V. Raja
Warren Buffett set the “cat amongst the pigeons”, proposing a higher
rate of tax for the rich in the US, to boost revenues for the
debt-ridden government.
The Obama administration lapped it up.
True to the perception that “when the US sneezes, India catches cold”
the mandarins of North Block and some of our industrialists and
economists have stirred up a debate on the need to tax rich Indians.
DEFINE THE RICH
It is indeed a laudable suggestion built on the edifice of equality and
fairness — in a society with a wide gulf between the haves and
have-nots. However, the key issue that no one has addressed is the
definition of ‘rich’ in India.
The Income Tax Act has a glossary of definitions, including, but not
limited to, words such as “relatives”, “person”, but for some
inexplicable reasons “rich” is not defined. Sure, Wealth Tax has limits
beyond which individual wealth is taxed and that perhaps is the closest
we get to identify the “rich”. However, Wealth Tax is an insignificant
portion of the total tax collections in this country, and hence it has
not served any purpose in taxing the wealthy.
It is common knowledge that only about 32 million people pay taxes in a
country of 1,260 million. Further analysis shows that 63 per cent of the
tax revenue is contributed by those who pay taxes of more than Rs 10
lakh and this population is less than 1 per cent of the total tax payers
in the country. Are we therefore targeting this sub-1 per cent
population to increase revenues and punish them with further taxes, over
and above their current significant contributions?
Unfortunately, the Union Budget has once again taken the same path — by
imposing a 10 per cent surcharge on people whose taxable income is Rs 1
crore and above. But how many people in India really belong to this
category? The official number is 42,800! So by asking them 10 per cent
more, how much revenue are we generating? On the contrary, the real
number of people who earn in excess of Rs 1 crore in this country could
be 10 times more than the official number, if we take the sale of luxury
cars or smart homes into consideration.
Is there way to widen the tax base, by defining the “rich” and
addressing the current challenge of low tax revenues? There are not one,
but several options.
AFFLUENT FARMERS
Our farmers are poor and we often hear of the misery they undergo at the
hands of middlemen and landlords. Every political party is a champion
of their cause and vows to fight for their betterment.
We have seen loan melas year after year. However, a farmer with hundreds
of acres of land, earning millions through agriculture produce, does
not pay a single rupee as tax.
Don’t we need some clarity in our understanding of the word “rich” if we
are to tax them? Rural India’s affluence and purchasing power is
driving the consumption story and growth of multinational companies in
India. Yet, we are oblivious of the fact that this population is not
taxed, what with the word “farmers” being synonymous with “poor”.
A perquisite such as club membership or an interest-free loan to an
employee becomes taxable, irrespective of the amount. However, the
palatial bungalows of the bureaucracy and the political class, the free
travel they enjoy are all outside the definition of perquisite for tax
purposes. There is an urgent need to define ‘rich’ which can lay these
anomalies to rest.
SALARIED SCAPEGOATS
The paradox of how much tax a salaried individual pays vis-à-vis some of
our industrialists is also worth considering. A salaried class Indian
starts paying taxes at an earning of over Rs 2 lakh, while someone
earning in crores pays nothing in taxes, as dividend income is tax
exempt. Where is the principle of equity and natural justice here?
In a nation where billionaires are increasing in tandem with our
population, wealth tax hardly contributes to the exchequer. Gift tax has
been merrily used by the wealthy to legitimately transfer wealth and
earnings to extended family to avoid taxes. A multitude of deductions
and exemptions provided in the IT Act enable business houses to pay zero
or marginal taxes, despite hefty profits, even in the regime of MAT.
The salaried class has become the scapegoat for increased taxes, as
their taxes are deducted at source.
DIVIDEND INCOME
Indian stock markets are soaring and the price-to-earnings ratio is over
17. Transactions run into several thousand crore every day and
government encourages the participation of the aam aadmi by
charging an insignificant amount of transaction tax and a notional 15
per cent income tax for capital gains made within one year. Gains made
over more than one year are fully exempt to facilitate the culture of
investment in equity.
A good move but how do you differentiate the rich from the poor, to tax
the former? It is common belief that money makes money and those who can
invest and stay invested in this market can reap rich returns and pay
no taxes.
Well, that is the way our tax structure works and for a change we do not
ape the West here but create our own laws to suit a select few.
POLITICAL CLASS
Finally, as per recent data reported in newspapers, more than 60 per
cent of the members of Parliament have assets more than Rs 1 crore (in
historical cost and not on replacement value, which would be many times
more, especially on land and buildings).
They get allowances and benefits, most of which, if not all, is non-taxable. Are they not rich people who can be taxed?
Unless we know who is “rich”, deciding to tax them is like groping in
the dark. India needs to increase its tax revenues and the rich should
and can pay the additional taxes.
But let us ensure that there is equity and fairness in the principles of taxation.
(The author is President & Managing Director, TE Connectivity India)
No comments:
Post a Comment