Tax on wealth and inheritance is a popular concept in Western countries with heavyweights such as Bill Gates backing the idea, it hasn’t gained much ground in India.
While tax on wealth and inheritance is a popular concept in Western countries with heavyweights such as Bill Gates backing the idea, it hasn’t gained much ground in India. However, a trio of wealth tax, inheritance tax and higher income tax could hold the key to solving India’s inequality issue, according to Amitabh Behar, Chief Executive Officer, Oxfam India. Oxfam International releases its annual report on inequality each year. India has performed poorly in this year’s report with 1% of India’s richest population having four times more wealth than 70% of the country’s poorest. The government can help the most underprivileged of its citizens by investing in them and keeping their needs in mind instead of just looking out for a handful of people, Amitabh Behar added. Edited excerpts of Amitabh Behar’s conversation with Shaleen Agarwal.
What is it that has led to such a wide gap between rich and poor? What is it that is not working in favour of/ against the poor of the country?
India’s story of rising inequality is as much about rising income and wealth gap as it is about inequality in non-income dimensions such as education, health, nutrition and opportunities. Moreover, our structures social identities (religion, caste, class, gender) promote discrimination and add to this crisis.
The policy choices of successive governments in building an economic system that values the interest of a few over the needs of the poor is responsible for the widening gap we see today. We continue to make policy decisions which shelter crony capitalism and make India one of the most unequal countries in the world. Corruption impacts inequality in different ways. As the most basic level, the poorest people are more likely to have to pay bribes. In India, Transparency International data shows that India’s ranking slid to 80 among a group of 180 countries.
Our government’s decisions to not invest significantly in human potential of this country is working against the poor. We have failed to create equal opportunities for children from poor and marginalized communities. They are unable to break the cycle of poverty and participate in the development of the country. It is horrifying that children from poor families in India are three times more likely to die before their first birthday than children from rich families. Girls belonging to rich families (top 20%) get on an average nine years of education, while girls from poor families (bottom 20%) get none at all. As a result, an ever-widening chasm is opening between the rich and the poor where the rich get richer and the poor poorer.
What government policies have indeed helped/ worked in favour of the poor/ raise income levels
All schemes and policies that work directly for poverty alleviation starting from—MNREGA to Janani Suraksha Yojna have a positive impact. While there could be leakages in their implementation, which surely must be addressed, they still help in reducing vulnerability. We must not get fascinated by a few schemes which are popularised by governments but look at a range of the schemes which are addressing different gaps in our society. Schemes like anganwadi center (AWC), spread across the country, deliver early education, health, and nutrition services as part of the country’s Integrated Child Development Services (ICDS).
Equally important are other laws like Right to Education Act and policies like access to free medicines. It is a composite whole that creates long-lasting impact and helps in bringing a generation out of the cycle of poverty or saving them from sliding into one.
Are you in favour of a wealth tax, as suggested by Abhijeet Banerjee, and also in the US by a few popular politicians? – Why/ Why not?
Yes. Both since wealth tax is equalizing and since it has the potential to increase domestic revenues for much needed investment. Wealth tax and inheritance tax are vital to prevent excessive concentrations of wealth and power in the hands of a few and to ensure greater equality of opportunity across generations by reducing the amount of wealth that can be handed down through families. Introducing wealth tax would send a powerful signal that governments want to use the tax system for redistribution. Taxing wealth can also boost economic growth by incentivising individuals to use assets productively. If holding wealth is exempted from tax, but earning an income is taxed, the wealthy have little incentive to use their capital productively.
Which is a better proposition — Wealth tax or Higher income tax on high incomes?
This is not an either or proposition. It is to tax wealth at fairer levels. There are advantages to introducing wealth tax, but it’s more difficult to assess wealth at present. Accordingly, while if one had to choose between the two at present, income tax would be easier to implement.
However, that had to be done, income from dividend and capital gains should be included in the wealth tax. Similarly, cess should be removed and integrated in Income Tax. The IMF’s Fiscal Monitor shows that raising taxes for higher earners is an effective way of reducing inequality without having any adverse impact on economic growth. The government must also re-introduce inheritance tax. Wealth held by billionaires in India arise from three major sources – inheritance, selfmade, and inherited and growing. Countries such as Chile and South Africa have raised taxes on corporations and wealthy individuals generating millions of dollars to invest in vital public services.