Nearly a year back, newspapers reported a remarkable gesture from German taxpayers. They said: “We have enough to spare, tax us more”. To fight the Euro Zone crisis, the rich petitioned Chancellor Angela Merkel to raise taxes. Similar feelings were voiced by French taxpayers.
Very recently, there were discussions in the US at the time of annual budget-making that the rich should be taxed more. Finally higher taxes were imposed on persons with incomes over $4,00,000 ($4,50,000 in cases of joint returns). Sadly, the Indian rich failed to respond to such gestures. Rather, the approach is to get taxes reduced.
The cat was set among the pigeons when the Chairman of the Prime Minister’s Economic Advisory Council , C. Rangarajan, said that the Government should consider imposing a marginal tax rate higher than the current 30 per cent on those with ‘substantially higher income’.
The Indian super-rich registered their protests to such a suggestion in their pre-Budget meeting with the Finance Minister. Some said it would halt economic development of the country and some considered the suggestion unfair.
The Chairperson of FICCI felt that any such increase would lead to flight of capital to neighbouring countries like Singapore and tax havens. Adverse comments to such a proposal keep appearing in the media.
AZIM PREMJI’S VIEWS
Unfortunately, the Finance Minister does not seem to have any firm view on this issue. On one occasion, he said that extra tax on super-rich could be in the form of a ‘surcharge’. At a global investors’ meet in Hong Kong, he is reported to have said that there would be no hike in taxes, and the tax regime would be stable. In a more recent statement, reported in the press, he seems to have liked the idea that the rich should pay more, but felt that such a scheme should be of short duration.
In this context, the statement of Azim Premji, Chairman, Wipro Limited, that there is merit in the idea of having a higher marginal tax rate for the ‘very wealthy’, comes as a breath of fresh air.
He said that one would need to to be fair in a country with this kind of poverty and expressed the view that the rich people were bringing such taxes upon themselves with their conspicuous consumption, which had reached a level of ‘absurdity’. Why cannot other wealthy Indians be so pragmatic and open-minded?
Premji’s statement echoes the feelings of billionaire Warren Buffet; Buffett suggested to the US Congress that they levy higher taxes on the “nation’s wealthiest individuals to cut the US budget deficit”. He said that tax rate should be raised on dividends and capital gains.
According to Buffet, such an increase in taxes is not destructive of growth and development. He said that the notion that high taxes discourage hiring and investment was false.
Referring to his experience of working with investors for 60 years, he said that he had not come across one individual – not even when capital gain tax rates were 39.9 per cent in 1976-77 – shying away from a sensible investment because of the tax rate on potential gain. According to him, for people who invest to make money, potential taxes have never scared them away.
ISSUES BEFORE BUDGET
It is time that the well-to-do rise above self-enrichment and share their affluence with the teeming millions in the country.
President Pranab Mukherjee, in his pre-Republic Day address to the nation, in the context of Naxalite problem, observed that ‘results of our policies should be seen in our villages, farms and factories, schools and hospitals’.
This is not possible if a small section of population, with enormous income and wealth, do not part with a portion of it for the benefit of poor. Hence, the issue of taxing the rich more needs immediate attention in the coming Budget. The issues, that need to be sorted out, are:-
To determine the cut-off income beyond which an individual could be classified as super-rich.
The rate of tax over the cut-off limit.
Whether inheritance tax (estate duty) should be re-introduced.
How Wealth Tax Act can be revamped to prevent concentration of wealth in fewer hands.
How super-rich agriculturists can be brought under the income-tax and wealth-tax net.
In the coming budget, decisions on (i) & (ii) can be taken. For the remaining, a White Paper can be floated for public discussion and the views expressed can be taken up at the time of finalisation of the Direct Taxes Code.
And finally, the solution to the first two issues cannot be a ‘surcharge’ (as is being contemplated by the Finance Minister), which is a short-term measure for tiding over unexpected contingencies. Further, doing so would be unfair to States because ‘surcharge receipts’ are not divisible.
Hence, solution to the issues at (i) & (ii) above lies in the adjustments of tax brackets and a higher rate over the cut-off limit.
(The author is former Chairman, CBDT.)
Keywords: super-rich, higher taxes, super-rich pay more tax, C. Rangarajan, income-tax, Budget 2013-14
Comments:
equity formation for investments important.
As usual- the reemergence of the socialist scumbag! With the disintergration of the Soviet Union, and the clear growth of newly liberalized former socialist states, we thought the blight of socialism was dead but obviously they just crawled under a rock waiting for today.
Instead of shrinking the size of the most corrupt & least effective sector- the public sector spending, they want to further burden the only part of the country that works (the private sector) to fund their profligacy!!
In other words you( Writer) are saying that one man can be sacrificed
for the common good. Right ?
Well, by the same logic why shouldn't the government take a single
kidney form you forcefully to give it to a kidney failure patients, you
can do well with single kidney, and why shouldn't the govt forcefully
take one eye from you and give it to a blind? By the same logic govt
can forcefully take them from your family and children also, right.
My argument seems to be outlandish, but it is the same logic that you
are using to tax the rich.
The economic problems that we are facing are not the creation of the so-called rich/super-rich. Taxing them is not going to help till the causes are removed. All this 'tax the rich' is going to be useless. Saying that the rich French volunteered to pay more taxes is a baseless statement created out of illusion. Fact is, it has come out of the thinking of socialistic school. Was it implemented? A big NO. Lot of opposition is there. The rich will simply move their money out of country. Or easier is there will be enough loopholes to get them tax breaks, of course for a fee.
First of all, I am not super-rich. But I still want to respond to this article.
If 'super-rich' of Europe and the US volunteered for a higher tax, it is because of the following reasons:
a) They are sure that their Governments would make use of the additional tax for the common good.
b) Their Governments would reciprocate their gesture by way of special amenities/privileges/incentives.
c) This would not become a 'head-ache' (hassels from IT dept., etc.)of life time for them.
Can any Indian hope for any of the above? Why then ask the 'super-rich' to pay more taxes? Do we want to rob Paul to pay Peter? Sorry! Govt. should find better means and should manage its finance better. Are politicians and bureaucrats listening?
Super rich can be taxed more provided govt effectively controls corruption, controls avoidable expenses, give away control from loss making undertakings.
Govt disposes of govt plots at throw away price even though fiscal deficit is high so of states,just to wipe of fiscal deficit sales off profit making govt undertakings thus by reducing asset structure.
Big scams have taken place under the nose ,ear ,mind of govt of
india & such scams are /were high lighted by cag,cvc, lok ayukta
after scams are highlighted , govt could not recover any amount from accused persons ,this amounts to govt is not bothered to recover loss of public money
Azim Premji has accepted the suggestion of Shri C.Rangarajan for a higher tax rate for the super rich.He has to be congratulated for setting a good example.By opting to be taxed reasonably high they are helping the country.It is better if they refuse subsidized fuel for their luxury cars and LPG refills at cheaper rates.
What is more important for India is to judiciously use taxes for country's poor and not lavishly as is being done viz. rising expenses on Rashtrapati Bhavan, Parliament and State Legislations, administrative offices of Government of India andStates, appointing plethora of commiitteess and commissions to investgate certain acts/frauds/crimes and putting their reports on shelves, allocating huge budget under the names of Nehru, Indira and Rajiv Gandgi social welfare schemes just to siphon out larger cake out of it, installing statues, presenting awards to foreign dignitaries in the name of Nehru, Indira and Rajive international events, establishing one super structure of National Advisory Committe above PMO, wasting huge sum [Rs.200 crore] on former President's foreign tours and several ministers in the orbit every day, huge amount on Special Protection Groups provided to VVIPs etc. Dr Amrit Patel
So does this mean taxing the Politicians? After all, with scam numbers in the Lakhs of Crores, the truly super-rich are the corrupt politicians!!
And given the level of corruption where do we think any additional taxes will go? The politicians & corrupt bureaucrats of course!
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