The debate over efficient, effective, and equitable government spending frequently takes us into the realm of limited resources and competing demands. India must definitely broaden its revenue collection and base. In this context, it is critical to discuss the need for a wealth tax to be imposed now.
Why wealth needs to be taxed?
- Wealth accumulation: The most compelling reason stems from evidence of massive wealth accumulation in a few hands. A small group of people has access to a large proportion of economic assets and resources that are virtually untaxed and thus unavailable for public allocation.
- Wealth without effort: Wealth, much less income, has little to do with one’s education, merit, or efforts; it is largely dependent on inheritance and the opportunities that come with being a member of one of India’s privileged classes or castes.
- According to the World Inequality Database, 2022, the top 10% of India’s population owns 65% of the country’s wealth, while the bottom 10% own only 6%.
- Rich’s wealth doubled during pandemic: According to an Oxfam report, India’s richest doubled their wealth during the pandemic. This occurred for a variety of reasons, including vaccine profits and commodity and asset price movements.
- Wealth does not imply productive resources: However, despite grave financial and economic challenges, India lacks the capacity to convert any of its growing wealth into productive resources that can generate employment opportunities and raise the incomes of millions, thereby driving demand for goods, which is required to counteract an economic drag-down.
What is the government’s stance on the wealthy?
- Rich people know how to invest: It is common to hear that wealth should be left to the wealthy because they are the best at investing. This has not been demonstrated sufficiently, at least in India.
- Corporate tax reduced: In 2019-20, the government reduced the corporate tax rate from 30% to 22%, a trend that has continued despite the economic crises caused by the pandemic. This, however, did not elicit much private investment.
India’s Wealth Taxation History
- Wealth tax: Unlike the goods and services tax or value-added tax, wealth tax can take several forms, including property tax, inheritance or gift tax, and capital gains tax.
- Capital gains tax: Capital gains tax exists in India, but it only applies to transactions and thus has a limited base.
- India abolished estate duty in 1985 and now has no inheritance tax. Although the receipt of gifts is subject to income tax in the hands of the beneficiary, there are several exemptions; it is almost entirely exempt if received from within the family, including self and spouse’s extended family.
- Exemption leads to accumulation: These exemptions significantly reduce the base because most accumulated wealth is acquired through family, which is exempt from the gift tax. Some exemptions make sense given the cultural context of wealth inheritance, but upper thresholds can easily be added to make it more effective.
The current state of wealth taxation
- There is currently no wealth tax in India, which is a tax levied on one’s entire property in all forms.
- It did not impose a one-time solidarity tax’ on wealth in post-covid budgets, which could have generated resources for critical public investment.
- Developing-country example: A number of Latin American countries, including Argentina, Peru, and Bolivia, have either implemented or are planning to implement a progressive annual wealth tax levied on annual wealth gains or a one-time covid’ solidarity’ tax.
@the end
The idea of a wealth tax appears to be a good one on paper, but it may have a negative impact on domestic and foreign investment in the country. In India, the direct tax slab for the super rich is already among the highest in the world. Wealth taxation requires careful consideration before implementation.
Source: https://www.financialexpress.com/economy/report-suggests-wealth-tax-on-billionaires-gst-review/2949102/