Indira Gandhi

Gurcharan Das

Swatantra Party

Yashwantrao Chavan

sitting ducks

The super-rich will be paying more income tax this year than they have in a long time. The highest marginal rate of tax for those with taxable incomes of Rs 2 crore to Rs 5 crore will be 39%, whereas the same for those with taxable incomes of above Rs 5 crore will be 42.74%.The government has justified these higher taxes, like all governments do, on the principle of social equity. Those who earn more, need to pay more to fulfil their obligations towards the society.Let’s look at why this doesn’t make any sense. The theory of social equity was used byand her various finance ministers in the sixties and the seventies to drive up the highest marginal rate of income tax to 97.75%.In fact, in his book India Unbound,recounts a very interesting conversation that he had with Piloo Mody, a Member of Parliament from the erstwhile, about JRD Tata: “He is not wealthy. All the Tata shares are in trusts…. Whatever he inherited personally, he has also put that into a trust. In any case, he pays ninety-seven per cent of his earnings [as] income tax; then, he pays wealth tax, and this takes his tax rate to over one hundred per cent. His entire income goes in taxes, and he has to sell some assets each year to live on.”Of course, everyone was not as honest as Mr Tata was. People who made the kind of money that would have led to an income tax of 97.75% simply moved to dealing in cash. And that’s how the black money economy in India became as big as it did.As the then Finance Minister,, said in the budget speech he made introducing the budget for 1974-1975: “The [Direct Taxes Enquiry] Committee has expressed the view that [the] prevalence of high rates is the first and foremost reason for tax evasion, because this is what makes the evasion, in spite of attendant risks, profitable and attractive. The Committee has, accordingly, recommended that the maximum marginal rate of income tax, including surcharge, should be brought down from its present level of 97.75 per cent to 75 per cent.”High taxes were one reason why so much black money simply went into real estate and pushed prices so high that homes to live in, became simply unaffordable. The sector has been down in the dumps for close to seven to eight years and doesn’t show any signs of recovery, any time soon.If we look at data from the assessment year 2017-2018 (financial year 2016-2017) there were only 81,344 individuals who declared a gross total income of greater than Rs 1 crore. Dear reader, yes you read that right. In a country of 130 crore people, not even one lakh people declare a gross income of more than a crore. Of those declaring a gross income of above a crore, 41,457 or around 51%, belong to the salaried class.The salaried class are basicallywho can easily be taxed more. Taxing the salaried is an easy way for the government to earn more taxes, and which is primarily what is happening here. If we look at this from the point of view of social equity, the salaried are paying their fair share of income tax. At the same time, many non-salaried rich, aren’t. Social equity should be for everyone and not just the salaried.The aim should be to get more and more people into higher tax brackets. And that is not going to happen with the government increasing the highest rate of income tax to close to 43%. While, this might bring in a little more income tax during this year, it is going to hurt over a period of time, because it will negatively impact the expanding of the tax base, especially at the upper end. And that can’t be possibly good, either for the government or the economy.