Taxing wealth — Has the time come for the super-rich to pay more taxes ?

— M. J. Akbar
in India Today, dated 10-1-2011

One of the high points of economic and fiscal reform in India
in the past two decades has been the progressive moderation of direct tax rates.
Thanks to this, the ratio of direct to indirect taxes has risen, a sign of
greater progressiveness and equity in India’s taxation system. Direct taxes are
not easily passed on, as indirect taxes tend to be, and so their incidence is
more directly on the individual or firm paying the tax. While this has been a
positive trend, the ratio of total tax revenues to national income has, in fact,
come down in recent years and remains below 12%. India has a very low tax/GDP
ratio by world standards. Apart from widespread tax evasion and avoidance, the
complete exemption of certain types of income from taxation, like agricultural
income, has made it that much more difficult for the tax authorities to capture
all taxable incomes.

The wealth of just 657 BS billionaires has been estimated to
be Rs.16 lakh crore. Taxing away just 0.1% of that would yield a revenue of
Rs.16,000 crore. A 10% long-term capital gains tax, with the securities
transactions tax dumped, and a death duty or inheritance tax can easily generate
another Rs.10,000 crore, netting a cool Rs.26,000 crore of additional direct tax
revenue, without hurting the middle class. Not only would this help Mr.
Mukherjee in his fiscal house-keeping but it would give his party a talking
point at a time when it is being accused of corruption and currying favour with
corporates. Some, including the stock market, would cry foul and the Government
must factor that negative response in. But many would cheer a Government dipping
into the deep pockets of the super-rich.