Letter to BS: India needs a predictable, stable, moderate rate of taxation

Finance Ministers proposal of taxing the rich might be sound in principle but fails on the grounds of fairness and equity

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Apropos the editorial “Taxing the super-rich” (July 9), Finance Minister Nirmala Sitharaman’s proposal to significantly increase the marginal tax rate for those earning more than Rs 2 crore may be sound in principle but fails on the grounds of fairness and equity. To begin with, Rs 2 crore per annum is too low a threshold in the present context, especially when our corporate sector has to attract talent at globally comparable salaries. Second, her target perhaps was the promoters of family-owned and managed enterprises. But the FM’s failure to distinguish them from the professionals has led to a situation that might encourage (a) the return of ‘white envelopes’ with huge amounts of cash and consequently, tax evasion and generation of black money and (b) more executives becoming NRIs. 

The hardest — and most unfairly — hit are the salaried CXOs earning decent packages related to their performance. Self-employed professionals wouldn’t worry because they, most of the time, take recourse to “showing” huge expenses by including every possible spend — house rent and maintenance, personal staff, travel, eating out et all — as official. Perhaps upping the withholding tax and some sort of ceiling on salaries of promoters would’ve been a better solution.

Of course — as you have so elegantly argued — a long-term solution lies in “a system where a large number of people pay a moderate rate of tax”. The present government has the desired majority to bite the bullet and bring agricultural income in the tax net. But will the government muster up the political will to take this unpopular step?

Krishan Kalra, Gurugram

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