different interest groups.

India taxes income at three rates — 10 per cent, 20 per cent and 30 per cent. These rates were fixed in 1997 by then Finance Minister P Chidambaram. Interestingly, recently at a lecture to honour Raja Chelliah, Chidambaram had called for a debate on the need of inheritance tax in India, wondering if the country had paid enough attention to accumulation of wealth in the hands of a few.

Earlier this week, the US Congress voted for raising taxes on rich Americans, as part of resolutions of crisis over the so-called fiscal cliff. The US legislation raises taxes on individual earning more than $400,000 per year, and on couple earning more than $450,000.

The veteran economist, a former RBI governor, also stressed on fiscal discipline to promote growth.

“We need to bring down the fiscal deficit over the next few years. For this purpose, we need to act on expenditure and as well as revenue side. On the expenditure side, we must focus on how to prune the subsidies and reduce them as a proportion of GDP,” Rangarajan said.

He said, “We also need to focus on the revenue side and the tax-GDP ratio for central government as it is still nowhere near what it was in 2007-08.” On inflation, Rangarajan expressed hope that WPI will come down to seven per cent by March this year. Inflation had declined marginally to 7.24 per cent in November last year from 9.46 per cent in same month of the previous year.

Asked if the RBI would cut interest rate in its upcoming review of the monetary policy, he said, it would depend on the inflation number for December which is expected to be released later this month.

Last month, the RBI left key policy rates unchanged in its monetary policy review on concerns of inflation. The central bank left the short-term lending (repo) rate and the Cash Reserve Ratio (CRR) unchanged at 8 per cent and 4.25 per cent, respectively.