The Hindu Business Line : Wealth tax woes

The CBDT (Central Board of Direct Taxes) has gone on record bemoaning the stagnant wealth tax collections — Rs 145 crore is what the Revenue has garnered from this source in each one of the last seven years. Absolute figures are always misleading. And, hence, the CBDT has expressed its annoyance at this pittance in the context of the growing tribe of High Net worth Individuals (HNI) in this country.

Chelliah Committee

The Raja Chelliah Committee appointed by the Government in the 1990s to reform the direct taxes regime urged the Government to give the wealth-tax regime a quietus given the fact that neither of its two objectives — garnering revenue for the exchequer and its use as a tool in the hands of the income-tax officers to ferret out concealed income — has been fulfilled.

The lament of the CBDT that no significant revenue is flowing into the coffers of the Government from this source is, therefore, an old hat. Having suggested its abolition, the Committee ought not to have minced words. But unfortunately it did — it suggested an alternative regime of imposing wealth tax on select assets considered to be unproductive if at all the Government was for some reason reluctant to give up the system of wealth tax.

Politicians of all persuasions in this country love putting on the socialistic façade. Naturally, the government of the day instead of giving requiem to wealth tax, latched on to the alternative suggestion and imported the six so-called unproductive assets, also suggested by the Committee, into the wealth-tax regime.

Attenuated list

The six assets which attracted the ire of the Committee and, by extension, that of the government, were and still are: buildings, motorcars, jewellery-yachts-boats-aircrafts, urban land and cash in hand. The attenuated list of assets should convince everyone why the wealth-tax regime in India does not yield any significant revenue and is no great shakes. Shares do not figure in the list of assets.

And bulk of the Indian wealth — at least insofar as the wealth of the Fortune 500 vintage billionaires is concerned — is to be traced to the stock market. Yet it does not figure in the hit list. It is not for a moment suggested that it should. The point is when you exclude a significant item of asset, you can’t complain of wealth-tax evasion. All deposits kept in banks are similarly exempt.

While buildings do figure in the hit list, the generous exemptions and kid-glove valuation regime bail out bulk of the properties. All commercial properties are tax-free. So are residential properties let out at least for three hundred days during the relevant year. In addition, one can choose any one house belonging to him of his choice for complete exemption irrespective of its size.

The farcical nature of this unconditional exemption would be evident if one considers a person owning a lowly LIG flat and an industrialist owning a sprawling feet-aching bungalow — both are treated alike. And if a residential house still falls into the tax net, no sleep need be lost because its value is not the market value but a concessional value based on capitalisation of rent on March 31 of the year in which it was acquired, provided it was self-occupied for residential purposes throughout the year.

In other words, the phenomenal appreciation in property values registered in the last couple of years, simply cannot be captured into the tax computations in respect of those who were fortunate to acquire them long-long ago.

To be sure, their tribe is not small. In fact, sticking to the same valuation figure year after year in respect of such properties could well supply the answer to the paradox the CBDT is faced with — stagnant revenues.

The Government is thus guilty of missing the wood for the trees. At any rate it is barking up the wrong tree. With generous exemptions thrown in and a very short list, you don’t expect to garner huge amount by way of wealth tax.

If the Government genuinely feels that wealth should be taxed in addition to income, then it must end this farce. If it feels otherwise, it must give the extant regime a coup de grace. Shape up or ship out is a mantra that should apply as much to laws as it does to persons. And if indeed a fresh look is taken, the list of assets must be rationalised — pray why should paintings, artefacts, racehorses, etc., be excluded?

(The author is a Delhi-based chartered accountant.)

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