Death and taxes are inevitable, goes the old saying, but that hasn’t prevented rulers throughout history from trying to change the natural order of things on both fronts. While the pharaonic practice of embalming for eternity may have fallen into disuse, fiddling with the tax rates — the ultimate assertion of the State over the individual — continues to be a favourite with governments everywhere. Reforming taxes, of course, is a noble pursuit, and arguably the one form of government action which is likely to find popular support. But tax reform seldom goes the way most taxpayers expect it to — towards a more moderate tax regime. Take France, which pushed through a furiously opposed and highly controversial new rule which taxes the ‘super rich’ — defined as those with earnings of more than one million euros a year — at a staggering 75 per cent. This prompted France’s most internationally recognised personality, actor Gerard Depardieu, into taking Russian citizenship. France’s soccer clubs are also up in arms, what with several multi-million-euro stars in their ranks, whose taxes will now have to be paid by them.

But soaking the rich during tough times is not a French monopoly. India is no exception. There is clear evidence that a more moderate tax regime, coupled with sensible avenues for legal tax avoidance — such as exemptions on home loan payments by individuals — ensures greater compliance, with the tax-GDP ratio hitting a peak of 11.9 per cent in 2008-09. But that didn’t prevent Finance Minister P. Chidambaram from imposing a higher tax on incomes over Rs 1 crore. A proposed amendment to the Direct Taxes Code will see a new slab of 35 per cent tax on incomes of over Rs 10 crore.

The Finance Minister justified taxing the rich by pointing out that only 48,000 — out of India’s nearly 35 million taxpayers — declared income over Rs 1 crore. Only 1.7 million have a declared income of more than Rs 10 lakh. Nearly 89 per cent declare income under Rs 5 lakh. The numbers clearly show the scale of evasion, which is not going to be helped by even higher tax rates. The alternative reportedly being mulled by the BJP — of abolishing most taxes in favour of a flat banking transaction tax — is no solution either, since it will exclude an even larger percentage of the population — which has no bank transactions at all — and encourage rampant evasion and a cash economy. If the Centre — be it a Congress- or a BJP-led one — is serious about tax reform, it needs to focus on making life simpler for the salariat, which bears the bulk of the tax burden, crack down on evasion, and plug leakages and legal loopholes which allow the very rich to get off lightly. And bite the bullet on taxing agricultural income.

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