Taxing the Rich ..... and the poor

Well the idea of taxes has developed from the ancient times when kings used to collect taxes on the pretext of taking care of their kingdoms. When the rulers vowed for the welfare and concierge of their citizens.

Prior to seeking higher taxes from its citizens the Indian Government should consider doing its bit first. It should ensure that all the basic amenities are provided for and if not then there’s at least a plan for the same to be provided in future.

Merely by taxing people, rich or poor, and filling out the coffers on the pretext of reducing CAD (current account deficit) won’t solve the problem.

Well it appears to everyone all around the world that by merely increasing the taxes this entire problem of stagflation and higher CAD will get solved.

Here are some interesting quotes from prominent people in the business:

Azim Premji, chairman, Wirpo: “It sounds like the right thing to do politically, but I don't actually know if it will come up. The same thing has come up on estate duties. Most parts of the world have estate duties. Is it the right thing to do or not a right thing to do? In terms of taxing the super-rich, I think there is legitimacy in a country as poor as ours.”

Naina Lal Kidwai, country head-India and director Asia-Pacific, HSBC: “A higher rate of tax on the high-income group is uncalled for...it will discourage entrepreneurship. Additionally, the threshold for paying income tax at 30 per cent should be raised from Rs 10 lakh to Rs 20 lakh.”

Adi Godrej, president of CII and chairman of Godrej group: “We have said that any increase in taxes (on rich) will create a negative perception on investment and therefore should be avoided. Widening the tax net is the solution. I hope we don't do anything where perception is affected and I think increasing tax rates would not be very good for the country.”

C. Rangarajan, chairman, Prime Minister's Economic Advisory Committee: “One need not disturb the structure of income tax system as it is now. But add a surcharge for income above particular level. I believe as we go along, we need to raise more revenues and the people with larger incomes must be willing to contribute more.”

P. Chidambaram, Finance Minister: “We should consider the argument whether the very rich should be asked to pay a little more on some occasions.”

“It is good electoral politics but economically doesn't make sense," said Venugopal Dhoot, who controls the diversified Videocon Group and ranks 38th in Forbes' India rich list with a net worth of $1.5 billion.

Well it is staggering to know that out of 1.2 billion population that India has, only 35 million actually pay taxes! And of them only about 1.5 million declare annual earnings of more than 1 million rupees.

(Source: Ministry of Finance)

Agreeing with Adi Godrej I believe that India should focus more on compliance and increasing the tax net instead of raising taxes, either on rich or on poor. India must reasonably concentrate on plugging loopholes in tax collection rather than swelling the taxes.

Unlike what C. Rangarajan says, bringing back the surcharge will only add 15-20 billion rupees which is a drop in the ocean. Besides, if taxes are raised it’ll be still insignificant to the tax-to-GDP ratio, as a large portion of the wealth remains outside the mainstream system and is invested in real estate and gold or finds its way to tax havens.

Increasing tax will only lead to non-compliance! Think!