Editor,
Rising inequality is the most pressing problem India is facing now. The French economist, Thomas Piketty and others observed, “The Billionaire Raj headed by India’s modern bourgeoisie is now more unequal than the British Raj headed by the colonialist forces.”
Remedial measures need to be taken without delay. But what is striking is that even a discussion for wealth distribution to cure inequality has become a dreaded topic.
When Sam Pitroda suggested inheritance tax, prevailing in welfare countries like the United States, as one of the ways to achieve much-needed wealth redistribution, the prime minister attacked it, saying that the mangalsutras of women and the home of common people would be robbed. Interestingly, no political party supported Pitroda’s views.
Inequality not only damages the concept of ‘government for the people’ but also hampers the development of human resources and the growth of the market as well. We know that modern welfare states rely more on direct taxes like income tax, property tax, inheritance tax, etc, to control inequality.
Thomas Piketty has aptly called progressive inheritance taxes the “second major fiscal innovation of the twentieth century” after progressive income taxes. Inheritance tax is 55 per cent in Japan, 50 per cent in South Korea, 45 per cent in France, 40 per cent in the USA and the UK, 34 per cent in Spain, 33 per cent in Ireland, and 30 per cent in Belgium and Germany. Those countries spend the money to ensure that every citizen gets quality healthcare and quality education.
Unfortunately, we follow an indirect tax regime in a country where rising inequality is a pain in the neck. In India, the poorest of the poor have to cough up substantial and the same amount of indirect tax as their creamy counterparts when they are to buy anything from salt to slippers and from food to medicine.
As a matter of fact, if we calculate the percentage of indirect tax payment on one’s total income, we will see that a poor man’s contribution to tax and tax-related expenditures is more than any rich person. This is because a poor person has to spend all his money to buy essential items and thus has to pay GST. A poor person’s contribution towards GST in proportion to her or his income is naturally higher than that of a rich person.
While direct taxes depend on the taxpayers’ ability to pay, indirect taxes are blind to the economic status of the taxpayers. In this way, indirect taxes hit the poor the hardest. Direct taxes are an equitable way to fill the State’s coffers. GST can only exist on luxury goods. But essential items from food to medicine should have zero tax.
Economists have prescribed restructuring the tax policies for both income and wealth, as well as a broad-based public investment in health, education and nutrition. They said that a “super-tax” of 2 per cent on the net wealth of the 167 wealthiest families in 2022-’23 would yield 0.5 per cent of the national income in revenues and create valuable fiscal space to facilitate such investments.
Contrary to the prescription to levy more tax on the super rich, write-off of huge amounts of bank loans has been done for some rich businessmen.
When there is zero inheritance tax in India, the super rich must at least pay a handsome percentage of income tax like their western counterparts. But the rate of income tax for those who earn in one financial year above Rs 5 crores has been reduced from 42.74 per cent to 39 per cent under the new tax regime from 1 April, 2023.
Sujit De,
5/11 Govt Housing Estate, Sodepur, Kolkata