Thursday, September 15, 2011


India should tax its rich more for the sake of the economy

In most of my columns, I intentionally bring in comparatives as it always helps to build perspectives. I have always believed that these contrasts and comparatives have so much to teach. So while a lesson or two on social upliftment and commitment to ones nation can be learnt from our western counterparts then it is just the reverse in India. This became more evident from the recent request of Warren Buffet to his government about taxing the rich Americans more than what they tax them now in order to keep their economy strong and sturdy. In an interview with ABC’s "This Week With Christiane Amanpour,” Billionaire Buffett told “But I think that people at the high end – people like myself – should be paying a lot more in taxes. We have it better than we’ve ever had it." He further favoured poor as he went on saying "If anything, taxes for the lower and middle class and maybe even the upper middle class should even probably be cut further." Similar requests were also made by the riches of Europe. This not only indicates how committed are these people towards their nation but also shows the amount of responsibility and ownership the upper strata feels towards the entire society.

On the contrary, the rich and the wealthy people in India scheme out means to dodge taxes in all possible manners. It needs no substantiation that the accountants employed by these companies are primarily given the task of reducing taxes by manipulating additional costs in their balance sheets. Thus a huge part of their income goes untaxed and gets deposited in various forms including overseas bank accounts. Even the salaries drawn by these corporate houses are designed in such a manner that only a fraction becomes taxable while a major sum gets adjusted in reimbursements and investments.

With a meagre 2.77 per cent of people in India filing Income Tax, the Direct Tax to GDP (Gross Domestic Product) ratio is languishing in pits. Currently, the Direct Tax to GDP ratio stands at 5.66 per cent while the total tax revenue as a per cent of GDP is merely 9.8 per cent (as per 2009 figures). Astonishingly, even this contribution is falling at a steady rate since 2006 when the tax revenue as per cent of GDP was 11 per cent. Contrast this to the tax revenue as per cent of GDP (for 2009) with that of UK which is 26 per cent while that of South Africa is more than 25 per cent. A back of the envelope calculation shows that the total combined wealth of India’s 100 richest is $300 billion (Rs.1,50,000 crore). So a 10 per cent flat tax would reap anything more than $30 billion (Rs.15,000 crore) – but this is only possible if these 100 richest people stop robbing taxes and above all disclose their real net worth. With inflation skyrocketing and fiscal deficit widening, taxing those who grew rich through corporate subsidy (read: at the cost of social development) in no point is inhumane or blatantly discriminatory.

No doubt that it is the society that should take care of its people and in this set up it is the well-offs who have to play their part in a bigger manner. It is when the rich would stop stealing the taxes and, on the contrary, pay more taxes, the nation as a whole would flourish. All in all, when a large part of the GDP is controlled by a few percentage of population, this percentage virtually becomes the guardian and the de facto government of the nation. If they are not forthcoming then the nation is at best doomed!


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