Taxing the rich is an ethically correct step the cash-strapped government can resort to for generating revenue, especially at a time when it is scrambling for money to fund its schemes for the rural p
oor. We already have three tax brackets in India. One more tax bracket will only be a natural progression, given the rise in salaries and riches of the upper and upper middle income groups. However, for the initiative to be effective, the government will have to carefully define the rich. It would be better for it to keep the new higher income bracket above Rs 20 lakh. It has to be remembered that globally too taxing the rich has been the trend. The US, as part of its strategy to deal with the “fiscal cliff”, decided to increase tax on families with more than $450,000 per year income and capped the deductions permitted. India needs to do the same to emerge from its own fiscal cliff.
Taxing the rich or super rich who are already paying taxes is not the best way to raise more resources. It may satisfy a few jholawallas, but it is far better to find more rich people who currently do
n't pay tax rather than raise taxes for people who already pay a lot of taxes.
Taxing the super rich more (these would include all the Tatas, Birlas, Ambanis and Jhunjhunwalas) will skew the tax kitty further as the so-called “rich” will then be contributing over 70-75 percent of total income taxes – and it will be counter-productive. Currently, those earning more than Rs 20 lakh pay 63 percent of total personal taxes. The only sustainable tax system is one where taxes are collected from a wider base. It should not be more tax from fewer people, but less tax from more people. Hence, the only way to tax the rich or the super-rich is to find a way to earn taxes from those who are currently able to evade it. Half of India’s so-called rich may not be in the tax net, or are reporting far less income that they should be. Most of these people may be from the professional classes. Putting various databases of people holding assets and people paying taxes should yield clues on whom to tax.