Nearly a year back, newspapers reported a remarkable gesture from German taxpayers. They said: “We have enough to spare, tax us more”. To fight the Euro Zone crisis, the rich petitioned Chancellor Angela Merkel to raise taxes. Similar feelings were voiced by French taxpayers.

Very recently, there were discussions in the US at the time of annual budget-making that the rich should be taxed more. Finally higher taxes were imposed on persons with incomes over $4,00,000 ($4,50,000 in cases of joint returns). Sadly, the Indian rich failed to respond to such gestures. Rather, the approach is to get taxes reduced.

The cat was set among the pigeons when the Chairman of the Prime Minister’s Economic Advisory Council , C. Rangarajan, said that the Government should consider imposing a marginal tax rate higher than the current 30 per cent on those with ‘substantially higher income’.

The Indian super-rich registered their protests to such a suggestion in their pre-Budget meeting with the Finance Minister. Some said it would halt economic development of the country and some considered the suggestion unfair.

The Chairperson of FICCI felt that any such increase would lead to flight of capital to neighbouring countries like Singapore and tax havens. Adverse comments to such a proposal keep appearing in the media.

AZIM PREMJI’S VIEWS

Unfortunately, the Finance Minister does not seem to have any firm view on this issue. On one occasion, he said that extra tax on super-rich could be in the form of a ‘surcharge’. At a global investors’ meet in Hong Kong, he is reported to have said that there would be no hike in taxes, and the tax regime would be stable. In a more recent statement, reported in the press, he seems to have liked the idea that the rich should pay more, but felt that such a scheme should be of short duration.

In this context, the statement of Azim Premji, Chairman, Wipro Limited, that there is merit in the idea of having a higher marginal tax rate for the ‘very wealthy’, comes as a breath of fresh air.

He said that one would need to to be fair in a country with this kind of poverty and expressed the view that the rich people were bringing such taxes upon themselves with their conspicuous consumption, which had reached a level of ‘absurdity’. Why cannot other wealthy Indians be so pragmatic and open-minded?

Premji’s statement echoes the feelings of billionaire Warren Buffet; Buffett suggested to the US Congress that they levy higher taxes on the “nation’s wealthiest individuals to cut the US budget deficit”. He said that tax rate should be raised on dividends and capital gains.

According to Buffet, such an increase in taxes is not destructive of growth and development. He said that the notion that high taxes discourage hiring and investment was false.

Referring to his experience of working with investors for 60 years, he said that he had not come across one individual – not even when capital gain tax rates were 39.9 per cent in 1976-77 – shying away from a sensible investment because of the tax rate on potential gain. According to him, for people who invest to make money, potential taxes have never scared them away.

ISSUES BEFORE BUDGET

It is time that the well-to-do rise above self-enrichment and share their affluence with the teeming millions in the country.

President Pranab Mukherjee, in his pre-Republic Day address to the nation, in the context of Naxalite problem, observed that ‘results of our policies should be seen in our villages, farms and factories, schools and hospitals’.

This is not possible if a small section of population, with enormous income and wealth, do not part with a portion of it for the benefit of poor. Hence, the issue of taxing the rich more needs immediate attention in the coming Budget. The issues, that need to be sorted out, are:-

To determine the cut-off income beyond which an individual could be classified as super-rich.

The rate of tax over the cut-off limit.

Whether inheritance tax (estate duty) should be re-introduced.

How Wealth Tax Act can be revamped to prevent concentration of wealth in fewer hands.

How super-rich agriculturists can be brought under the income-tax and wealth-tax net.

In the coming budget, decisions on (i) & (ii) can be taken. For the remaining, a White Paper can be floated for public discussion and the views expressed can be taken up at the time of finalisation of the Direct Taxes Code.

And finally, the solution to the first two issues cannot be a ‘surcharge’ (as is being contemplated by the Finance Minister), which is a short-term measure for tiding over unexpected contingencies. Further, doing so would be unfair to States because ‘surcharge receipts’ are not divisible.

Hence, solution to the issues at (i) & (ii) above lies in the adjustments of tax brackets and a higher rate over the cut-off limit.

(The author is former Chairman, CBDT.)

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