S Murlidharan

The govt must think like Robin Hood

S Murlidharan | Updated on May 07, 2020 Published on May 08, 2020

Bring back levies such as the wealth tax and estate duty on the rich, to utilise for the welfare of the Covid-stricken poor


Normally, it is December that heralds the beginning of hectic parleys within chambers of commerce and other pressure groups, in the run up to the budget for the next year. But Covid-19 has thrown pell-mell all the budgets, the Centre’s as well as the States’.

Hardly had FY21 begun that the pandemic started holding finance ministers by the scruff of their collars, urging them to rethink their fiscal policies. Delhi Chief Minister Arvind Kejriwal has given a teaser of the things to come, albeit his immediate provocation was the milling crowds outside liquor shops. He has imposed a stiff 70 per cent ‘special corona fee’ on MRP of liquor. Vice goods have always been the favourite target of finance ministers globally. Kejriwal might have spoiled the mood, but his move is likely to gain momentum in coming days. No tears are shed when vice goods are taxed heavily.

The Narendra Modi government has to address the issue without further procrastination. Apart from on a tight list of vice goods, heightened tax on goods and services would prove to be counterproductive, as indirect taxes are by definition, regressive. If anything, petroleum products must be brought under the ambit of the GST, which would spell a 50 per cent reduction in petrol bunk prices. What’s needed is a focus on direct taxes, which lend themselves admirably to ‘Robin Hood’ taxation — tax the rich to help the poor through welfare policies.

The wealth tax, which was abolished in 2015, must be brought back, targeting all assets — without cherry picking, which was seen in the earlier regime, that whimsically taxed six so-called non-productive assets alone. With a generous exemption of ₹2 crore, mainly to protect a house from its sweep, the excess must be taxed at, say, 2 per cent. That would not only yield a cornucopia of revenue for the government but also foil income tax evasion, with the the assessing officer allowed to size up one’s income.

Likewise, estate duty, suspended animation since 1985, must be resuscitated, targeting comprehensively all the assets left behind by the deceased with a generous exemption on first ₹5 crore. The excess must be taxed at 10 per cent which is but a soft levy compared to many states in the US. A typical 50 per cent inheritance tax is what banded Warren Buffet, Bill Gates and other HNIs in the US to renounce their own wealth and urge others as well.

Finance Minister Nirmala Sitharaman did well to bring back the classical tax-the-shareholders policy into vogue through the Finance Act, 2020, insofar as dividend taxation was concerned. That would beget greater revenue for the government, with bulk of dividend taken by industrialists and other rich people. The regime of DDT got them off the hook, with a soft vicarious impost on the company. She needs to do more in a similar vein. At present, long-term capital gains from bourses are let off with a slap on the wrist — 10 per cent tax with an exemption of ₹1 lakh. This is but a kid-glove treatment for HNIs who are supposed to pay a super-rich tax of about 40 per cent on their other incomes. Former FM P Chidambaram, who ushered in the Securities Transactions Tax (STT), abolished LTCG tax on gains from bourses saying that the STT was enough. But on goods and services, both the GST and income tax are levied. Markets can easily bear both STT and a flat 15 per cent LTCG tax. Foreign investors are not going to vote with their feet so long as the after-tax yield on their investments is attractive.

Robin Hood taxation makes sense politically and economically. The Covid-singed poor are going to need greater hand-holding and protection for some time. Sitharaman should retain her dual tax rates unveiled in the Budget. That would take care of middle-class concerns.

The writer is a Chennai-based chartered accountant

Published on May 08, 2020

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