The case for increasing the tax on the super-rich has to be seen in the context of the potential fiscal crisis the country finds itself in. At a time when the need to reduce the fiscal deficit is widely acknowledged, the issue is one of how much each section of society will contribute to this task.
The official effort to improve targeting of subsidies, including food subsidies, makes it clear that even those who are only marginally above the poverty line should be asked to pay more for their food.
When the poorest of the middle classes, if they can be called that, are contributing to the task of reducing the fiscal deficit, it is difficult not to ask the super-rich to do their bit. If the definition of super-rich and the rate of surcharge are done with care some of those paying the surcharge may not even notice the extra burden.
The argument against taxing the super-rich a little extra does, of course, have little to do with equality. It is presented instead as a matter of practical concern. If taxes on the super-rich are raised wouldn’t it encourage them to simply evade them?
The higher rates could then be more than offset by the increased evasion, leading to lower collections. While there may be an element of truth to this it is important not to overstate this factor.
We need to note that the relatively modest rates of taxation of the rich over the last decade and a half have not really led to a massive increase in tax payers. Income tax payers account for just about 3 per cent of India’s population. If lower tax rates have not attracted too many additional tax payers why should we assume that higher rates would drive the existing ones away? It may well be that those who pay taxes today have no way of evading it, and a surcharge on the super-rich is not going to change that.
(The author is Professor, National Institute of Advanced Studies, Bangalore.)