International Monetary Fund’s (IMF) first deputy managing director Gita Gopinath said that the global body prefers a progressive tax structure. In an interview, Gopinath, who is in India, said there should be better implementation of what’s there in terms of capital income taxes, property taxes can be encoded into the tax system properly.
“With wealth taxes, there are some additional complications. For example, for a lot of people, wealth is basically their home. There are implementation issues associated with it, but if you can get capital income tax, well, well done,” she told The Times of India.
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Taxation of wealth and inheritance has been tried in India before. In the 2015 budget, the wealth tax was eliminated due to the higher costs associated with its implementation compared to the benefits derived from it. In its place, the finance minister introduced a surcharge targeting the affluent population. This surcharge ranges from 2% to 12% and applies to individuals with incomes exceeding Rs.1 crore and companies earning Rs.10 crore or more annually.
Earlier this year just before the elections, the issue of inheritance tax embroiled into huge political controversy after former Chief of Indian Overseas Congress Sam Pitroda pitched for taxing the assets and properties that individuals inherit from their deceased ancestors.
A recent research paper co-authored by esteemed economist Thomas Piketty posited that India should consider implementing a 2% tax on net wealth surpassing Rs10 crore, alongside a 33% inheritance tax. The paper, titled ‘Proposals For a Wealth Tax Package to Tackle Extreme Inequalities in India,’ advocates for the introduction of wealth and inheritance taxes for individuals possessing net wealth over Rs 10 crore and estates valued above the same threshold.
These measures are recommended to address the escalating issue of inequality within the country by targeting the substantial accumulation of wealth among the wealthiest individuals and generating additional financial resources to facilitate essential investments in the social sector.
The paper, authored by economists associated with World Inequality Lab, Thomas Piketty (EHESS, Paris School of Economics), Nitin Kumar Bharti (New York University, Abu Dhabi), Lucas Chancel (Sciences Po, Harvard Kennedy School) and Anmol Somanchi (Paris School of Economics), noted that 0.04 per cent of population or 3.7 lakh adults can be brought under this tax net.
Political economist and author Gautam Sen cautioned against the implementation of a wealth tax in the country. He said such a tax implementation could drive India’s wealthiest individuals to relocate their businesses to tax-friendly destinations such as Dubai.
“The very rich, that is the Ambanis, the Adanis, the Mahindras, the Tatas, and I presume not more than 500 or less of the very rich, the billionaire class, they will emigrate from India to Dubai. Most Indian millionaires who have been leaving the country have gone to Dubai, 70 per cent in fact, because Dubai has no income tax. And they will re-register their businesses in UAE, which means India will only be able to collect corporate taxes from them because their business will remain in India,” Sen said.
The Centre imposes a wealth tax on individuals and companies at a flat rate based on the value of their assets such as land, buildings, and cars. Some states also have the authority to levy such taxes. In India, the wealth tax targets individuals, Hindu Undivided Families (HUFs), and companies that exceed a specific wealth threshold. The primary aim of this tax is to mitigate wealth disparities among citizens.