Column : Taxing the rich and other fantasies

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Surjit S Bhalla : Jan 23 2013, 02:09 IST

There is noise (all puns intended) in the air about the fairness of the Indian personal tax system. And considerable appeals to morality and “sacrifice” and the Indian way about the need to tax the rich in India at a higher rate. Except for a surcharge of 3% on the top tax bracket, the tax rates in India have stayed constant at 10%, 20% and 30% for increasing income slabs—constant since Mr Chidambaram’s tax reform of 1997.

For the next budget 2013-14, there appears to be a welcome dedication to bring down the fiscal deficit by at least 0.5 percentage points from the present level of 5.3% of GDP. As is well known, the laudable goal of fiscal deficit reduction can be brought about by either reducing the share of expenditures in GDP or increasing the share of taxes. This dilemma and choice is quite obvious in the recent fiscal cliff debate in the US. Indeed, the concentration seems to be much more on reducing the share of expenditures. The debate on the personal income tax increase, recommended and/or being discussed, has to be seen in this context, i.e. yes, the fiscal deficit must be reduced, but it does not follow at all that any tax need be raised. Unless there is evidence in the context of fairness, morality or efficiency to do so, emotive appeals to “sacrifice” should be dispensed with.

As discussed in my previous article, “Blinded by tax revenue” (FE, January 13, 2013), the only data source that

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Vinay Shah | 23-Jan-2013Reply | Forward

The super-rich can lobby and adopt every trick in - and out of - the book to protect and promote their interests. They can hire intellectuals and professions to do so. The argument that first improve the tax administration for greater compliance before increasing tax on super-rich is flawed. Both these things can be done parallely. It is as ingenious and flawed as the argument of Amitabh Bachchan in Deewar "Jao pehele oos admika signature leke aao jisne mere hath pe yeh likha tha ki tera baap chor hai". The author who has not disclosed the conflict of interest while arguing against the hike in tax on super-rich should answer the simple question on what grounds -moral, equity, fiscal and nationalistc - it is justified that a person earning Rs. 20 lakh pays the same rate of tax as the rate at which Mukesh, Tata, Azim, Rakesh Jhunjhunwala pay the tax. Unfortunately for India professionals or intellectuals cannot come together to defend the interests of the middle and lower class by countering the campaign launched by the super-rich.