Finance minister P Chidambaram on Thursday gave further credence to the debate over whether the super-rich should pay slightly higher taxes by saying the proposal is worth looking at. Even as the minister sought to distance himself from the idea saying that “it is not his view”, he gave enough hints in an interview to a television channel that the matter is under serious consideration.
Official sources here told FE that a surcharge on income tax may be imposed in the Budget 2013-14 for people above a certain income threshold to be called “very rich”. Alternatively, the tax on dividend income may be hiked to the level other incomes are taxed, in cases where the amount is above a certain defined limit, impacting mainly promoters and other significant (large) shareholders, who clearly fall under the “very rich” category. A hike in the maximum marginal income tax rate — 30% at present — is a less favoured option, as this is the rate proposed in the Direct Taxes Code and a hike might not be in sync with the finance minister’s promise of a stable tax regime.
“I think we should have stability in tax rates but we should consider the argument that very rich should be asked to pay a little more on some occasions, but that is not the view I am expressing. That is simply the argument I have heard and I am repeating,” Chidambaram said. The minister added: “I believe in stable tax rates. However, I must concede that there is an argument, that when the economy requires, when the government requires more resources... the very rich should willingly pay a little more.” So, what the minister indicates is the argument for a transient regime of differential taxation for the extremely rich, given the economic slowdown and consequent decline in revenue growth.
Chidambaram's comments come against the backdrop of a global debate, from the US to France, about whether the very rich pay enough taxes and a group of economists suggesting slightly higher taxes for the “super-rich” in India in a pre-budget interaction with the finance minister on January 7. There is, however, an equally strong view that higher tax rates would reduce compliance and might not yield any net gain for the government. All industry chambers have vehemently denounced the proposal to increase tax on the super-rich while there have also been some voices from corporate India