The Telegraph
Tuesday , January 8 , 2013
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Extra levy on rich on agenda

New Delhi, Jan. 7: The idea of taxing the super-rich seems to have arrived in India after sweeping the West.

Top finance ministry officials said they were seriously looking at C. Rangarajan’s suggestion that the super-rich pay a surcharge on the basic tax rate of 30 per cent. “We are looking at it … maybe something like a 5-10 per cent surcharge for people in the income bracket of Rs 50 lakh or perhaps Rs 1 crore and above could be looked at,” officials said.

A surcharge is a tax on the tax, which means a 5 per cent surcharge on the top bracket of 30 per cent will translate to an effective tax rate of 31.5 per cent. The government already levies a surcharge — called the education cess — of 3 per cent on all tax-payers. The direct taxes code, which the government intends to bring in at some stage, talks of doing away with surcharges and capping income tax at 30 per cent at a range far higher than the current Rs 10 lakh and above.

However, officials as well as economists who met finance minister P.Chidambaram as part of the pre-budget consultations, were unanimous that a new tax slab for the so-called super-rich should not be established as this would “be seen as retrograde” by tax payers and in the absence of better collection system backfire in the form of lower declarations.

Rangarajan had last week argued that surcharge was a good idea, saying “as we go along, we need to raise more revenues and the people with larger incomes must be willing to contribute more”. All over the world, the question of equity has been behind the move to tax the super-rich.

The US has been toying with the idea of raising taxes after billionaires such as Warren Buffet came out in support of the idea, arguing that the country’s super-rich were in most cases paying a lower rate than their own employees because of various exemptions on returns on financial investments.

France wants to bring in a 75 per cent rate of taxes, which has led to French actor Gérard Depardieu relocating to Russia. But one problem for India is how to define the super-rich. In France, people with income of over 1 million euros annually are dubbed the super-rich. In India conventionally, people with more than Rs 1 crore as annual income are considered super-rich.

Economists also advised the finance minister to bring in an inheritance tax for the rich. The direct taxes code has a chapter on wealth tax but is silent on the inheritance tax.

“Basically, we need to expand the tax base … the number of people who have declared income above Rs 10 lakh a year are just 1.4 million,” pointed out Rajiv Kumar, economist and former secretary-general of Ficci, who attended the meeting with the finance minister.

Economists, including Nitin Desai, Omkar Goswami, Bharat Ramaswamy, Ajit Ranade, Shekhar Shah and Rohini Somanathan, suggested setting up an asset management office especially to manage central government urban land in various metro, tier II and tier III cities. They also suggested incentives to boost small savings schemes, which have gone down 5 per cent over the years.