May 23, 2022
Good morning. In today’s either/view, we discuss whether India needs to tax the super-rich through a wealth tax to reduce income inequality. We also look at the shortage of specialist doctors in Punjab, among other news.
📰 FEATURE STORY
Wealth Tax – Should India Pursue It?
One of the striking contradictions of India is that it is now home to a record 166 billionaires, the highest only behind the USA and China. Yet, India is still widely categorised as a developing economy with high poverty levels. The apparent headline here is income inequality.
Is there a way to reduce this? Would a tax on the top 1% of India’s rich help? A wealth tax could be a way to ensure those at the top pay more than their fair share. But would this do any good? Wouldn’t it be better to ensure proper compliance with current tax regimes?
Last month, Forbes India stated that India added 26 new billionaires for 2021-22. Among them are Karthik Sharma, the founder of SRS Investment Management, and Falguni Nayar, whose beauty start-up Nykaa made a successful IPO debut. It was the year of blockbuster IPOs as well. The combined wealth of Indian billionaires grew by 26% to $750 billion.
The numbers are staggering, considering all this happened during a once-in-a-century pandemic that killed lakhs of people and left millions unemployed. A migrant crisis threw the livelihoods of many up in the air. While the WHO and the Centre debate on the death count, the economic toll will take some time to assess and get out of.
A recent Oxfam report on India’s inequality focused on the country’s governance structures that helped some to accumulate wealth. It mentioned there was no safety net for the rest of the population and highlighted the impact of the pandemic on the rich and the poor in India. Following this, there were who discussed the possibility of a wealth tax on the super-rich to reduce income inequality.
A wealth tax isn’t a new concept for India. The Wealth Tax Act of 1957 provided for levying a wealth tax on individuals or companies. The tax would be levied on the net wealth owned by a person or company on the valuation date, i.e., March 31. While presenting the Union Budget for 2016-17, the then Finance Minister Arun Jaitley abolished it. It was replaced by an additional 2% surcharge on those with a taxable income of over ₹1 crore annually.
Revenue from wealth tax depends on the presence of net wealth and wealth inequality in a country. Many proposals include tax brackets where a certain portion of an individual’s wealth is taxed at a given rate. Anything beyond that is taxed at a different rate. How much revenue a country earns from a wealth tax varies. Switzerland, for example, earns 0.98% of its GDP from it.
Abroad, countries like Spain, Norway, Switzerland, and Belgium, to name a few, have some form of a wealth tax. More often than not, liberal politicians have proposed imposing a wealth tax. In Germany, the Social Democratic Party called for a nationwide wealth tax in 2019. The proposal was for wealthy households to pay an extra income between 1% and 1.5%. For example, a single household would pay 1% of their net worth on every euro surpassing 2 million Euros. However, the proposal was vetoed.
VIEW: It’s the need of the hour
The numbers tell the story. Not just of the economic cost of the pandemic but also for those who gained from it. The common moral argument is it’s only fair that the super-rich pays their share as they have more than enough money. There’s some public support for this. A Fight Inequality Alliance India (FIA India) survey showed that 80% of Indians across 24 states support a “Covid surcharge” on those earning more than ₹2 crores.
Between March 2020 and November 2021, India’s billionaires raked in more than $300 billion. Contrast that with India’s unemployment crisis as the second wave alone left 10 million people without work, and 97% of household incomes had declined since the pandemic began. According to FIA’s estimates, a progressive wealth tax could raise $78.3 billion. Here’s how – an annual 2% wealth tax on income over $5 million and 3% on income over $50 million. A more progressive wealth tax could increase revenues to $122 billion, a game-changer for India’s fiscal and economic health.
Economist S Subramanian cited the IIFL Wealth Hurun India Rich List. It provides information on the net worth of all companies with a net worth of ₹1,000 crores or more. Its 2019 report listed 953 individuals in India with an average wealth of ₹5,278 crores. He put forward a flat marginal tax rate of 4% on those on the list. That would certainly raise a lot of revenue for the government.
While income inequality isn’t a new phenomenon, the pandemic has necessitated the discussion once again on a broader scale. Take Argentina, for example. In 2020, it passed a new wealth tax to help the government pay for medical supplies and economic relief. The government said it would help the economy collect up to $3.7 billion. Given the number of India’s super-rich, a tailored proposal for India would help matters.
COUNTERVIEW: It just wouldn’t work
No doubt there’s a lot of pressure for governments worldwide to reduce income inequality, especially since the pandemic began. There’s the threat of social unrest if governments fail to provide financial assistance in times like these. More often than not, while reducing income inequality is popular, there’s some contention on how to go about it. Other options like giving direct financial assistance and employment guarantee schemes exist.
Since we’re talking about a wealth tax, putting it into practice is easier said than done. It also might be the wrong approach. While India abolished the wealth tax, its implementation from the 1950s till 2016 didn’t do much for the economy. When Arun Jaitley talked about it during the 2015 budget, he said its total collection was only ₹1,008 crores for 2013-14.
India isn’t the only country to abolish the wealth tax. The 2018 OECD report showed member countries that levied wealth tax reduced to 4 in 2017 from 12 in 1990. The report also stated that net wealth taxes are more distortive and less equitable. Suppose there’s a wealth tax; it would be levied at the net level. Hence, people would resort to borrowing to reduce their tax liability. If you’re an investor holding safe investments, a wealth tax would be a burden.
A wealth tax is also an administrative hassle. Also, what’s the guarantee that taxpayers would report the accurate value of their assets? What about tax evasion? A wealth tax would only lead more people to look for loopholes and foreign safeguards. India would be served better with better compliance with existing tax laws.
What’s your opinion on this?
(Only subscribers can participate in polls)
a) A wealth tax would help India reduce income inequality.
b) A wealth tax would not help India reduce income inequality.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
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For the Left:
Quad Summit: Despite Western Pressure, India Will Be Able To Stand Its Ground In Tokyo
🇮🇳 STATE OF THE STATES
Shortage of specialist doctors (Punjab) – Rural Punjab is facing a shortage of doctors and health facilities. Health authorities in the state say there’s a shortage of specialists like surgeons, gynaecologists, and paediatricians. Per rural health statistics, 600 specialist doctors are required across 150 community health centres (CHCs) in the state. While more than 560 posts have been sanctioned, only 153 have been filled.
Why it matters: Per the norms, a CHC is required to have four medical specialists – surgeon, physician, obstetrician/gynaecologist, and paediatricians. Rural Punjab has more than 1.7 crore people. Estimates show that at least 590 health care centres are needed. Currently, there are only 422. Successive governments haven’t paid attention to this problem and the onus is now on the new AAP government.
Kerala Savari (Kerala) – The state government’s online auto-taxi service Kerala Savari will launch in the first week of June. The initiative from the Kerala Motor Transport Workers Welfare Fund (KMTWWF) Board is being implemented on a pilot basis in Thiruvananthapuram. There will be thorough background checks of drivers to ensure passenger safety. The drivers will be charged 8% of their revenue compared to private aggregators who charge 25%.
Why it matters: The project was supposed to launch last November but was delayed. Initially, the government said the initiative will cover five lakh taxis. Kochi, for example, already has cab aggregators like Ola and Uber. The introduction of Yatri added to the competition in the market. The Kochi Metropolitan Transport Authority (KMTA) introduced the Yatri app to bring all taxi services across the city under a single platform.
Dolphin safaris (Jharkhand) – The state government has proposed a dolphin safari across two lengths of the Ganga river in the Sahibganj district. The government hopes this will help improve eco-tourism and increase awareness of protecting the state’s and country’s aquatic wildlife. The state forest department has submitted its proposals to the Centre. This could become India’s second dolphin reserve, with the Vikramshila Gangetic Dolphin Sanctuary in Bihar being the first one.
Why it matters: The number of Ganges river dolphins has been steadily reducing due to poaching and irresponsible fishing. A study by the Wildlife Institute of India on the Ganga stretch in the state discovered 81 dolphins in the river. Some experts believe the actual number to be between 130 and 135. Given the size of the Ganga river, getting an accurate count has proven to be difficult.
Aadhaar for land project (Maharashtra) – Next month, the state will launch the Unique Land Parcel Identification Number project. Commonly known as Aadhaar for land, land areas in urban and rural pockets will be assigned an 11-digit number. It will help in surveying land and preventing fraud. Once implemented, more than 3.2 crore land parcels will have a unique number. More than 4000 crore numbers have been reserved for rural areas while for urban it’s 6,000.
Why it matters: In February, the state selected Pune as a pilot for the project. In her budget speech, Union Finance Minister Nirmala Sitharaman spoke of the benefits of this system and urged all states to adopt it. It would help make land acquisition easier for public projects, which is usually a cumbersome process.
Attracting investments (Meghalaya) – The state has attracted investment projects worth ₹56.36 crores in the 2020-21 financial year. During the same period, ₹10.58 crores worth of projects were completed. The data was released by the MSME Export Promotion Council and technology firm BillMart FinTech. Al Hek from the Council cited the food processing sector accounting for 10% of the agricultural produce, which he said needs expansion as it’s an untapped market.
Why it matters: The state is strategically located for trade with countries like Bangladesh, Bhutan, and Myanmar. The sectors gaining traction are horticulture, tourism, and mineral-based industries. Many years back, the state decided against allowing Foreign Direct Investment (FDI) in mining. The report from the Council and BillMart showed the state was successful in cultivating non-traditional crops like tea, oilseeds, nuts, and mushrooms.
🔢 KEY NUMBER
$83.57 billion – The amount of Foreign Direct Investment (FDI) into India for 2021-22. It’s the highest ever recorded compared to $81.97 billion for 2020-21.