Chidambaram: Bold idea
New Delhi, Jan. 24: Finance minister P. Chidambaram today hinted at considering raising the tax on the “very rich”.
In an interview to a TV channel, Chidambaram said “there is an argument… when the economy requires resources, the very rich could be asked to pay a little more”.
However, the finance minister was quick to add: “I believe in stable tax rates… that (the rich paying more) is not a view I am expressing. That is an argument that I have heard and I am repeating.”
Top finance ministry officials said they were looking at suggestions by economists that the super-rich should 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 20 lakh and above could be looked at,” officials said.
India has 3.24 crore taxpayers of which just 1.3 per cent, or only 4.6 lakh people, are in the Rs 20-lakh-plus per annum tax bracket.
However, they account for 63 per cent of the tax mop-up, paying around Rs 93,229 crore in the last fiscal. A 5 per cent surcharge can yield Rs 4,661 crore at last fiscal’s level of collections.
Globally, a rich person is one who is a dollar millionaire; in the Indian context this means an earning of more than Rs 50 lakh a year. A Capgemini & RBC report released last year showed India had a little more than 125,000 such dollar millionaires.
A surcharge is an additional levy on tax. So, a 5 per cent surcharge on the top bracket of 30 per cent will translate into a tax rate of 31.5 per cent. The government already levies a surcharge, called education cess, of 3 per cent on all taxpayers.
The direct tax code, which the government intends to bring in at some stage, does not mention any tax on the super-rich. In fact, it proposes the highest tax of 30 per cent on a much higher income slab than the current level of Rs 10 lakh and above.
Indian economists and philanthropists have joined their global peers in seeking the higher taxes.
IT czar and philanthropist Azim Premji had yesterday said at Davos that he favoured taxing the super-rich, “It sounds like a right thing to do politically… in terms of the super-rich, I think there is a legitimacy in a country as poor as ours.”
Last month, C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, too, had argued in favour of the surcharge.
The US has been toying with the idea of raising taxes for their super-rich. Billionaires such as Warren Buffet came out in support of the idea, arguing that they were in most cases paying a lower rate than their own employees because of exemptions on returns from financial investments.
France wants to bring in a 75 per cent tax rate for its super-rich, which has prompted French actor Gérard Depardieu to relocate to Russia.